April 18, 2014

Homework Help: business income tax

Posted by zoran on Thursday, March 31, 2011 at 8:33pm.

Please can somebody help me with this before 10am on 04/02/11.

1. On January 1, Gull Corporation (a calendar year taxpayer) has accumulated E & P of $200,000. During the year, Gull incurs a net loss of $280,000 from operations that accrues ratably. On June 30, Gull distributes $120,000 to Sharon, its sole shareholder, who has a basis in her stock of $75,000. How much of the $120,000 is a dividend to Sharon?

a. $0

b. $60,000

c. $75,000

d. $120,000

e. None for the above.

2. Kingbird Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. That stock is held by Amata (550 shares) and Esteban (450 shares), who are unrelated individuals. Kingbird redeems 200 of Amata’s shares for $1,000 per share. Amata paid $300 per share for her Kingbird stock nine years ago. Which of the following statements is correct with respect to the stock redemption?

a. Amata has dividend income of $200,000.

b. Amata has a long-term capital gain of $140,000.

c. Amata’s basis in her remaining 350 shares is $60,000.

d. Kingbird reduces its E & P by $200,000

e. None of the above.

3. During the current year, Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338. Which of the following statements is incorrect with respect to the § 338 election?

a. Dove is treated as a new corporation as of the day following the qualified stock purchase date.

b. If Dove is liquidated, Goldfinch will have a basis in the assets received equal to Dove’s basis in the assets.

c. Goldfinch is treated as having bought all of Dove’s assets on the qualified stock purchase date.

d. Dove can recognize gain or loss as a result of the § 338 election.

e. None of the above.

4. Which of the following statements is correct with respect to the § 338 election?

a. The subsidiary corporation makes the § 338 election.

b. A qualified stock purchase occurs when a corporation acquires, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within a 18-month period.

c. The subsidiary corporation must be liquidated pursuant to the § 338 election.

d. For purposes of the qualified stock purchase requirement, subsidiary corporation stock acquired by any member of an affiliated group that includes the parent corporation is considered acquired by the parent.

e. None of the above.

5. The Harris consolidated group reports a net operating loss (NOL) for the year. The tax law works to:

a. Keep the consolidated group from benefiting when the election to consolidate is motivated chiefly by tax reduction strategies.

b. Disallow any carrybacks of NOL deductions.

c. Allow unused charitable contributions a 20-year carryforward.

d. All of the above statements describe effects of the consolidated return rules.


Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2010.

a. Increase

b. Decrease

c. No effect

6. Loss on sale between related parties in 2010.

7. Gain realized, but not recognized, in a like-kind exchange transaction in 2010.

8. Excess capital loss in year incurred.

Problem 1. Six years ago, Coastal Drillers, Inc., redeemed all of the stock owned directly by Jeremiah Cranston (6870 Vinton Court, Los Angeles, CA 90034). At the time of the redemption, Jeremiah and his immediate family members owned 100% of the stock of Coastal Drillers. Jeremiah satisfied all of the requirements of the family attribution waiver [under section code 302(c)(2)]; thus, the transaction qualified as a complete termination redemption and resulted in a significant long-term capital gain. Coastal Drillers' E & P at the time of the transaction exceeded the redemption proceeds. Treatment of the redemption proceeds as a dividend would have resulted in a $200,000 greater tax liability for Jeremiah. Now, six years later, Coastal Drillers has offered Jeremiah a consulting engagement. The consulting engagement would be for a one-year term, but options to renew could extend the contract to a total of five years. Assuming all options are exercised, Jeremiah would earn $150,000 under the contract. Based on the terms of the contract, Jeremiah would properly be classified as an independent contractor, not as an employee of Coastal Drillers. Jeremiah has contacted you regarding the effect, if any, of the proposed consulting engagement on the tax treatment of his earlier stock redemption. Prepare a letter to Jeremiah and a memo for the file documenting your conclusions.

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