Question 1 -
The TUV Partnership distributes the following property to Bracer in a distribution that liquidates Bracer's interest in the partnership. Assume that no Sec. 754 election is in effect. Bracer's basis in his partnership interest before the distribution is $69,000. The adjusted bases and FMVs of the distributed property to the partnership before the distribution are as follows:
|
Assets
|
Basis
|
FMV
|
|
Cash
|
$ 5,000
|
$ 5,000
|
|
Inventory
|
16,000
|
18,000
|
|
Capital Asset 1
|
20,000
|
30,000
|
|
Capital Asset 2
|
40,000
|
35,000
|
|
Total
|
81,000
|
88,000
|
Determine Bracer's basis in each distributed asset. Show computations for full credit.
Question 2 -
On December 31, Mike receives a $14,000 liquidating distribution from the AJT Partnership. On that date, Mike's basis in his limited partnership interest is $9,000 (which of course, includes his share of partnership liabilities). The other partners assume his $3,000 share of liabilities. Just prior to the distribution, the partnership has the following balance sheet. Mike is leaving the partnership but the partnership is continuing.
|
Assets
|
Basis
|
Fair Market Value
|
|
Cash
Accounts receivable
Inventory
Land
Total
|
$15,000
-0-
7,500
22,500
$45,000
|
$ 15,000
10,000
12,500
45,000
$82,500
|
|
Equities
|
Basis
|
Fair Market Value
|
|
Notes payable
Rory, Capital
Lynn, Capital
Mark, Capital
Total
|
$15,000
6,000
12,000
12,000
$45,000
|
$ 15,000
13,500
27,000
27,000
$82,500
|
What is the amount and character of the gain that Mike must recognize on the liquidating distribution?
Question 3 -
a. Smolder Corporation reports the following results:
Service income (not passive income) - $80,000
Dividend income - 60,000
Interest income - 120,000
Passive income-related expenses - 40,000
Other expenses - 100,000
At the end of the year, Smolder's Subchapter C E&P is $100,000. What is Smolder Corporation's excess net passive income and its excess net passive income tax for the year?
b. True Corporation elects S status effective for tax year 2010. As of January 1, 2010, True's assets were appraised as follows.
|
Adjusted Basis
|
Fair Market Value
|
|
Cash
Accounts receivable
Inventory (FIFO)
Investment in land
Building
Goodwill
|
$ 16,010
-0-
70,000
110,000
220,000
-0-
|
$ 16,010
55,400
90,000
195,000
275,000
93,000
|
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 2010, True collects $40,000 of the accounts receivable and sells 80% of the inventory for $99,000.
ii. In 2011, True sells the land held for investment for $203,000.
iii. In 2012, the building is sold for $270,000.
Question 4 -
Tiffany and Tonya organized Attractive Corporation 15 years ago and have each owned 50% of the corporation since its inception. In the current year, Attractive reports ordinary income/ taxable income of $ 40,000. Assume the business does not qualify for the U. S. production activities deduction. On April 30, Attractive distributes $ 200,000 cash to Tiffany and distributes land with a $ 200,000 FMV and a $ 140,000 adjusted basis to Tonya. Attractive had purchased the land as an investment two years ago. What are the tax implications to Attractive, Tiffany, and Tonya of the land distribution in each of the situations that follow?
a. Attractive was formed as a C corporation but made an S election three years after its formation. On January 1 of the current year, Tiffany's basis in his stock is $ 200,000, and Tonya's stock basis is $ 160,000. Attractive had the following earnings balances on January 1 of the current year: Accumulated Adjustments Account $ 250,000 Accumulated E& P 60,000.
b. Attractive was formed as a partnership and continues to operate in that form. On January 1 of the current year, Tiffany's basis in her partnership interest is $ 200,000, and Tonya's partnership basis is $ 160,000. The partnership has no liabilities and no unrecognized pre-contribution gains.
Question 5 -
Ireland Corporation, a calendar year taxpayer, has been an S corporation for several years. Conor and Caleb each own 50% of Ireland's stock. On September 1 of the current year (assume a non- leap year), Ireland issues additional common stock to Bologna Corporation for cash. Conor, Caleb, and Bologna each end up owning one- third of Ireland's stock. Ireland reports ordinary income of $ 250,000 and a short- term capital loss of $ 30,000 in the current year. Eighty percent of the ordinary income and all the capital loss accrue after Bologna purchases its stock. Ireland makes no distributions to its shareholders in the current year. What income and losses do Ireland, Bologna, Conor, and Caleb report as a result of the current year's activities? If there is more than one possible method, discuss both methods.