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1. Kim had the following transactions for 2006:
Salary: $48,000
Damage award (compensatory) for city bus accident: $18,000
Loss on sale of stock investment: $5,600
Loan from father to purchase auto: $14,000
Alimony paid to ex-wife: $8,000
What is Kim's AGI for 2006?

2. John forms a corporation and transfers property having a basis to him of $18,000 and a fair market value of $26,000 to the corporation for 1,000 shares of $10 par stock. One year later, Hal transfers property having a basis to him of $2,500 and a fair market value of $3,500 for 100 shares of the stock. Hal is not related to John. The corporation issued no other stock.
How much gain does John recognize on his exchange? What is the basis to John of his 1,000 shares?
b. What gain or loss is recognized by the corporation when it issues its shares to John? What is the basis to the corporation of the property it received from John?
c. How much gain does Hal recognize on his exchange? What is the basis to Hal of his 100 shares?

3. Shareholders in closely held C-corporations often pay themselves large salaries in order to avoid double taxation on corporate income.
Briefly describe the double taxation problem and how paying large salaries to owners avoids it.
b. Briefly discuss how the reasonable compensation issue applies to S-corporations.
c. Briefly discuss the IRS s position on reasonable compensation for owner-employees of closely held C-corporations.


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