Question 1:
Crew, an S corporation, has gross receipts of $190,000 and gross income of $170,000. Crew has AEP of $22,000 and normal income of $29,000. It has passive investment income of $100,000, with $40,000 of expenses directly related to the creation of passive investment income.
(I) what are the needs to elect S corporation status?
(II) Evaluate Crew's excess net passive income.
(III) Determine the passive investment income penalty tax.
Question 2:
Daniel and Jason are forming the JD Partnership. Jason contributes $300,000 cash, and Daniel contributes no depreciable property (adjusted basis of $80,000 and a reasonable market value of $330,000). The property is subject to a $30,000 liability, which is also transferred into the partnership, and is shared evenly by the partners for basis purposes. Daniel and Jason share in all partnership profits uniformly except for any pre-contribution gain, which must be given according to the statutory rules for built-in gain allocations.
(I) Evaluate the Daniel's adjusted tax basis for his partnership interest instantly after the partnership is formed?
(II) Determine the partnership's adjusted basis for the property contributed by Daniel?
(III) If the partnership sells the property contributed by Daniel for $360,000, how is the tax profit allocated between the partners?
Question 3:
In 2000, Paula and Mason acquired real estate for $900,000, with Mason furnishing $300,000 of the purchase price and Paula providing the balance. The title to the property was listed as "Paula and Mason, equal tenants in common." Mason died first in 2011, when the real estate was worth $3,000,000.
(I) Were there any tax consequences in 2000? Describe.
(II) How much, as to the real estate, is added in Mason's gross estate?
(III) As to parts I and II, would it make any difference whether Paula and Mason were brother and sister, or husband and wife?
Question 4:
The Harper Trust is needed to distribute $80,000 annually, split evenly between its two income beneficiaries, Ben and Amy. If trust income is not enough to pay these amounts, the trustee can invade corpus to the extent necessary. During the existing year, the trust has DNI of $50,000. Ben receives an additional $20,000 discretionary corpus distribution.
(I) How much of the $40,000 distributed to Amy is added in her gross income?
(II) How much of the $60,000 distributed to Ben is added in his gross income?
(III) How much of these distributions are first-tier or second-tier?
Question 5:
You are the director of a Washington, D.C., think tank focusing on economic and tax policy issues. You were currently contacted by staff of the Congressional Joint Committee on Taxation to weigh in on a number of issues presently under consideration by the committee. In particular, the committee asked you to reflect upon the subsequent proposed changes and/or issues.
(I)The committee has proposed phasing out the PAD for domestic corporations.
(II) The committee has measured separating the gift and estate tax systems from one unified system to two totally independent, separate systems.
(III) The committee is intrigued by the idea of remove the double taxation of corporate earnings. The members are, thus, unsure which level of taxation should be eliminated.
The committee would like for you to summarize your conclusions regarding the potential effects - both good and bad - of these potential changes. In formulating your answer, please show all of the possible economic and tax implications that you see arising from these transactions on all taxpayers.