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Stock in Random Corporation is owned equally by two individual shareholders. During the current year, Random reports the following results:

Income
Rentals: $200,000
Dividend (from a 25% owned domestic corporation): 30,000
Taxable interest: 15,000
Short-term capital gains: 3,000
Long-term capital gains: 17,000

Expenses related to rental income
Interest: $30,000
Depreciation: 32,000
Property taxes: 11,000
Other Sec. 162 expenses: 50,000

General and administrative expenses: 10,000
Dividend paid on June 30: 15,000

a. What is Random's gross income?
b. What is Random's ordinary gross income?
c. What is Random's adjusted income from rents?
d. What is Random's adjusted ordinary gross income?
e. What is Random's personal holding company income?
f. Is Random a PHC?
g. What is Random's regular taxable income and regular tax liability?
h. What is Random's undistributed PHC income (UPHCI) and PHC tax liability?
i. What measures can Random take before year-end to avoid the PHC tax? Alternatively, what can Random do after year-end but before the corporation files its tax return? If the corporation takes no action before or after filing its return, what remedy does it have after filing?
j. Assume that Random's income and expense items will be similar in future years unless management changes Random's asset mix. What changes can management make to reduce the corporation's PHC exposure in future years?
k If Random is a PHC, can it also be subject tot he accumulated earnings tax?

 

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