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

Taxation theory practice amp law assignmentcase study 1

TAXATION, THEORY, PRACTICE & LAW ASSIGNMENT Case study 1: Capital Gains Tax Fred is a resident who signed a contract to sell his holiday home in the Blue Mountains in August last year. The sale was settled in February th ...

Taxation theory practice amp law assignment-case study 1

Taxation, Theory, Practice & Law Assignment- Case study 1: Capital Gains Tax Fred is a resident who signed a contract to sell his holiday home in the Blue Mountains in August last year. The sale was settled in February t ...

Case study 1 capital gains taxfred is a resident who signed

Case study 1: Capital Gains Tax Fred is a resident who signed a contract to sell his holiday home in the Blue Mountains in August last year. The sale was settled in February this year when Fred received $800,000 from the ...

Understanding taxes worksheetresources the united stated

Understanding Taxes Worksheet Resources: The United Stated Internal Revenue Service at www.IRS.gov Directions Use the links provided for each tax form to answer the corresponding questions in at least 50 words each. Unde ...

Question during the year inez recorded the following

Question: During the year, Inez recorded the following transactions involving capital assets. Gain on the sale of unimproved land (held as an investment for 3 years) Loss on the sale of a camper (purchased 2 years ago an ...

Taxation law assignment-question 1 hilary is a well-known

TAXATION LAW ASSIGNMENT- Question 1: Hilary is a well-known mountain climber. The Daily Terror newspaper offers her $10,000 for her life story, if she will write it. Without the assistance of a ghost writer, she writes a ...

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and technology for the retail sector in Melbourne. The business is structured as a discretionary trust with his co ...

Questionbob krause and his large family corporation have

Question: Bob Krause and his large family corporation have been longtime clients of your accounting firm. During the current year, Bob and his adult son, Tom, formed the BT Partnership to develop and sell vacation homes ...

In the following independent situations is the tax position

In the following independent situations, is the tax position of the taxpayer likely to change? Explain why or why not. a. John used to make casual purchases and sales of real estate as an investor. Currently, he does so ...

Q1 for each of the following situation select the response

Q1. For each of the following situation, select the response that best describes the treatment of the property as far as inclusion in Decedent's probate estate and/or gross estate. At his death, Decedent owned with his D ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate