$40.00 $25.00
Hunter has a recognized loss of $30,000; Warren has a recognized gain of $135,000. |
Samantha has no recognized gain. |
($55,000) |
not subject to the corporate income tax |
$0 |
$0 |
300 |
No gain is recognized by Francis in this reorganization. |
E & P is computed solely on a consolidated basis. |
The penalty rate is 20%. |
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1. (TCO 8) Blue Corporation elects S status effective for tax year 2011. As of January 1, 2011, Blue’s assets were appraised as follows.
In each of the following situations, calculate any built-in gains tax, assuming that the highest corporate tax rate is 35%. C corporation taxable income would have been $100,000. (I) During 2011, Blue collects $48,000 of the accounts receivable and sells 80% of the inventory for $99,000.
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2. (TCO 7) Chelsea owns a 25% capital and profits interest in the calendar-year CJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $170,000. On that date, she receives a proportionate nonliquidating distribution of the following assets.
(I) Calculate Chelsea’s recognized gain or loss on the distribution, if any.
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3. (TCO 9) Murray owns an insurance policy on the life of his father, Ethan. Upon Ethan’s death, the policy proceeds of $2,000,000 are paid to the designated beneficiary, Grace. What are the tax consequences resulting from Ethan’s death based on the following assumptions?(I) Grace is Murray’s daughter. (II) Grace is Murray’s wife. (III) What are the tax consequences if Murray dies first (i.e., predeceases both Grace and Ethan)? (Points : 30) |
4. (TCO 10) In 1985, Scott and Dana acquired land for $600,000, with Scott furnishing $200,000 and Dana $400,000 of the purchase price. Title to the property is listed as equal joint tenancy with right of survivorship. Scott died first in 2011, when the land was worth $3,000,000. What is Dana’s income tax basis in the property under each of the following assumptions?(I) Scott and Dana are brothers. (II) Scott and Dana are husband and wife. (III) Scott and Dana are husband and wife, and the land is community property. (Points : 30) |
5. (ALL TCOs) You are the director of a Washington, D.C., think tank focusing on tax and economic policy issues. You were recently (and informally) contacted by staff of the Congressional Joint Committee on Taxation to weigh in on a number of issues currently under consideration by the committee. In particular, the committee asked you to reflect upon the following proposed changes and/or issues:(I) The committee has proposed phasing out § 351 of the tax code. (II) The committee has considered separating the gift and estate tax systems from one unified system to two completely independent, separate systems. (III) The committee has considered eliminating the built-in gains tax for S corporations.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 discuss all of the possible tax and economic implications that you see arising from these transactions on all taxpayers. (Points : 30) |