Question 1. What happens to a subsidiary’s tax attributes (e.g., net operating loss, E & P, capital loss carryover) upon a 332 liquidation?
Question 2. The stock of Magenta Corporation is owned by Fuchsia Corporation (90%) and Marta (10%). Magenta is liquidated on September 2, 2011, pursuant to a plan of liquidation adopted earlier in the same year. In the liquidation, Magenta distributes various assets worth $1,620,000 (basis of $1,950,000) to Fuchsia (basis of $1.2 million in Magenta stock) and a parcel of land worth $180,000(basis of $165,000) to Marta (basis of $35,000 in Magenta stock). Assuming the § 338 election is not made, what are the tax consequences of the liquidation to Magenta, Fuchsia, and Marta?
Question 3. Tina and Rex plan to form the TR Partnership to acquire, own, and manage a certain rental real estate property. The financial information has been accumulated into an Offering Memorandum that is currently being brokered to investors (for a 6% commission). What types of costs is the partnership likely to incur, and how will those costs be treated?
Question 4. Jared and Chelsea form the equal JC Partnership. Jared contributes cash of $20,000 and land (fair market value of $80,000, adjusted basis of $65,000), and Chelsea contributes the assets of her sole proprietorship (value of $100,000, adjusted basis of $125,000). What are the tax consequences of the partnership formation to Jared, Chelsea, and JC Partnership?
Question 5. In 2011, Osprey Company had operating income of $320,000, operating expenses of $270,000, and a long-term capital gain of $20,000. How does Juanita, the sole owner of Osprey Company, report this information on her individual tax return under the following assumptions? a. Osprey Company is a proprietorship, and Juanita did not make any withdrawals from the business during the year. b. Osprey Company is a C corporation and pays no dividends during the year.
Question 6. In the current year, Azure Company has $500,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has a long-term capital gain of $50,000. Sasha has significant income from other sources and is in the 35% marginal tax bracket. Based on this information, determine the income tax consequences to Azure Company and to Sasha during the year for each of the following independent situations.
a. Azure is a C corporation and pays no dividends or salary to Sasha.
b. Azure is a C corporation and distributes $100,000 of dividends to Sasha.
c. Azure is a C corporation and pays $100,000 of salary to Sasha.
d. Azure is a sole proprietorship and Sasha withdraws $0. e. Azure is a sole proprietorship and Sasha withdraws $100,000.
Question 7. In the current year, Sandpiper Corporation (a C corporation) had operating income of $215,000 and operating expenses of $155,000. In addition, Sandpiper had a long-term capital gain of $12,000 and a short-term capital loss of $27,000. a. Compute Sandpiper’s taxable income and tax for the year. b. Assume the same facts except that Sandpiper’s long-term capital gain was $35,000. Compute Sandpiper’s taxable income and tax for the year.
Question 8. Tern Corporation produces and sells refrigerators for outdoor use (e.g., patios, porches, verandas). Its major manufacturing facility is in Georgia, but it also has a smaller plant in Nicaragua. Gross receipts for the current year are derived as follows: $8.2 million from Georgia and $2 million from Nicaragua. a. What is Tern’s DPGR for the current year? b. What if the gross receipts from the Nicaragua plant are only $400,000 (not $2 million)?
Question 9. Flicker Corporation, a calendar year taxpayer, manufactures yogurt that it wholesales to grocery stores and other food outlets. It also furniture through big box stores. It manufactures some of the furniture and imports some from unrelated foreign producers. For tax year 2011, Danping’s records reveal the following information:
Furniture Sold
Manufactured Imported
Gross receipts $2,600,000 $1,600,000
CGS 1,100,000 850,000
Danping also has selling and marketing expenses of $700,000 and administrative expenses of $300,000. Under the simplified deduction method, what is Danping’s:
a. DPGR? b. QPAI? c. DPAD?
Question 10. For 2011, Apple Corporation (a calendar year integrated oil company) had the following transactions:
Taxable income $4,000,000
Regular tax depreciation on realty in excess of ADS (placed in service in 1989) 1,700,000
Excess intangible drilling costs 500,000
Percentage depletion in excess of the property’s adjusted basis 700,000
Assume no ACE adjustment.
a. Determine Apple Corporation’s AMTI for 2011.
b. Determine the tentative minimum tax base.
c. Determine the tentative minimum tax.
d. What is the amount of the AMT?
Question 11. In each of the following independent situations, determine the tentative minimum tax (assume the companies are not in small corporation status):
AMTI (before the Exemption Amount)
Brant Corporation $170,000
Tern Corporation 190,000
Snipe Corporation 325,000