Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Taxation Expert

problem 1: X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share). No other stock is outstanding. Find out whether the securities describeed in the situations below are best characterized as debt or equity of X (support your answer with citations as essential).

a) X issues to the public for cash $1 million worth of “pure preferred” stock (nonvoting, nonparticipating, nonconvertible), callable in five years at par, paying a 12% cumulative dividend.

b) In return for a transfer of $1,250,000 cash, X issues an unsecured promissory note for $1,250,000 to Mr. Pang, a well-known local venture capitalist, payable in 6 years with interest keyed to X’s profitability. The note is subordinated to all other debt. X could not have borrowed this amount on these terms from a bank.

c) X issues to the public 1,000 notes for $1,000 each, maturing in 20 years, at which time the holder will be entitled to elect to receive either $600 cash or 50 shares of X common stock. Interest will be paid quarterly in an amount based on X’s common dividend, but not less than $60 per annum. The interest rate for nonconvertible unsubordinated debt in the market is 12%. The notes will be subordinated to all other debt.

problem 2: L has business assets worth $6,000,000, NOL carryovers of $1,000,000 expiring in 14 years, and NOL carryovers of $1,400,000 expiring in 15 years. 100% of L’s stock is worth $8,000,000. The long-term tax exempt rate is 5%. The current third party market interest rate is 6%. Commercial bank mortgage rates are 3%. 

a) What will the § 382 limitation be if an ownership change occurs with respect to L’s stock? Assuming sufficient taxable income, how long will it take to fully utilize the NOLs?

b) Same problems and facts as (a) above, except L has minimal assets and 100% of its stock is worth $2,000,000.

problem 3: A owns all of the stock of X with a basis of $200. A’s three sons own all of the stock of Y equally. X and Y each have 100 shares of common stock outstanding (worth $4 each) and E&P of $100, respectively. A sells one half of the X stock to Y for $200.

a) What is the amount and character of income or loss to A on this transaction?

No because it only applies to redemptions. 318 test IRC 302(a) does not qualify under family attribution.

b) Would your answer change if X, rather than A’s three sons, owned all of the stock of Y? Why or why not?

problem 4: All of the outstanding stock of X corporation is owned by Abby (30 shares, $30,000 basis), Bennett (30 shares, $30,000 basis), and Candice (40 shares, $40,000 basis), who are unrelated. X has an earnings and profits deficit for the current year of $10,000 and accumulated earnings and profits (excluding the current year deficit) of $220,000. X plans to completely liquidate in the current year.

a) What are the tax consequences to Abby if X distributes a piece of equipment used in X’s business with a fair market value of $25,000 to Abby in exchange for her stock as part of the complete liquidation of X. (Assume X will also make similar distributions to Bennett and Candice).

b) What are the tax consequences to X of the distribution to Abby? X’s basis in the equipment was $36,000. X bought the equipment new six years ago.

Taxation, Accounting

  • Category:- Taxation
  • Reference No.:- M96134

Have any Question? 


Related Questions in Taxation

Comprehensive tax projectplease review the financial

Comprehensive Tax Project Please review the Financial Statements and Supplemental Information for Exxon Mobil for 2015 provided below. Provide excerpts and related commentary for at least 12 different tax related items f ...

Corporate taxation please respond to the

"Corporate Taxation" Please respond to the following: • Analyze the significant rules concerning the manner in which corporations treat the dividends that they are paying. Based on your analysis, recommend at least two c ...

Assignemnt corporation tax returnrequiredbull using the

Assignemnt: CORPORATION TAX RETURN Required: • Using the information provided below, complete Salt Source Inc.'s (SSI) 2010 Form 1120S. Also complete Kim Bentley's Schedule K-1. • Form 4562 for depreciation is not requir ...

Assignment constructive dividends redemptions and related

Assignment: Constructive Dividends, Redemptions, and Related Party Losses Suppose you are a CPA hired to represent a client that is currently under examination by the IRS. The client is the president and 95% shareholder ...

Accounting taxa truefalse1 a distribution from a

Accounting Tax A.) True/False 1 A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P. 2 All distributions that are not dividends are a return of ca ...

Alice johnson social security number 222-23-3334 is a

Alice Johnson, Social Security number 222-23-3334, is a single taxpayer and is employed as a secretary by state University of FloridaShe has the following items pertaining to her income tax return for the current year: R ...

Accounting taxa1 organize an outline that lists the

Accounting TAX A 1. Organize an outline that lists the advantages and disadvantages of making a consolidated return election. Include at least five advantages and five disadvantages of making the election.?2. From a proc ...

1 the weighted-average cost of capital is the return the

1. The weighted-average cost of capital is the return the company needs to earn after tax in order to satisfy all its security holders. True False Question 2. Why is debt financing said to include a tax shield for the co ...

Tax memoentity formationyou are a cpa in private practice

Tax Memo:Entity Formation You are a CPA in private practice and a client of yours comes into your office and tells you he is starting a new business. He tells you that he will be starting a bungee jumping school. He says ...

Assignment federal taxescongress has asked you to evaluate

Assignment: Federal Taxes Congress has asked you to evaluate the individual tax brackets in the federal tax code and make several recommendations to improve the fairness of the tax brackets. Using the Internet and Straye ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro