None Problem 15-60 (LO 15-3) (Static)[The following information applies to the questions displayed below.]Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing$200,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $200,000 and a tax basisof $150,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownershipinterest. What amount of gain or income is each owner required to recognize under each of the following alternativesituations? [Hint Look at IRC §351 and $721.) (Leave no answer blank. Enter zero if applicable.)Problem 15-60 Part a (Static)a. MMT is formed as a C corporation.Gain or income to be recognizedMickeyMickaylaTaylor

Under IRC §351, the transfer of property to a corporation in exchange for stock generally allows for…

Answered: Problem 15-60 (LO 15-3) (Static) [The…

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter11: Investor Losses

Section: Chapter Questions

Problem 63P

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Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $215,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $215,000 and a tax basis of $153,750 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at IRC §351 and §721.] A. MMT is formed as a C corporation. B. MMT is formed as an S corporation. C. MMT is formed as an LLC.
15.Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $200,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation’s stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) FMV Adjusted Tax Basis Building $ 75,000 $ 20,000 Land 175,000 80,000 Total $ 250,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. What amount of gain or loss does Ron recognize on the formation of the corporation? Gain or loss recognized
6.Matthew and Venice decide to form their new retail business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $35,000 nonrecourse loan from Simple Bank at the time it is formed. Matthew contributes cash of $4,000 and a building he bought as a storefront for the retail. The building has an FMV of $65,000 and an adjusted basis of $29,000 and is secured by a $34,000 nonrecourse mortgage that the LLC will assume. What is Matthew's outside tax basis in his LLC interest? Show computation.
Jeff and Ed form The Tax Museum as a corporation. They each own 50% of the stock. Neither is employed by the corporation. In the first year of operation, the corporation generates $1 million of taxable income and pays $200,000 in dividends ($100,000 each to Jeff and Ed). Assuming a 21% corporate tax rate, a 35% personal tax rate on ordinary income, and a 15% personal tax rate on dividends, how much tax will be paid in the first year? Group of answer choices $210,000 tax for the corporation, $15,000 personal tax for each of Jeff and Ed $360,000 tax for the corporation, $0 personal tax for Jeff and Ed $189,000 tax for the corporation, $15,000 personal tax for each of Jeff and Ed $0 tax for the corporation, $175,000 personal tax for each of Jeff and Ed None of the above
16.Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $200,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation’s stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) FMV Adjusted Tax Basis Building $ 75,000 $ 20,000 Land 175,000 80,000 Total $ 250,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. What is Ron’s tax basis in the stock he receives in return for his contribution of property to the corporation?
1 Jamie plans to transfer a piece of equipment which is capital property to him, to a corporation he owns. The equipment has an Adjusted Cost Base (ACB) of $90,000, a Undepreciated Capital Cost (UCC) balance of $60,000 and a Fair Market Value (FMV) of $70,000. Jamie has $10,000 in taxable capital losses that he is concerned he won't be able to use in the future. What would you recommend to Jamie as an elected amount if he wants to defer as much tax as he can and use the losses?
The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a proprietorship or a corporation. He expects revenues to be $2 million next year with total expenses amounting to $1,625 million, resulting in a taxable income of $375,000. Rolf is interested in estimating his federal income tax liability based on the schedules contained in Figure 3.6. Requirements:1.If the Capital-Ideas Company is organized as a corporation and all after-tax profits are paid out as dividends to Rolf Lee, what additional personal income taxes would be paid?2. What would be the marginal tax rate and the average tax rate on this personal income received from the corporation?
Noah Yobs, who has $97,000 of AGI (solely from wages) before considering rental activities, has $87,300 of losses from a real estate rental activity in which he actively participates. He also actively participates in another real estate rental activity from which he has $48,500 of income. He has other passive activity income of $31,040. a. What amount of rental loss can Noah use to offset active or portfolio income in the current year? b. Compute Noah’s AGI on Form 1040 [pages 1 and 2; also complete Schedule 1 (Form 1040)] for the current year. Use the minus sign to indicate a loss. What amounts should go on lines 1, 6, & 7 on page 2 of FORM 1040? What amount s go on lines 17, & 22 on schedule one of FORM 1040?
Check my work Blue is the owner of all of the shares of Blue Bell, an S corporation. Blue is considering receiving a salary of $110,000 from the business. She will pay the 7.65% FICA taxes on the salary, and the S corporation will pay the same amount of FICA tax. If Blue reduces her salary to $50,000 and takes an additional $60,000 as a cash distribution from AAA, how will her Federal income tax liabilities change? Blue Salary 110000 W-2 7.65% 8415 CO 7.65% 8415 Total FICA 16830 If Blue's salary is reduced 50000 W-2 7.65% 3825 CO 7.65% 3825 Total FICA 7650 FICA Savings from salary reduction 9180 Blue should make sure she documents that the salary reduction is appropriate for the compensation associated with her business or the IRS may recharacterize the reduced portion as wages.
LO.2, 11 Heather wants to invest 40,000 in a relatively safe venture and has discovered two alternatives that would produce the following reportable ordinary income and loss over the next three years: She is interested in the after-tax effects of these alternatives over a three-year horizon. Assume that Heathers investment portfolio produces sufficient passive activity income to offset any potential passive activity loss that may arise from these alternatives, that her cost of capital is 6%, that she is in the 24% tax bracket, that each investment alternative possesses equal growth potential, and that each alternative exposes her to comparable financial risk. In addition, assume that in the loss years for each alternative, there is no cash flow from or to the investment (i.e., the loss is due to depreciation), whereas in those years when the income is positive, cash flows to Heather equal the amount of the income. a. Based on these facts, compute the present value of these two investment alternatives and determine which option Heather should choose. Refer to Appendix H for the present value factors. b. Prepare your solution using spreadsheet software such as Microsoft Excel.
LO.3, 11 Emily has 100,000 that she wants to invest and is considering the following two options: Option A: Investment in Redbird Mutual Fund, which is expected to produce interest income of 8,000 per year. Option B: Investment in Cardinal Limited Partnership (buys, sells, and operates wine vineyards). Emilys share of the partnerships ordinary income and loss over the next three years would be as follows: Emily is interested in the after-tax effects of these alternatives over a three-year horizon. Assume that Emilys investment portfolio produces ample passive activity income to offset any passive activity losses that may be generated. Her cost of capital is 8%, and she is in the 32% tax bracket. The two investment alternatives possess equal growth potential and comparable financial risk. a. Based on these facts, compute the present value of these two investment alternatives and determine which option Emily should choose. Refer to Appendix H for the present value factors. b. Prepare your solution using spreadsheet software such as Microsoft Excel.

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