ACC/455

CORPORATE TAXATION

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ACC 455 Week 1 Tax Position Paper
Write a 700- to 1,050-word paper that includes the following:
 What are the primary sources of tax law?
 What are the secondary sources of tax law?
 What is substantial authority?
 Describe the role of the courts and the Internal Revenue Service in interpreting
and applying the sources of tax law

Format your paper consistent with APA guidelines.

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.

ACC 455 Week 1 MyAccountingLab Week 1
Access the MyAccountingLab software and complete this week's assignments

C:15.1-1
The Internal Revenue Service is part of the

A.
Congress.

B.
Federal Bureau of Investigation.

C.
Treasury Department.

D.
U.S. Customs Department.

QC:1-3 (book/static)
Explain what is encompassed by the term tax law as used by tax advisors.

A.
"Tax law" refers only to the Internal Revenue Service (IRS) Commissioner's conclusions of
any hearings and not the interpretations by federal courts.

B.
"Tax law" refers to the Internal Revenue Code (IRC) as elaborated by Treasury Regulations
and administrative pronouncements and as interpreted by federal
courts.

C.
"Tax law" is simply a way to refer to all of the transcripts incorporated into the Congressional
Record.

D.
"Tax law" is a term tax advisors use to refer to the interpretation of tax documents that
Congress records since it is ambiguous.
QC:1-4 (book/static)
The U.S. Government Printing Office publishes both hearings on proposed legislation and
committee reports. Distinguish between the two.

A.
Committee reports concerning tax legislation explain the purpose behind Congress' proposing
the legislation. Transcripts of hearings reproduce the testimonies of the persons who spoke
for or against the proposed legislation before the Congressional committees. Committee
reports are sometimes used to interpret the statute.

B.
Committee reports concerning tax legislation explain the purpose behind Congress' proposing
the legislation. Transcripts of hearings reproduce the testimonies of the persons who spoke
against the proposed legislation before the Congressional committees. Committee reports are
used to defend the statute.

C.
Committee reports concerning tax legislation explain the purpose behind Congress' proposing
the legislation. Transcripts of hearings reproduce the testimonies of the persons who are in
favor of the proposed legislation before the Congressional committees. Committee reports are
sometimes used to interpret the statute.

D.
Committee reports concerning tax legislation explain the similarities between older legislation
and Congress' current proposed legislation. Transcripts of hearings reproduce the testimonies
of the persons who spoke for or against the older legislation before the Congressional
committees. Committee reports are sometimes used to interpret the statute.

QC:2-1 (book/static)
What entities or business forms are available for a new enterprise? Explain the advantages
and disadvantages of each.
Begin by selecting the entity or business forms available for a new enterprise. (Select all
that apply.)

A.
Corporations

B.
Limited liability partnerships (LLP)

C.
Limited liability companies (LLC)

D.
Sole proprietorships

E.
Partnerships

Select an "X" for the entities or business forms that offer the tax advantage listed when doing
business as that type of entity. (If the entity or business form does not create the
advantage listed, leave the cell blank. For LLCs and LLPs, assume that the entity has two or
more owners and has not elected to be treated as acorporation.)
Partner- S C Sole
Advantages LLC LLP ship Corp Corp proprieto
r
Losses can be used to offset income
from other sources (may be
subject to limitations.)
Not taxed as a separate business
entity. Instead, all profits and losses
pass through to the owner(s) or
member(s).
Shareholders generally can contribute
money to or
withdraw money from this entity without
recognizing gain.
Shareholder-employees are entitled to
nontaxable fringe benefits.
Income is not subject to double
taxation.
The entity can use a fiscal instead of
a calendar year as its reporting period
without demonstrating a business
purpose or making a special election.
There are no restrictions on the types
of owners the company can have.
Offers its owners some form of limited
liability.
Select an "X" for the entities or business forms that carry the disadvantages listed when doing
business as that type of entity. (If the entity or business form does not create the
disadvantage listed, leave the cell blank. For LLCs and LLPs, assume that the entity has two
or more owners and has not elected to be treated as a corporation.)
Partner- S C Sole
Disadvantages LLC LLP ship Corp Corp proprieto
r
Double taxation of income results when
the entity distributes
dividends to shareholders or,
effectively, when shareholders sell
their stock.
Generally cannot defer income by
choosing a fiscal year other than
a calendar year unless it can establish
a legitimate business purpose
for a fiscal year or unless it makes a
special election.
Certain nontaxable fringe benefits
generally are not available.
Capital losses confer no tax benefit to
the owners in the year the entity
incurs them.
Must use the same accounting period for
business and personal purposes.
All profits are taxed to the
owner(s)/partner(s) and/or
shareholder(s) when
earned, even if not distributed.
Must pay the full amount of Social
Security taxes on wages because the
owner is not considered to be an
employee of the business.

QC:2-8 (book/static)
What items are considered to be property for purposes of Sec. 351(a)? What items are not
considered to be property?

What items are considered to be property for purposes of Sec. 351(a)?

A.
Property includes any type of tangible property, including all equipment, furniture and fixtures
and computer software. It also includes buildings, and the fixtures included within the building,
but does not include any intangible property.

B.
Property includes money, and any tangible property. All other forms of intangible property are
not under Sec. 351(a)'s definition of property.

C.
Property includes money and almost any other kind of tangible or intangible property,
including installment obligations, accounts receivable, inventory, equipment,
patents, trademarks, trade names, and computer software.
D.
Property includes any type of services rendered to the corporation in exchange for its stock.

What items are not considered to be property?

A.
Property does not include money, or any tangible property.

B.
Property does not include services, an indebtedness of the transferee corporation that is not
evidenced by a security, or an interest on an indebtedness that accrued on or after the
beginning of the transferor's holding period for the debt.

C.
Property does not include installment obligations, accounts receivable, inventory, equipment,
patents, trademarks, trade names, or computer software.

D.
Property does not include equipment, furniture and fixtures and computer software. It
also doesn't include buildings, and the fixtures included within the building.

QC:2-9 (book/static)
How is "control" defined for purposes of Sec. 351(a)?

A.
Control requires the stock owners to own at least 80% of the common stock of the company.
Other classes of stock do not need to meet the 80% ownership rule.  

B.
Control is when the transferors of a company own at least 80% of the total combined voting
power of the common stock and at least 50% of the total number of shares of nonvoting
stock.
C.
Control is when transferors of a company own at least 50% of a single class of stock
immediately after the exchange. If the stock is nonvoting stock, the ownership is tested on
a class-by-class basis.

D.
Control requires the transferors as a group to own at least 80% of the total combined voting
power of all classes of stock entitled to vote and at least 80% of the total number of share of
all other classes of stock. The nonvoting stock ownership is tested on a class-by-class basis.

QC:2-14 (book/static)
How are a transferor's basis and holding period determined for stock and other
property (boot) received in a Sec. 351 exchange? How does the transferee corporation's
assumption of liabilities affect the transferor's basis in the stock? (Abbreviation used: FMV =
fair market value.)

Select the choice that accurately depicts how a transferor's basis is determined for stock and
other property (boot) received in a Sec. 351 exchange, including how the
transferee corporation's assumption of liabilities affect the transferor's basis in the stock.

A.
Basis of property transferred to the
corporation
Plus: Gain recognized
Minus: Money received (including
liabilities
treated as money)
FMV of noncash boot property
Total basis of stock received (Sec.
358(a))

B.
Basis of property transferred to the
corporation
Plus: Gain recognized
Money received (including
liabilities
treated as money)
Minus: FMV of noncash boot property
Total basis of stock received (Sec.
358(a))

C.
Basis of property transferred to the
corporation
Plus: Money received (including
liabilities
treated as money)
FMV of noncash boot property
Minus: Gain recognized
Total basis of stock received (Sec.
358(a))

D.
Basis of property transferred to the
corporation
Plus: FMV of noncash boot property
Minus: Money received (including
liabilities
treated as money)
Gain recognized
Total basis of stock received (Sec.
358(a))
How are a transferor's holding period determined for stock and other property (boot) received
in a Sec. 351 exchange?

A.
The transferor's (shareholder's) holding period for the stock issued in exchange for any capital
assets or Sec. 1231 assets transferred begins the day after the exchange date. If the
shareholder transfers any other property, the holding period for any stock received includes
the holding period of those non-capital assets transferred.
B.
The transferor's (shareholder's) holding period for the stock received in exchange for non-
capital assets (e.g. inventory), capital assets or Sec. 1231 assets will begin on the day after
the exchange date.

C.
The transferor's (shareholder's) holding period for the stock includes the holding period of any
capital assets or Sec. 1231 assets transferred. If the shareholder transfers any other property,
the holding period for any stock received begins on the day after the exchange date.

D.
The transferor's (shareholder's) holding period for the stock includes the holding period of
any non-capital assets (e.g. inventory), capital assets or Sec. 1231 assets transferred.

QC:2-20 (book/static)
What are the advantages and disadvantages of using debt in a firm's capital structure?

LOADING...
(Select
advantage or disadvantage.)
Ref. Advantage/disadvantage
a.
b.
c.
d.
e.

QC:15-2 (book/static)
Name some of the IRS administrative pronouncements.
A.
The IRS issues internal revenue code, Circular 230 guidance, letter rulings, notices, and
revenue procedures.

B.
The IRS issues Circular 230 guidance, notices, revenue procedures, revenue rulings, penalty
provisions of tax law, and Cumulative Bulletins.

C.
The IRS issues revenue rulings, revenue procedures, determination letters,
announcements, notices, and information releases.

D.
The IRS issues Cumulative Bulletins, revenue rulings, determination letters, and penalty
provisions of tax law.

QC:15-28 (book/static)
In general, when does the limitations period for tax returns expire? List four exceptions to the
general rule.

A.
Three years after the later of the due date for the return or the date on which the return was
filed. Four exceptions include civil fraud, criminal fraud, omission from gross income
exceeding more than 25%, and no return being filed. These exceptions have periods of six
years or no limitations at all.

B.
Four years after the date of filing the tax return, even if the return was filed early. Four
exceptions include no return being filed, criminal fraud, math errors, and error of information
on the return. These exceptions have periods of four years or six years depending upon the
seriousness of the error.

C.
Six years after the date of filing the tax return, up to the original due date of the return, not
taking into consideration extensions. Four exceptions include civil fraud, math errors, errors of
information furnished on the return, and omission from gross income exceeding more
than 50%. These exceptions have periods of ten years or no limitations at all.

D.
None of the above.

C:2.1-3
S corporations must allocate income to shareholders based on their proportionate stock
ownership.

True

False

C:2.1-7
Which of the following statements about a partnership is true?

A.
A partnership is a taxpaying entity.

B.
Partners are taxed on distributions from a partnership.

C.
Partners are taxed on their allocable share of income whether it is distributed or not.

D.
Partners are considered employees of the partnership.

C:2.2-1
The check-the-box regulations permit an LLC to be taxed as a C corporation.

True

False

C:2.1-
4
Business assets of a sole proprietorship are owned by

A.
a partner.

B.
a member.

C.
a stockholder.
D.
an individual.

ACC 455 Week 2 Chapter 3 Discussion Questions
Access p. 3-54 in Chapter 3 of your textbook Prentice Hall's Federal Taxation 2016
Corporations, Partnerships, Estates & Trusts.

Write answers to questions C:3-1 through C:3-6.

Click the Assignment Files tab to submit your assignment in as a Microsoft® Word
document.

ACC 455 Week 2 MyAccountingLab, Week 2
Access the MyAccountingLab software and complete this week's assignments

C:2.4-7
Identify which of the following statements is true.

A.
The exchange of stock for services rendered is not a taxable transaction.

B.
Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax
consequences.

C.
The repeal of Sec. 351 would result in more existing businesses being incorporated.

D.
All of the above are false.
C:2.4-9
For Sec. 351 purposes, the term "property" does not include

A.
cash.

B.
accounts receivable.

C.
inventory.

D.
services rendered.

C:2.4-12
Jermaine owns all 200 shares of Peach Corporation stock valued at $50,000. Kenya, a
new shareholder, receives 200 newly issued shares from Peach Corporation in exchange for
inventory with an adjusted basis of $40,000 and an FMV of $50,000. Which of the following
statements is correct?

A.
Kenya may defer the recognition of any tax until the stock is sold.

B.
The transaction results in $10,000 of capital gain for Kenya.

C.
The transaction results in $10,000 of ordinary income for Kenya.
D.
No gain will be recognized by Kenya.

C:2.4-14
Barry, Dan, and Edith together form a new corporation; Barry and Dan each contribute
property in exchange for stock. Within two weeks after the formation, the corporation issues
additional stock to Edith in exchange for property. Barry and Dan each hold 10,000 shares
and Edith will receive 9,000 shares. Which transactions will qualify for nonrecognition?

A.
Only the first transaction will qualify for nonrecognition.

B.
Only the second transaction will qualify for nonrecognition.

C.
Because of the step transaction doctrine, neither transaction will qualify.

D.
Both transactions will qualify under Sec. 351 if they are part of the same plan of incorporation.

QC:3-1
(book/static)
High Corporation incorporates on May 1 and begins business on May 10 of the current year.
What alternative tax years can High elect to report its initial year's income?

A.
Unless High Corporation is an S corporation or a personal service corporation, High can
select a tax year ending on the last day of any month.
B.
High Corporation cannot select its tax year. The IRS must determine the company's tax
year. Therefore, High Corporation must wait for the IRS's written statement that is mailed after
incorporation takes place.

C.
High Corporation can only select May 31 as its tax year since that is the month
of incorporation, or December 31.

D.
Unless High Corporation is a personal service corporation, High can select May 31 or
December 31 as a tax year.

QC:3-4 (book/static)
Compare the tax treatment of capital gains and losses by a corporation and by an individual.

A.
Corporations and individuals compute capital gains and losses the same way. However,
corporations cannot deduct capital losses from ordinary income, and instead carry a capital
loss back three years and forward five years to offset capital gains. Individuals carry losses
forward for an indefinite period.

B.
Corporations and individuals compute capital gains and losses the same way. However,
corporations have a preferential tax rate for net capital gains that is lower than the ordinary
income rate of corporations, so more corporations invest for gains.

C.
Capital gains are computed the same way for corporations and individuals. However, capital
losses are treated as a carry back of 5 years and a carry forward of 20 years for corporations.
Individuals can only take capital losses in the year they are incurred.
D.
Corporations can net capital losses with ordinary income since they are taxed at the same
rate. However, individuals can only carry losses forward for an indefinite period.

QC:3-6 (book/static)
What are start-up expenditures? How are they treated for tax purposes?

A.
Start-up expenditures are ordinary and necessary business expenses paid or incurred to
investigate the creation or acquisition of an active trade or business, to create an active trade
or business, or to conduct an activity engaged in for profit or the production of income before
the time the activity becomes an active trade or business. A corporation can elect to deduct
the first $5,000 of the expenditures and amortize the remainder over a period of 180 months
starting with the month in which an active trade or business begins.

B.
Start-up expenditures are outlays incident to the creation of a corporation, chargeable to
the corporation's capital account, and of a character that would be amortizable if the
corporation had a limited life. A corporation can elect to deduct the first $500 of the
expenditures and amortize the remainder over a period of 72 months starting with the month
in which the corporation begins business operations.

C.
Start-up expenditures are outlays incident to the creation of a corporation, chargeable to
the corporation's capital account, and of a character that would be amortizable if the
corporation had a limited life. A corporation can elect to deduct the first $5,000 of the
expenditures and amortize the remainder over a period of 180 months starting with the month
in which the corporation begins business operations.

D.
Start-up expenditures are ordinary and necessary business expenses paid or incurred to
investigate the creation or acquisition of an active trade or business, to create an active trade
or business, or to conduct an activity engaged in for profit or the production of income before
the time the activity becomes an active trade or business. A corporation can elect to deduct
the first $500 of the expenditures and amortize the remainder over a period of 72 months
starting with the month in which an active trade or business begins.

QC:3-10 (book/static)
Why are corporations allowed a dividends-received deduction? What dividends qualify for this
special deduction?

A.
Corporations are allowed a dividends-received deduction to partially or fully mitigate the
effects of multiple taxation of corporate earnings. Dividends received by a domestic
corporation from another domestic corporation (other than S corporations) qualify for the
special 60%, 70%, or 80% deduction. Distributions that receive capital gain treatment, most
dividends from foreign corporations, dividends on stock held 45 days or less, and dividends
on debt financed stock are eligible.

B.
Corporations are allowed a dividends-received deduction to prevent abuse in situations where
a corporation is closely held. Dividends received by a domestic corporation from another
domestic corporation (other than S corporations) qualify for the special 60%, 70%, or 80%
deduction. Distributions that receive capital gain treatment, most dividends from
foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed
stock are eligible.

C.
Corporations are allowed a dividends-received deduction to prevent abuse in situations where
a corporation is closely held. Dividends received by a domestic corporation from another
domestic corporation (other than S corporations) qualify for the special 70%, 80%, or 100%
deduction. Distributions that receive capital gain treatment, most dividends from
foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed
stock are not eligible.

D.
Corporations are allowed a dividends-received deduction to partially or fully mitigate the
effects of multiple taxation of corporate earnings. Dividends received by a domestic
corporation from another domestic corporation (other than S corporations) qualify for the
special 70%, 80%, or 100% deduction. Distributions that receive capital gain treatment, most
dividends from foreign corporations, dividends on stock held 45 days or less, and dividends
on debt financed stock are not eligible.

PC:3-34 (similar to)
Fayette Corporation incorporates on January 7, begins business on July 10, and elects to
have its initial tax year end on August 31.
Fayette incurs the following expenses between January and August related to its organization
during the current year:

LOADING...
(Click on the icon to view list of expenses.)
Requirement
a. What alternative treatments are available for Fayette's expenditures?
b. What amount of organizational expenditures can Fayette Corporation deduct on its first tax return for the fiscal
August 31?
c. What amount of start-up costs can Fayette Corporation deduct on its first tax return?
Requirement a. What alternative treatments are available for Fayette's expenditures?
Select the tax treatment for each expenditure. Begin with the expenditures incurred through
June 1. Then, complete the table for the expenditures through July 15.
Date Expenditure Amount Treatment
January Travel to investigate potential $4,000
30 business site
May 15 Legal expenses to draft corporate 2,500
charter
May 30 Commissions to stockbroker for 4,500
issuing and selling stock
May 30 Temporary directors' fees 1,100
June 1 Expense of transferring building to 3,000
Fayette
June 5 Accounting fees to set up corporate 5,000
books
June 10 Training expenses for employees 6,000
June 15 Rent expense for June 1,300
July 15 Rent expense for July 1,300
Fayette Corporation can of organizational and amortize the
elect to deduct $ expenditures under remainder
over months. Fayette also can of start-up and amortize
elect to deduct $ expenditures under the
remainder months. These elections are deemed automatic under temporary
over Treasury Regulations.
Requirement b. What amount of organizational expenditures can Fayette
Corporation deduct on its first tax return for the fiscal year ending August 31?
(Do not round intermediary calculations. Only round the amount you input in the cells to the
nearest dollar.)
Organizational expenditures , and Fayette can in the first fiscal
total $ deduct $ year.
Requirement c. What amount of start-up costs can
FayetteFayette
Corporation deduct on its first tax return? (Do not round intermediary calculations. Only round
the amount you input in the cells to the nearest dollar.)
Start-up expenditures , and Fayette can in the first fiscal
total $ deduct $ year.

Question Help
(similar

Zeto Corporation reports the following results for the current year:
Requirement a. What is Zeto's taxable income for the current year, assuming qualified
production activities income is $1,000?
(If a box is not used in the table, leave the box empty; do not enter a zero. Use parentheses
or a minus sign for a NOL.)
Part a
Gross profit on sales
Dividends
Gross income
Minus: Operating expenses
Taxable income before dividends-received
deduction
Dividends-received deduction
U.S. production activities deduction
Taxable income (NOL)
Requirement b. How would your answer to Part a change if Zeto's
operating expenses are instead $208,000,
assuming qualified production activities income is zero or negative? (If a box is not used in
the table, leave the box empty; do not enter a zero. Use parentheses or a minus sign for
a NOL.)
Part b
Gross profit on sales
Dividends
Gross income
Minus: Operating expenses
Taxable income before dividends-received
deduction
Dividends-received deduction
U.S. production activities deduction
Taxable income (NOL)
Requirement c. How would your answer to Part a change if Zeto's
operating expenses are instead $287,000,
assuming qualified production activities income is zero or negative? (If a box is not used in
the table, leave the box empty; do not enter a zero. Use parentheses or a minus sign for
a NOL.)
Part c
Gross profit on sales
Dividends
Gross income
Minus: Operating expenses
Taxable income before dividends-received
deduction
Dividends-received deduction
U.S. production activities deduction
Taxable income (NOL)
Requirement d. How would your answers to Parts a, b, and c change if
Zeto received $120,000 of the dividends from a 20%-owned corporation and the remaining
$40,000
from a less-than-20%-owned corporation?
Begin by re-calculating taxable income (NOL) for Part a assuming Zeto received $120,000
of the dividends from a 20%-owned corporation and the remaining $40,000
from a less-than-20%-owned corporation. Then re-calculate Part b and finally, Part c. (If a box
is not used in the table, leave the box empty; do not enter a zero. Use parentheses or a minus
sign for a NOL.)
Review your calculations in Requirement a, b, and c above.
LOADING...
Part a
Taxable income before dividends-received deduction
Dividends-received deduction from 20%-owned corporation
Dividends-received deduction from less than 20%-owned
corporation
U.S. production activities deduction
Taxable income (NOL)
Part b

Part c
Question Help
(similar

Kappa Corporation reports the following results for the current year:
In addition, Kappa has a $52,000 NOL carryover from the preceding tax year, and its qualified
production activities income is $120,000.
Requirements
a. What is Kappa'sKappa's taxable income for the current year?
b. What carrybacks or carryovers are available to other tax years?
Requirement a. What is Kappa's taxable income for the current year? Begin by computing
Kappa's
taxable income before special deductions. (Enter the special deductions in the specific
sequence dictated by the tax rules.)

Gross income
Minus:

Taxable income before special deductions
Minus:

Taxable income before U.S. production activities
deduction

Taxable income
Requirement b. What carrybacks or carryovers are available to other tax years? (If a box is
not used in the table, leave the box empty; do not select a label or enter a zero.)
Type of carryback/carryover Amount
Charitable contribution deduction carryover to the next
five years

PC:3-33 (similar to)
Omega Corporation sold the following property on March 3 of the current year:
Aside from these transactions, Omega had $750,000 of operating net income during the
current year.
Omega has a $15,000 nonrecaptured Sec. 1231 loss from prior years.
Requirement
Determine the character of the gains and losses, and calculate the corporation's taxable
income. Ignore the U.S. production activities deduction.
Begin by calculating the total depreciation recapture, if any. (If a box is not used in the table,
leave the box empty; do not select a label or enter a zero.)

Total depreciation recapture
Next, calculate the remaining net Sec. 1231 gain, if any. (If a box is not used in the table,
leave the box empty; do not select a label or enter a zero. Use parentheses or a minus sign to
enter loss and recapture amounts.)

Remaining net Sec. 1231 gain
Finally, indicate the character of the gains and losses and calculate the corporation's taxable
income. (If a box is not used in the table, leave the box empty; do not select a label or enter
a zero.)
Income from operations
Income from recapture
Gain/Loss on sale of property
Taxable income
PC:3-37 (similar to)
Zahra Corporation reports the following results for Year 1 and Year 2:
Year 1 Year 2
Adjusted taxable income $110,000 $280,000
Charitable contributions 16,500 23,500
(cash)
The adjusted taxable income is before Zahra
claims any charitable contributions deduction, NOL or capital loss carryback, dividends-
received deduction, or U.S. production activities deduction.
Read the
requirements
LOADING...
.
Requirement a. How much is Zahra's
charitable contributions deduction in Year 1? In Year 2?
Zahra's charitable contributions deduction in .
Year 1 is $
Zahra's charitable contributions deduction in .
Year 2 is $
Requirement b. What is
Zahra's contribution carryover to Year 3, if any? (If there is no charitable
contributions carryover, enter "0".)
Zahra's contribution carryover to Year .
3 is $

PC:3-41 (similar to)
Light Corporation purchased for $400,000 shares of Beer Corporation common stock (less
than 5% of the outstanding Beer stock) at the beginning of the current year. It used $120,000
of borrowed money and $280,000 of its own cash to make this purchase. Light paid $12,000
of interest on the debt this year.
Light received a $25,000 cash dividend on the Beer stock on September 1 of the current year.
Requirements
a. What amount can Light deduct for the interest paid on the loan?
b. What dividends-received deduction can Light claim with respect to the dividend?
Requirement a. What amount can Light deduct for the interest paid on the loan?Light may
deduct all the interest paid on the loan.
Requirement b. What dividends-received deduction can Light
claim with respect to the dividend?
Light must of the $25,000 dividends received from Beer in its income.
include The dividends-received deduction for
Light is $ .

PC:3-43 (similar to)
Kappa Corporation reports the following results for the current year:
In addition, Kappa has a $48,000 NOL carryover from the preceding tax year, and its qualified
production activities income is $60,000.
Requirements
a. What is Kappa's taxable income for the current year?
b. What carrybacks or carryovers are available to other tax years?
Requirement a. What is Kappa's taxable income for the current year?Begin by computing
Kappa's
taxable income before special deductions. (Enter the special deductions in the specific
sequence dictated by the tax rules.)
Gross income from operations
Dividends received
Gross income
Minus:

Taxable income before special deductions
Minus:

Taxable income before U.S. production activities
deduction

Taxable income
Requirement b. What carrybacks or carryovers are available to other tax years? (If a box is
not used in the table, leave the box empty; do not select a label or enter a zero.)
Type of carryback/carryover Amount
PC:3-44 (similar to)
Steel Corporation sells a truck for $24,000 to Jenny, who owns 5555% of its stock. The truck
has a $31,000 adjusted basis on the sale date. Jenny sells the truck to an unrelated party,
Manny, for $32,000 two years later after claiming $10,000 in depreciation.

Requirements
a. What is Steel's realized and recognized gain or loss on selling the truck?
b. What is Jenny's realized and recognized gain or loss on selling the truck to Manny?
c. How would your answers to Part b change if Jenny instead sold the truck for $6,000?
Requirement a. What is Steel's realized and recognized gain or loss on selling the truck?
Begin by computing the realized gain or loss. (Use parentheses or a minus sign for a loss.)
- = Realized gain (loss)
- =
Steel does not recognize the
Loss because
Jenny is the controlling shareholder of the corporation.
Requirement b. What is Jenny's realized and recognized gain or loss on selling the truck to
Manny?
Begin by computing the realized gain or loss. (Use parentheses or a minus sign for a loss.)
- = Realized gain (loss)
- =
Jenny's recognized is $ .
Requirement c. How would your answers to Part b change if
JennyJenny
instead sold the truck for
$ 6 comma 000$6,000?
Begin by computing the realized gain or loss. (Use parentheses or a minus sign for a loss.)
- = Realized gain (loss)
- =
Jenny's recognized is $ .
PC:2-34 (similar to)
Cam, Mike, and Carsonform Comptrol Corporation and transfer the following items to
Comptrol:
Requirements
a. Is the exchange nontaxable under Sec. 351? Explain the tax consequences of the exchange to
Cam, Mike, Carson, and Comptrol.
b. How would your answer to Part a change if Mike instead had received 300 shares of common stock and
300 shares of preferred stock?
c. How would your answer to Part a change if Carson instead had contributed $1,100 cash as well as services w
$6,500?
Requirement a. Is the exchange nontaxable under Sec. 351? Explain the tax consequences
of the exchange to Cam, Mike, Carson, and Comptrol.
as nontaxable under Sec. 351.
Cam recognizes $ on the transfer of Cam's basis in his $ .
the patent. Comptrol stock is
Mike recognizes Mike's basis in the preferred $ .
stock is
Carson Carson's basis in his $ .
recognizes Comptrol stock is
Comptrol on the exchange. Comptrol's basis for
recognizes the assets are:

Requirement b. How would your answer to Part a change if Mike instead had received 300
shares of common stock and 300 shares of preferred stock?
as nontaxable under Sec. 351.
Cam recognizes Cam's basis in his Comptrol
stock is
Mike recognizes Mike's basis in his Comptrol $
stock is
Carson Carson's basis in his $ .
recognizes Comptrol stock is
Comptrol no gain or loss. on the exchange. Comptrol's basis for
recognizes the assets are:
cash, $24,000; patent, zero; and
services, $7,600.
Requirement c. How would your answer to Part a change if Carson instead had contributed
$1,100
cash as well as services worth $6,500?
as nontaxable under Sec. 351.
Cam recognizes Cam's basis in his Comptrol
stock is

Mike recognizes Mike's basis in his Comptrol $ .
stock is

Carson Carson's basis in his $ .
recognizes Comptrol stock is
Comptrol recognizes on the exchange. Comptrol's basis for
the assets are:

PC:2-41 (similar
to)
Naomi transfers to Spindle Corporation depreciable machinery originally costing $15,000 and
now having a(n) $10,000 adjusted basis. In exchange, Naomi receives all 150 shares of
Spindle stock having a(n) $22,000
FMV and a three-year Spindle note having a(n) $8,000 FMV.
Requirements
a. What are the amount and character of Naomi's recognized gain or loss?
b. What are Naomi's bases in the Spindlestock and note?
c. What is Spindle's basis in the machinery?
Requirement a. What are the amount and character of Naomi's recognized gain or loss?
Naomi realizes a(n) $ and recognizes $
a(n)
Of the amount $ is ordinary in $ is capital in
recognized, character and character.
Requirement b. What are
Naomi's
bases in the
Spindle
stock and note?
Naomi's basis in the note $ and the basis in the $ .
is stock is
Requirement c. What is
Spindle's basis in the machinery?
Spindle corporation's basis in the $
machinery is
ACC 455 Week 3 Team Assignment, Part 1
Resources: Phoenix Medical Data Worksheet Part 1 and Phoenix Medical Worksheet
Student Part 1

Access the Phoenix Medical Data Spreadsheet and the Phoenix Medical Worksheet for
your new tax client - Phoenix Medical.

Determine the following:
 Adjusting Journal Entries
 Adjusted Book Income
 Tax Journal Entries
 Taxable Income
 Your manager has also listed questions that require a response.
 Complete the Microsoft® Excel® spreadsheet showing your adjustments and
final tax trial balance. Answer all questions as short answers.

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document or Microsoft® Excel®.

ACC 455 Week 3 Chapter 11 Issue Identification Questions
Access p. 11-41 in Chapter 11 of your textbook Prentice Hall's Federal Taxation 2016
Corporations, Partnerships, Estates & Trusts.

Write a minimum 175-word response to each question C:11-24 through C:11-27.

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.

ACC 455 Week 3 MyAccountingLab, Week 3
Access the MyAccountingLab software and complete this week's assignments

C:9.1-2
Identify which of the following statements is true.
A.
An individual engaged in the active conduct of a business must elect not to be taxed as a
partnership.

B.
Formation of a partnership requires legal documentation.

C.
A partnership exists as long as there are at least two individuals or entities engaged in the
active conduct of a trade or business or a financial operation, and the business is not a trust
or a corporation.

D.
All of the above are false.

C:9.1-4
Identify which of the following statements is true.

A.
All of the partners in a limited partnership have limited liability.

B.
A limited partnership must have at least two general partners.

C.
A limited partnership cannot have a corporate general partner.

D.
All of the above are false.
C:9.2-3
Identify which of the following statements is true.

A.
Distribution of partnership income in the form of cash to partners is generally tax-free to the
partners and the partnership.

B.
If money distributions exceed the partner's basis in the partnership interest, the partner would
have to recognize gain on the distribution from the partnership. Such gain is usually an
ordinary gain.

C.
When partners receive cash distributions from the partnership, they pay taxes on those
distributions.

D.
All of the above are true.

C:9.2-4
George pays $10,000 for a 20% interest in a general partnership, which has recourse
liabilities of $20,000. The partners share the economic risk of loss from recourse liabilities in
the same way they share partnership losses. George's basis in his partnership interest is

A.
$12,000.

B.
$14,000.
C.
$10,000.

D.
$30,000.

C:9.5-2
Identify which of the following statements is true.

A.
A partnership cannot have an NOL carryback or carryforward.

B.
A partnership cannot make charitable contributions.

C.
Dividends received by a partnership from a domestic corporation are included in
the partnership's ordinary income.

D.
All of the above are false.

C:9.5-4
Matt and Joel are equal partners in the MJ Partnership. For the current year ended
December 31, the partnership has book income of $80,000, which includes the
following deductions: (1) guaranteed payments (salaries) to partners: Matt, $35,000; and Joel,
$25,000; and (2) charitable contributions, $6,000. The book income amount does not include
any sales of capital assets or Sec. 1231 assets or any tax-exempt income. Based on the
above information, what amount should be reported as ordinary income on the
partnership return?
A.
$60,000

B.
$80,000

C.
$140,000

D.
$86,000

C:11.1-2
Which of the following corporate tax levies are imposed on an S corporation?

A.
accumulated earnings tax

B.
corporate alternative minimum tax

C.
corporate income tax

D.
None of these taxes are imposed on an S corporation.

C:11.4-7
Identify which of the following statements is true.

A.
The S corporation's separately stated items are in general the same ones that apply in
partnership taxation.

B.
An election for an S corporation to use the Sec. 179 expensing election is made by the
corporation and not by its shareholders.

C.
An S corporation cannot claim a dividends-received deduction.

D.
All of the above are true.

C:11.5-1
S shareholders are allocated shares of income, gain, loss, deduction, and credit based on
their number of shares of stock and period of time for which the stock is held.

True

False

C:11.6-3
An electing S corporation has a $30,000 ordinary loss for the nonleap year. On January 1,
Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year,
Beverly gives her
oneminus−half
of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is
allocated to Beverly?

A.
$5,959

B.
$6,000

C.
$25,000

D.
$15,000

QC:9-6 (book/static)
Jane contributes valuable property to a partnership in exchange for a general partnership
interest. The partnership also assumes the recourse mortgage Jane incurred when she
purchased the property two years ago.
a. How will the liability affect the amount of gain that Jane must recognize?
b. How will it affect her basis in the partnership interest?
a. How will the liability affect the amount of gain that Jane must recognize?

A.
Jane recognizes gain on the contribution of property and assumption of a liability if the
amount of the liability assumed by the other partners exceed Jane's basis in the contributed
property plus her share of existing partnership liabilities.

B.
Jane recognizes a gain in an amount equal to the liability assumed by the partnership.

C.
Jane recognizes no gain or loss on the contribution of property and the partnership's
assumption of the related liability. Jane would only have recognized a gain if the property had
no liability associated it.

D.
No gain or loss is recognized on the contribution of property regardless of whether or not the
partnership assumes a liability associated with the contributed property.
b. How will it affect her basis in the partnership interest?

A.
Her basis in the partnership interest will be increased by the amount of the liability assumed
by the other partners.

B.
Her basis in the partnership interest will be decreased by the amount of the liability that she
assumes.

C.
Her basis in the partnership interest will be decreased by the amount of the liability assumed
by the other partners.

D.
There is no effect on her basis in the partnership interest.

PC:9-27 (similar to)
On January 1, Jan, Kristi, and Shirley form a partnership. The contributions of the three
individuals are listed below. Jan received a 20% partnership interest, Kristi received a 70%
partnership interest, and
Shirley received a 10% partnership interest. They share the economic risk of loss from
recourse liabilities according to their partnership interests.
LOADING...
(Click
the icon to view the contributions.)
Kristi has claimed $16,000 of straight-line MACRS depreciation on the building. The land and
building are subject to a $64,000 mortgage, of which $25,600 is allocable to the land and
$38,400 is allocable to the building. The partnership assumes the mortgage.
Shirley is an attorney, and the services she contributes are the drawing-up of all partnership
agreements.
Read the
requirements
LOADING...
.
Requirement a. What amount and character of gain, loss, or income must each partner
recognize on the formation of the partnership? (If no gain, loss, or income is recognized by
a partner, enter a "0" in the amount column and leave the character column blank.)
Amount of Gain,
Individual Loss, or Income Character
Jan
Kristi
Shirley
Requirement b. What is each partner's basis in her partnership interest?
Basis in
Individual Partnership Interest
Jan
Kristi
Shirley
Requirement c & d. What is the partnership's basis in each of its assets? What is
the partnership's initial book value of each asset? (Enter a "0" for any zero balances.)
Partnership's Initial Book
Asset Basis in Asset Value of Asset
Accounts receivable
Land
Building
Organizational
expenses
Requirement e. To raise some immediate cash after the formation, the partnership decides to
sell the land and building to a third party and lease it back. The buyer pays $38,400 cash for
the land and $57,600 cash for the building in addition to assuming the $64,000
mortgage. Assume the partnership claimed no additional depreciation on the building before
the sale. What is each partner's distributive share of the gains, and what is the character of
the gains?
Begin with the sale of the land. Select the partner(s) who will recognize a distributive share of
the gain. Enter the amount and character of the gain to be recognized by each applicable
partner. (If no gain is recognized by a partner, do not select the partner's name in the
first column; then leave the remaining columns blank.)
Distributive
share
Individual of gain on land Character

Now consider the sale of the building. Select the partner(s) who will recognize a distributive
share of the gain. Enter the amount and character of the gain to be recognized by each
applicable partner. (If no gain is recognized by a partner, do not select the partner's name in
the first column; then leave the remaining columnsblank.)
Distributive
share
Individual of gain on Character
building

PC:9-34 (similar to)
On January of the current year, Margaret (15%), Darrick(35%), and Dee (50%) are partners in
the UPC Partnership. During the current year, UPC
reports the following results. All items occur evenly throughout the year unless otherwise
indicated. Assume the current year is not a leap year.
Ordinary income $130,000
Long-term capital gain (recognized 15,000
September 1)
Short-term capital loss (recognized March 8,500
2)
Charitable contribution (made October 1) 30,000
Requirements
a. What are the distributive shares for each partner, assuming they all continue to hold their interests at the end of
b. Assume that Margaret purchases a 10% partnership interest from Darrickon July 1 so that Margaret and Darrick
each own 25% from that date through the end of the year. What are Margaret and Darrick's distributive shares fo
Requirement a. What are the distributive shares for each partner, assuming they all continue
to hold their interests at the end of the year?
Margaret Darrick Dee
Ordinary income
Long-term capital gain
Short-term capital loss
Charitable contribution
deduction
Requirement b. Assume that
Margaret
purchases a 10% partnership interest from Darrick on July 1 so that Margaret and Darrick
each own 25%
from that date through the end of the year. What are Margaret and Darrick's
distributive shares for the current year? (Use 365-day year for date ratios. Do not round date
ratios or any interim calculations. Round your final answer to the nearest whole dollar.)
First calculate the partnership's income split before and after the ownership changes.
1/1 - 6/30 7/1 - 12/31
Ordinary income
Long-term capital gain
Short-term capital
loss
Charitable
contribution
Now, calculate each partner's distributive share of the partnership results. First for the period
January 1 through June 30, then for the period July 1 through December 31. (Round to the
nearest whole dollar.)
Margaret Darrick
1/1 through 6/30
Ordinary income
Long-term capital gain
Short-term capital loss
Charitable contribution
7/1 through 12/31
Ordinary income
Long-term capital gain
Short-term capital loss
Charitable contribution

QC:9-10
(book/static)
Can a recourse debt of a partnership increase the basis of a limited partner's
partnership interest? Explain.

A.
No, because a limited partner normally has no economic risk for recourse debt.

B.
Yes, because a limited partner's basis in his or her partnership interest is dependent upon any
debt or income the partnership acquires.

C.
Yes, because a limited partner normally has a large economic risk for recourse debt.

D.
No, because a limited partner's basis in his or her partnership interest is based primarily on
the profit ratio.

PC:9-39
(book/static)
Review the following independent situations:
a. Kelly receives her 20% partnership interest for a contribution of property having a $14,000 basis and a $17,000
FMV. The partnership assumes her $10,000 recourse liability but has no other debts.
b. Kelly receives her 20% partnership interest as a gift from a friend. The friend's basis (without considering partn
$34,000.
The FMV of the interest at the time of the gift is $36,000.
The partnership has liabilities of $100,000
when Kelly receives her interest. No gift tax was paid with respect to the transfer.
c. Kelly inherits her 20% interest from her mother. Her mother's basis was $140,000.
The FMV of the interest is $120,000 on the date of death and $160,000
on the alternate valuation date. The executor chooses the date of death for valuing the estate. The partnership
Requirement
What is
Kelly's basis for her partnership interest in each of the independent situations? The partners
share the economic risk of loss from recourse liabilities according to their partnership
interests. (Use parentheses or a minus sign for subtractions. Leave any unused cells blank.)
Situation a.
Kelly receives her 20% partnership interest for a contribution of property having a $14,000
basis and a $17,000 FMV. The partnership assumes her $10,000 recourse liability but has no
other debts.
Basis before adjustments
Minus:
Plus:
Partnership interest basis
Situation
b.
Kelly receives her 20% partnership interest as a gift from a friend. The friend's basis (without
considering partnership liabilities) is $34,000.
The FMV of the interest at the time of the gift is $36,000.
The partnership has liabilities of $100,000 when Kelly receives her interest. No gift tax was
paid with respect to the transfer.
Basis before adjustments
Minus:
Plus:
Partnership interest basis
Situation c.
Kelly inherits her 20% interest from her mother. Her mother's basis was $140,000.
The FMV of the interest is $120,000 on the date of death and $160,000
on the alternate valuation date. The executor chooses the date of death for valuing the estate.
The partnership has no liabilities.
Basis before adjustments
Minus:
Plus:
Partnership interest basis

QC:11-4 (book/static)
Lance and Rodney are contemplating starting a new business to manufacture computer
software games. They expect to encounter losses in the initial years. Lance's CPA has talked
to them about using an S corporation. Rodney, while reading a business publication,
encounters a discussion on limited liability companies(LLCs). The article talks about the
advantages of using an LLC instead of an S corporation. How would you respond to
their inquiry?

A.
The basis of the S corporation shareholder's interest includes a ratable share of the
S corporation's liabilities. This amount can be greater than the basis in the S corporation's
stock and permits a greater loss or deduction pass-through.

B.
An LLC has no restrictions on the type or number of owners. An S corporation is limited to
100 shareholders, none of which may be a corporation or a partnership.

C.
An S corporation is not subject to corporate-level taxes which is advantageous to Lance and
Rodney who will be starting a new business and will not have the excess cash to pay the
taxes required in an LLC.

D.
S corporations are flow-through entities that simplify the accounting books and records. An
LLC is a complex entity to set up and requires many difficult calculations.

PC:11-36 (similar to)
Matt and Linda are equal shareholders in ML Corporation, an S corporation. The corporation,
Matt, and Linda are calendar year taxpayers. The corporation has been an S corporation
during its entire existence and thus has no accumulated E&P. The shareholders have no
loans to the corporation. The corporation incurred the following items in the current year:
LOADING...
(Click
the icon to view the items.)
Requirements
a. Compute the S corporation's ordinary income and separately stated items.
b. Show Matt's and Linda's shares of the items in Part a.
c. Compute Matt's and Linda's ending stock bases assuming their beginning balances are $75,000
each. When making basis adjustments, apply the adjustments in order according to Sec. 1367(a).
Requirement a. Compute the S corporation's ordinary income and separately stated items.
Begin by computing the S corporation's ordinary income.
Sales
Minus:
Gross profit
Plus:
Minus: Ordinary expenses

S corporation ordinary income
Select the S corporation's separately stated items. (Use parentheses or a minus sign for loss
or expense amounts. Abbreviation used: M and E = meals and entertainment.)

Requirement b. Show
Matt's and Linda's
shares of the items in Part a.
Matt's share of the S corporation's $ and Linda's share of the S
ordinary income is corporation's ordinary
income $ . The separately stated
is items are

Requirement c. Compute Matt's and LindaLinda's ending stock bases assuming their
beginning balances are $75,000 each. Begin by entering the beginning basis for each
shareholder. Determine the items and amounts which increase each shareholder's basis, then
the items and amounts which decrease each shareholder's basis. Finally, compute
each shareholder's ending basis. (Use parentheses or a minus sign for loss or
expense amounts.)
Matt Linda
Beginning basis in S corporation interest
Plus:
  
Minus:

Ending basis in S corporation interest

ACC 455 Week 4 Team Assignment, Part 2
Resources: Phoenix Medical Data Part 2, Phoenix Medical Worksheet Student Part
2, 2014 F1120 Instructions, and 2014 F1120 Return

Utilizing the spreadsheet and worksheet generated in Week 3, prepare pages 1 through
5 of Form 1120 - US Corporation Income Tax Return:
 Utilize PDF fill-in form.
 See additional information attached.

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.

ACC 455 Week 4 Chapter 6 Issue Identification Questions
Access p. 6-23 in Chapter 6 of your textbook Prentice Hall's Federal Taxation 2016
Corporations, Partnerships, Estates & Trusts.

Write a minimum 175-word response to each question, C:6-29 though C:6-31.

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.
ACC 455 Week 4 MyAccountingLab, Week 4
Access the MyAccountingLab software and complete this week's assignments

QC:4-2 (book/static)
Why is it necessary to distinguish between current and accumulated
E and P?

A.
Distributions are deemed to come first out of current E&P and then out of accumulated E&P,
so if current E&P is positive, any distributions will be dividends to the extent of current E&P.
However if E&P is insufficient to cover all distributions, distributions are deemed to come pro
rata out of current E&P and then in chronological order out of accumulated E&P.

B.
Distributions are deemed to come first out of accumulated E&P and then out of current E&P,
so if accumulated E&P does not cover the full distribution, the remaining is taken from
current E&P. However, if current E&P is still insufficient to cover the remaining distribution, the
distributions are treated as a return of capital and reduce the shareholder's stock basis.

C.
Distributions are deemed to come first out of current E&P and then out of accumulated E&P.
However if the distribution is for the sole intent of avoiding tax, the distribution is disallowed
and the full amount that would have been paid out is deemed a capital gain, and required to
be taxed at the corporate level.

D.
Distributions can come out of accumulated E&P or current E&P first. The order does
not matter, but once a method has been chosen, the corporation must stay with that
method. However, if the distribution exceeds the total E&P, the remainder will be dividends.

QC:4-3 (book/static)
Describe the effect of a $100,000 cash distribution paid on January 1 to the sole shareholder
of a calendar year corporation whose stock basis is $25,000 when the corporation has
a. $100,000 of current E&P and $100,000 of accumulated E&P
b. A $50,000 accumulated E&P deficit and a $60,000 current E&P balance
c. A $60,000 accumulated E&P deficit and a $60,000 current E&P deficit
d. An $80,000 current E&P deficit and a $100,000 accumulated E&P balance
Answer Parts a through d again, assuming instead that the corporation makes the distribution
on October 1 in a nonleap year.
a. Describe the effect of a $100,000 cash distribution paid on January 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has $100,000 of current E&P and $100,000 of accumulated E&P.

A.
The distribution is a $100,000 dividend payable out of current E&P.

B.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to zero. The
remaining $75,000 is a capital gain.

C.
The dividend is a $100,000 dividend payable out of accumulated E&P.

D.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to zero. The
remaining $75,000 is ordinary income.
b. Describe the effect of a $100,000 cash distribution paid on January 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has a $50,000 accumulated E&P deficit and a $60,000 current E&P balance.

A.
First, $15,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $60,000 of the distribution is ordinary income from current E&P. Third, the
remaining $25,000 is a capital gain. The $50,000 accumulated E&P deficit remains.

B.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $85,000 of the distribution is ordinary income from current E&P. The $50,000
accumulated E&P deficit remains.
C.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $60,000 of the distribution is ordinary income from current E&P. Third, the
remaining $15,000 is a capital gain. The $50,000 accumulated E&P deficit remains.

D.
First, $60,000 of the distribution is a dividend from current E&P. Second, $25,000 is a return
of capital that reduces the shareholder's stock basis to zero. Third, the remaining $15,000 is a
capital gain. The $50,000 accumulated E&P deficit remains.

c. Describe the effect of a $100,000 cash distribution paid on January 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has a $60,000 accumulated E&P deficit and a $60,000 current E&P deficit.

A.
First, $25,000 is a capital loss. The remaining $75,000 is ordinary income.

B.
First, $25,000 of the distribution is a return of capital that reduces the shareholder's stock
basis to zero. Second, the remaining $75,000 is a capital gain. a $120,000 accumulated E&P
deficit remains.

C.
First, $25,000 of the distribution is a return of capital that reduces the shareholder's stock
basis to zero. Second, $35,000 is a capital gain. A $60,000 accumulated E&P deficit remains.

D.
The distribution is a $100,000 dividend payable out of accumulated E&P.
d. Describe the effect of a $100,000 cash distribution paid on January 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has an $80,000 current E&P deficit and a $100,000 accumulated E&P balance.
A.
The distribution is a $100,000 dividend payable out of accumulated E&P. None of the
current E&P deficit reduces accumulated E&P since the distribution is made on January 1.

B.
First, $80,000 of the distribution is a dividend payable out of accumulated E&P. The
remaining $20,000 is a return of capital.

C.
First, $80,000 of the distribution is a dividend payable out of accumulated E&P. The
remaining $20,000 reduces current E&P.

D.
The distribution is a $100,000 dividend payable out of accumulated E&P. The current E&P
deficit reduces accumulated E&P.
Answer Parts a through d again, assuming instead that the corporation makes the distribution
on October 1 in a nonleap year.
a. Describe the effect of a $100,000 cash distribution paid on October 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has $100,000 of current E&P and $100,000 of accumulated E&P.

A.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to zero. The
remaining $75,000 is a capital gain.

B.
The distribution is a $100,000 dividend payable out of current E&P.

C.
The dividend is a $100,000 dividend payable out of accumulated E&P.

D.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to zero. The
remaining $75,000 is ordinary income.
b. Describe the effect of a $100,000 cash distribution paid on October 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has a $50,000 accumulated E&P deficit and a $60,000 current E&P balance.

A.
First, $15,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $60,000 of the distribution is ordinary income from current E&P. Third, the
remaining $25,000 is a capital gain. The $50,000 accumulated E&P deficit remains.

B.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $60,000 of the distribution is ordinary income from current E&P. Third, the
remaining $15,000 is a capital gain. The $50,000 accumulated E&P deficit remains.

C.
First, $60,000 of the distribution is a dividend from current E&P. Second, $25,000 is a return
of capital that reduces the shareholder's stock basis to zero. Third, the remaining $15,000 is a
capital gain. The $50,000 accumulated E&P deficit remains.

D.
First, $25,000 is a return of capital that reduces the shareholder's stock basis to
zero. Second, $85,000 of the distribution is ordinary income from current E&P. The $50,000
accumulated E&P deficit remains.
c. Describe the effect of a $100,000 cash distribution paid on October 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has a $60,000 accumulated E&P deficit and a $60,000 current E&P deficit.

A.
First, $25,000 is a capital loss. The remaining $75,000 is ordinary income.

B.
First, $25,000 of the distribution is a return of capital that reduces the shareholder's stock
basis to zero. Second, $35,000 is a capital gain. A $60,000 accumulated E&P deficit remains.

C.
The distribution is a $100,000 dividend payable out of accumulated E&P.
D.
First, $25,000 of the distribution is a return of capital that reduces the shareholder's stock
basis to zero. Second, the remaining $75,000 is a capital gain. a $120,000 accumulated E&P
deficit remains.

d. Describe the effect of a $100,000 cash distribution paid on October 1 to the sole
shareholder of a calendar year corporation whose stock basis is $25,000 when the
corporation has an $80,000 current E&P deficit and a $100,000 accumulated E&P balance.

A.
The distribution is a $100,000 dividend payable out of accumulated E&P. None of the
current E&P deficit reduces accumulated E&P since the distribution is made on October 1.

B.
The distribution is a $100,000 dividend payable out of accumulated E&P. The current E&P
deficit reduces accumulated E&P.

C.
Accumulated E&P as of October 1 is $40,0000 so that $40,000 of the distribution is a
dividend. Allocation of the current E&P deficit to the pre-October 1 period is accomplished by
multiplying $80,000 times 9/12ths. Of the remaining $60,000, $25,000 is a return of capital
that reduces the shareholder's stock basis to zero, and the remaining $35,000 is a capital
gain.

D.
First, $80,000 of the distribution is a dividend payable out of accumulated E&P. The
remaining $20,000 reduces current E&P.

QC:4-5 (book/static)
What effect do the following transactions have on the calculation of Young Corporation's
current E&P? Assume that the starting point for the calculation is Young's taxable income for
the current year.
a. The corporation earns tax-exempt interest income of $10,000.
b. Taxable income includes a $10,000 dividend and is reduced by a $7,000 dividends-received deduction.
c. A $5,000 capital loss carryover from the preceding tax year offsets $5,000 of capital gains.
d. The corporation accrued federal income taxes of $25,280.
e. The corporation took a U.S. production activities deduction of $3,000.
a. The corporation earns tax-exempt interest income of $10,000.

A.
Tax-exempt interest has no effect on the current E&P.

B.
The tax-exempt interest is deducted from taxable income to compute current E&P.

C.
The tax-exempt interest is added to taxable income to compute current E&P.

D.
None of the above.
b. Taxable income includes a $10,000 dividend and is reduced by a $7,000 dividends-
received deduction.

A.
The dividends-received deduction is added to taxable income.

B.
The dividends-received deduction reduces capital gains.

C.
The dividends-received deduction reduces taxable income.

D.
None of the above.
c. A $5,000 capital loss carryover from the preceding tax year offsets $5,000 of capital gains.

A.
The capital loss carryover has no effect on the E&P.

B.
The capital loss carryover is added to taxable income.

C.
The capital loss carryover reduces taxable income.

D.
None of the above.
d. The corporation accrued federal income taxes of $25,280.

A.
The federal income taxes are deducted from accumulated E&P.

B.
The federal income taxes are deducted from taxable income.

C.
Only 20% of the federal income taxes are deducted from taxable income.

D.
The federal income taxes increase taxable income.
e. The corporation took a U.S. production activities deduction of $3,000.

A.
The U.S. production activities deduction is actually a tax credit.
B.
The U.S. production activities deduction is only allowable if the corporation suffered losses in
the current year.

C.
The U.S. production activities deduction is added to taxable income.

D.
The U.S. production activities deduction is deducted from taxable income.

PC:4-27 (similar to)
Cook Corporation, an accrual basis taxpayer, reports the following results for the current year:
Requirements
a. What is Cook's taxable income?
b. What is Cook's current E&P?
Requirement a. What is Cook's taxable income?

Gross income
Minus:

Taxable income before special deductions

Taxable income
Requirement b. What is
Cook's
current E&P?
Taxable income
Plus:
Minus:

Current E&P

PC:4-28 (similar to)
Hydro Corporation reports $500,000 of taxable income for the current year. The following
additional information is available:
Assume a 34% corporate tax rate.
Requirement
What is Hydro's current E&P for this year? (Leave any unused cells blank.)
Taxable income
Plus:

Minus:

Current earnings and profits

C:4.2-4
Identify which of the following increases Earnings & Profits.
A.
tax-exempt interest income

B.
a capital contribution

C.
life insurance proceeds payable to the spouse

D.
All of the above increase E&P of a corporation.

C:4.2-5
Current E&P does not include

A.
tax-exempt interest income.

B.
life insurance proceeds where the corporation is the beneficiary.

C.
federal income tax refunds from prior years.

D.
All of the above are included.

C:4.3-4
Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of
the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's
basis in her Dixie stock after the distribution is

A.
$31,000.

B.
$10,000.

C.
$4,000.

D.
$25,000.

QC:4-11 (book/static)
Why are stock dividends generally nontaxable? Under what circumstances are stock
dividends taxable?

A.
Stock dividends are nontaxable because cash is not exchanging hands, just ownership.
However stock dividends are taxable when a corporation requires the holding period of the
dividend to be a set amount of time. This is considered tax avoidance.

B.
Stock dividends are nontaxable when a shareholder's proportionate interest changes or has
the potential to change, however they are taxable whenever a stock dividend does not
change the shareholder's proportionate interest in the distributing corporation.

C.
Stock dividends are nontaxable because they do not add to the property the shareholder
already owns, however they are taxable whenever a stock dividend changes or has the
potential to change the shareholder's proportionate interest in the distributing corporation.

D.
Stock dividends are generally nontaxable to preferred stockholders since they can elect to
receive the stock dividend in other property instead. However, stock dividends are taxable to
common stockholders when they are also given the option to elect to receive the stock
dividend in other property instead.

C:4.4-2
In a taxable distribution of stock, the recipient shareholder takes a basis equal to the FMV of
the stock received.

True

False

C:4.5-3
A partial liquidation of a corporation is treated as a dividend in the case of a corporate
shareholder.

True

False
C:4.5-24
Identify which of the following statements is
false.

A.
Under Sec. 311, a corporation does not recognize a loss when it distributes property that has
declined in value.

B.
Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303
redemption.

C.
The rules for the recognition of a gain or loss by a corporation that distributes property in
redemption of its stock are the same as the rules for property distributions that are not in
redemption of stock.

D.
When a stock redemption is considered a sale of stock by the shareholder, the E&P of the
redeeming corporation is reduced by the FMV of the property used to redeem the stock.

PC:6-40 (similar to)
Madeleine owns 100% of Omega Corporation's common stock.
Omega is an accrual basis, calendar year corporation.
Madeleine formed the corporation six years ago by transferring $200,000
of cash in exchange for the Omega stock. Thus, she has held the stock for six years and has
a $200,000
adjusted basis in the stock.
Omega's balance sheet at January 1 of the current year is as follows:
LOADING...
(Click
the icon to view the balance sheet.)
Omega has held the marketable securities for two years.
In addition, Omega has claimed $110,000 of MACRS depreciation on the machinery and
$160,000
of straight-line depreciation on the building. On January 2 of the current year, Omega
liquidates and distributes all property to Madeleine except that Omega retains cash to pay the
accounts payable and any tax liability resulting from Omega's liquidation. Assume that Omega
has no other taxable income or loss.
Requirement
Determine the tax consequences to Omega and Madeleine. Assume a 34% corporate tax
rate.
Let's begin by determining the tax consequences for Omega. Select the property needed to
compute
Omega's total gain or loss, compute the gain or loss for each asset and determine the
character for each gain or loss. Then, compute Omega's total gain or loss and compute
Omega's tax liability.
Gain or loss recognized
Amount Character

Total
Times: Tax rate %
Tax liability
Next, determine the gain or loss for
Madeleine.
Select the formula then enter the amounts and compute the gain or loss recognized.
- = Gain (loss)
recognized
- =
Select the property distributed to
Madeleine
and enter her basis for each property received.
Property received Basis
C:6.2-9
Riverwalk Corporation is liquidated, with Juan receiving $5,000 in money, other property
having a $6,000 FMV, and a $1,000 mortgage on the property. Juan's basis in his River walk
stock is $8,000. Upon liquidation, Juan must recognize a gain of

A.
$2,000.

B.
0.

C.
$11,000.

D.
$3,000.

C:6.2-13
Property received in a corporate liquidation by a noncorporate shareholder has

A.
a basis equal to its FMV. Its holding period commences on the day after the distribution date.

B.
a basis equal to its basis on the liquidating corporation's books increased by any gain
recognized by the shareholder upon receipt of the property. Its holding period commences on
the day after the distribution date.
C.
a basis equal to its FMV reduced by any liabilities assumed by the shareholder. Its holding
period commences on the day after the distribution date.

D.
a basis equal to its basis on the liquidating corporation's books increased by any gain
recognized by the shareholder upon receipt of the property. Its holding period includes the
holding period of the shareholder's stock.

C:10.1-5
A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's
capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of
Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted
are $200,000, and all of the liabilities are recourse debts for which the partners share the
economic risk of loss in the same way they share partnership profits. Diane's basis in the
partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner
Diane has

A.
no recognized gain or loss and a partnership interest basis of $10,000.

B.
no recognized gain or loss.

C.
a recognized gain of $5,000 and a partnership interest basis of zero.

D.
a recognized gain of $5,000 and a partnership interest basis of $5,000.
QC:10-7 (book/static)
What conditions are required for a partner to recognize a loss upon receipt of a distribution
from a partnership?

A.
A partner can recognize a loss on a distribution from a partnership that is fully liquidating. The
distribution can consist of any form of money or property, where the sum of all of the
distributions is more than the sum of all of the partner's bases in the partnership.

B.
A partner can recognize a loss on a distribution only if it is a liquidating distribution consisting
of any form of money or property, where the sum of the distributions is less than the partner's
predistribution basis in his or her partnership interest.

C.
A partner can recognize a loss on a distribution from a partnership when loss property is
distributed to the partner. Loss property is determined by comparing the FMV at the date of
distribution and the basis of the property on the partnership's books.

D.
A partner can recognize a loss on a distribution only if it is a liquidating distribution consisting
of money, unrealized receivables, and/or inventory and the sum of these amounts is less than
the partner's predistribution basis in his or her partnership interest.

PC:10-46 (similar to)
Julie, a one-third partner, retires from the JJM Partnership on January 1 of the current year.
Her basis in her partnership interest is $133,000 including her share of liabilities.
Julie receives $176,000 in cash from the partnership for her interest. On that date, the
partnership balance sheet is as follows:
LOADING...
(Click
the icon to view the balance sheet.)
Requirements
a. What are the amount and character of Julie's recognized gain or loss?
b. How would your answers to Part a change if Jenn and Mini each purchased one-half of Julie's
partnership interest for $88,000 cash instead of having the partnership distribute the $176,000
in cash to Julie?
Requirement a. What are the amount and character of Julie's recognized gain or loss?
Complete the table below to show Julie's recognized gain or loss.
Character of gain
(loss)
Amount realized
Minus: Adjusted basis
Recognized gain (loss)
Requirement b. How would your answers to Part a change if
Jenn and Mini each purchased one-half of Julie's partnership interest for $88,000 cash
instead of having the partnership distribute the $176,000 in cash to Julie?
Complete the table below to show Julie's recognized gain or loss in this scenario.
Character of gain
(loss)
Amount realized
Minus: Adjusted basis
Recognized gain (loss)

QC:10-1 (book/static)
Javier is retiring from the JKL Partnership. In January of the current year, he has a $100,000
basis in his partnership interest when he receives a $10,000 cash distribution. The
partnership plans to distribute $10,000 each month this year, and Javier will cease to be a
partner after the December payment. Is the January payment to Javier a current distribution
or a liquidating distribution?

A.
It is a current distribution. A liquidating distribution is a distribution that terminates
the partner's interest in the partnership by making a series of payments intended to terminate
the partner's interest in the partnership. A current distribution is made with the intention of
terminating the partner's entire interest in the partnership with a planned series of payments.

B.
It is a current distribution. A current distribution is a distribution that does not terminate
the partner's interest in the partnership, nor is the payment one of a series of payments
intended to terminate the partner's interest in the partnership. A liquidating distribution is
made with the intention of terminating the partner's entire interest in the partnership with
a lump-sum payment to the partner.

C.
It is a liquidating distribution. A current distribution is a distribution that terminates
the partner's interest in the partnership by making a series of payments intended to terminate
the partner's interest in the partnership. A liquidating distribution is made with the intention of
terminating the partner's entire interest in the partnership with a planned series of payments.

D.
It is a liquidating distribution. A current distribution is a distribution that does not terminate
the partner's interest in the partnership, nor is the payment one of a series of payments
intended to terminate the partner's interest in the partnership. A liquidating distribution is
made with the intention of terminating the partner's entire interest in the partnership either
with this payment or with a planned series of payments including this one.

ACC 455 Week 5 Team Assignment, Part 3
Utilizing the included resources, complete tax Form 1065.

Resources: Phoenix Medical Data Part 3, Phoenix Medical Worksheet Student Part
3, Schedule K-1 Form 1065, Instructions Form 1065, Partner's Instructions Form 1065,
and Return Form 1065

Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.

ACC 455 Week 5 Chapter 5 Discussion Questions
Access p. 5-38 in Chapter 5 of your textbook Prentice Hall's Federal Taxation 2016
Corporations, Partnerships, Estates & Trusts.

Write answers to questions C:5-1 through C:5-10.
Click the Assignment Files tab to submit your assignment as a Microsoft® Word
document.

ACC 455 Week 5 MyAccountingLab, Week 5
Access the MyAccountingLab software and complete this week's assignments

C:5.1-1
The alternative minimum tax is the excess of the tentative minimum tax amount over the
regular tax amount.

True

False

C:5.1-6
The minimum tax credit available for a corporation's alternative minimum tax liability can be
carried forward indefinitely and offsets regular tax liabilities in future years.

True

False

C:5.1-10
The Small C corporation exemption from AMT continues as long as average gross receipts for
the three preceding tax years are

A.
$7.5 million or less.
B.
$8.0 million or less.

C.
$7.0 million or less.

D.
$6.5 million or less.

C:5.1-13
Identify which of the following statements is true.

A.
The corporate alternative minimum tax rate is 35%.

B.
Tax preference items always increase alternative minimum taxable income.

C.
No credits are allowed when computing the tentative minimum tax.

D.
All of the above are false.

C:5.1-32
Which of the following statements regarding the minimum tax credit is correct?

A.
There are not carryforwards or carrybacks of the minimum tax credit.

B.
It can only be carried forward.
C.
It must be carried back before being carried forward.

D.
Taxpayers may elect to forgo the carryback period and carry the credit forward.

QC:5-7 (book/static)
Determine whether the following statements relating to the AMT for a corporation are true or
false. If false, explain why.
a. Tax preference items only increase AMTI.
b. A corporation uses the same NOL carryover amount for regular tax and AMT purposes.
c. A corporation is allowed a tax credit for the excess of its AMT over its regular tax.
d. The general business credit can reduce a corporation's regular tax and also its AMT.
e. The ACE adjustment only increases AMTI.
f. An S corporation is exempt from the AMT, regardless of its gross receipts.
(Select whether the statement is true or false. If the statement is true, leave the explanation
column blank. If the statement is false, select the correct
explanation.
Abbreviation used: min. = minimum.)
True
/
Fals Explanation
e
a.
b.
c.
d.
e.
f.