Hunter has a recognized loss of $30,000; Warren has a recognized gain of $135,000.
Samantha has no recognized gain.
not subject to the corporate income tax
No gain is recognized by Francis in this reorganization.
E & P is computed solely on a consolidated basis.
The penalty rate is 20%.
|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.
|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.
|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)