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Exam 12: Corporations: Organization,capital Structure,and Operating Rules

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Question 21

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Rita forms Finch Corporation by transferring land (basis of $125,000;fair market value of $750,000)which is subject to a mortgage of $375,000.Two weeks prior to incorporating Finch,Rita borrows $125,000 for personal purposes and gives the lender a second mortgage on the land.Finch Corporation issues stock worth $250,000 to Rita and assumes the two mortgages on the land.What are the tax consequences to Rita and to Finch Corporation?

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​Both §§ 357(b)and (c)are applicable.Bec...

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Question 22

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Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the year.White Corporation pays Orange a dividend of $60,000.What amount of dividends received deduction may Orange claim if it owns 45% of White stock (assuming Orange's dividends received deduction is not limited by its taxable income) ?

A) $27,000
B) $42,000
C) $48,000
D) $60,000
E) None of the above

F) B) and D)
G) A) and D)

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Question 23

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Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year.Bronze Corporation pays Copper a dividend of $150,000.What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income) ?

The transfer of an installment obligation in a transaction qualifying under § 351 is a disposition of the obligation that causes gain to be recognized by the transferor.

Thrush Corporation files Form 1120,which reports taxable income of $200,000.The corporation's tax is $56,250.

Ira,a calendar year taxpayer,purchases as an investment stock in Redbird Corporation on November 3,2014.On February 2,2015,Redbird Corporation is declared bankrupt,and Ira's stock becomes worthless.Presuming § 1244 (stock in a small business corporation)does not apply,Ira has a short-term capital loss for 2015.

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.

George transfers cash of $150,000 to Finch Corporation,a newly formed corporation,for 100% of the stock in Finch worth $80,000 and debt in the amount of $70,000,payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum.In the first year of operation,Finch has net taxable income of $40,000.If Finch pays George interest of $6,300 and $7,000 principal payment on the note:

In structuring the capitalization of a corporation,the tax law is neutral for the investor as to debt versus equity financing.

Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000) .Nicole,an accountant,agrees to contribute her services (worth $25,000) in organizing Indigo.The corporation's stock is distributed equally to Kevin and Nicole.As a result of these transfers:

Robin Corporation,a calendar year C corporation,had taxable income of $1.9 million,$1.2 million,and $900,000 for 2012,2013,and 2014,respectively.Robin has taxable income of $1.5 million for 2015.The minimum 2015 estimated tax installment payments for Robin are:

When incorporating her sole proprietorship,Samantha transfers all of its assets and liabilities.Included in the $30,000 of liabilities assumed by the corporation is $500 that relates to a personal expenditure.Under these circumstances,the entire $30,000 will be treated as boot.

Norma formed Hyacinth Enterprises,a proprietorship,in 2015.In its first year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2015?

The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor.

What is the rationale underlying the tax deferral treatment available under § 351?

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Employment taxes apply to all entity forms of operating a business.As a result,employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

A corporation must file a Federal income tax return even if it has no taxable income for the year.

Basis of appreciated property transferred minus boot received (including liabilities transferred)plus gain recognized equals basis of stock received in a § 351 transfer.

In determining whether § 357(c)applies,assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation.