Description of this paper

Taxation problems




Question;1)Built-in gains tax. Theta Corporation formed 15 years ago.;In its first year, it elected to use the cash method of accounting and adopted;a calendar year as its tax year. It made an S election on August 15 of last;year, effective for Theta?s current tax year. At the beginning of the current;year, Theta had assets with a $600,000 FMV and a $180,000 adjusted basis.;During the current year, Theta reports taxable income of $400,000.;a) In the current year, Theta collects all $200,000 of;accounts receivable outstanding on January 1 of the current year. The;receivables had a zero adjusted basis. -;b) On February 1, Theta sells automobile for $3,500. The;automobile had a $2,000 adjusted basis and a $3,000 FMV on January 1 of the;current year. Theta claimed $800 of MACRS depreciation on the automobile in the;current year.;c) On March 1, Theta sells land (a Sec. 1231 asset) that it;held three years in anticipation of building its own office building for a;$35,000 gain. The land had a $45,000 FMV and a $25,000 adjusted basis on;January 1 of the current year.;d) In the current year, Theta paid $125,000 of accounts;payable outstanding on January 1 of the current year. All the payables are;deductible expenses. What is the amount of theta?s built-in gains tax liability?;2) Mike and Nancy are equal;shareholders in MN Corporation, an S corporation. The corporation, Mike and;Nancy are calendar-year taxpayers. The corporation has been an S corporation;during its entire existence and thus has no accumulated E&P. The;Shareholders have no loans to the corporation. The corporation incurred the;following items in the current year;Sales;$300,000;Cost of goods sold 140,000 Dividends on corp. investments 10,000;Tax-exempt 3,000 Section 1245 gain (recapture);on 22,000;equiptment sale Section 1231 gain on equipt.;sale 12,000;Long-term capital gain on;stock sale 8,000;Long-term capital loss on;stock sale 7,000;Short-term capital loss;on stock sale 6,000 Depreciation;18,000;Salary to Nancy 20,000;Meals & entertainment;expenses 7,800;Interest expense on loans allocable;to;Business debt 32,000;Stock investments 6,400;Tax-exempt bonds 1,800;Principle payment on;business loan 9,000;Charitable contributions 2,000;Distributions to;shareholders 30,000;($15,000 ea.);a. Compute the S corporation's ordinary;income and separately stated items.;b. Then show Mikes's and Nancy's shares;of the items in part a.


Paper#42075 | Written in 18-Jul-2015

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