Asked Oct 5, 2010, 06:55 PM
Chapter 21 Discussion Question 6
Block Inc. a calendar year general contractor, and Strauss Inc. a development corporation with a July 31 year-end, formed the equal SB LLC on January 1 of the current year. Both LLC members are C corporations. The limited liability company was formed to construct and lease shopping centers in Wilmington, Delaware. Block contributed equipment (basis of $650,000, fair market value of $650,000), building permits, and architectural designs created by Block’s employees (basis of $0, fair market value of $100,000). Strauss contributed land (basis of $50,000, fair market value of $250,000) and cash of $500,000. The cash was used as follows:
Legal fees for drafting LLC agreement $10,000
Materials and labor costs for construction in progress on shopping center $400,000
Office expenses (utilities, rent, overhead, etc.) $90,000
What issues must the LLC address in preparing its initial tax return?
Chapter 21 Problem 19
Beth and Ben are equal partners in the BB Partnership, formed on June 1 of the current year. Ben contributed land that he inherited from his father three years ago. Ben’s father purchased the land in 1950 for $6,000. The land was worth $50,000 when Ben’s father died. The fair market value of the land was $75,000 at the date it was contributed to the partnership. Beth had significant experience developing real estate. After the partnership is formed, she will prepare a plan for developing the property and secure zoning approvals for the partnership. She would normally bill a third party $25,000 for these efforts. Beth will also contribute $50,000 of cash in exchange for her 50% interest in the partnership. The value of her 50% is $75,000.
A. How much gain or income will Ben recognize on his contribution of the land to the partnership? What is the character of any gain or income recognized?
B. What basis will Ben take in his partnership interest?
C. How much gain or income will Beth recognize on the formation of the partnership? What is the character of any gain or income recognized?
D. What basis will Beth take in her partnership interest?
E. Construct an opening balance sheet for the partnership reflecting the partnership’s basis in assets and the fair market value of these assets.
F. Outline any planning opportunities that may minimize current taxation to any of the parties.
Chapter 22 Discussion Question 6
On March 2, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident alien) on January 18. Identify any potential problems for Terry or the corporation.
Chapter 22 Discussion Question 11
Indicate whether each of the following items is available to an S Corporation.
a. Amortization of organizational expenditures.
b. Dividends received deduction.
c. Standard deduction.
d. Personal exemption.
e. Section 179 expense deduction.
Chapter 22 Problem 24
The profit and loss statement of Strategy, Inc. an S corporation, shows net profits of $101,000 (book income). The corporation has three equal shareholders. From supplemental data, you obtain the following information about some items that are included in the $101,000.
Selling expenses ($19,200)
Municipal bond interest income 2,000
Dividends received on Boeing stock 8,000
Section 1231 gain 6,000
Depreciation recapture income 13,000
Passive income 3,000
Short-term capital loss (9,000)
Salary paid to owners (each) (11,000)
Cost of goods sold (81,000)
a. Determine the nonseparately computed income or loss.
b. What is the portion of ordinary income or loss for Zariat, one of the three shareholders?