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Harry and Ron are brothers who inherited a house from their mother several years ago. The house was included in mom’s estate at a value of $230,000 Two years ago, they decided to form a corporation to own the house (liability issues, you know) and they each contributed their 50% ownership in the house to this new corporation (HR Corporation) in exchange for 50% each of the newly issued common stock. At the date of the incorporation, the house was worth $300,000. Unfortunately for Harry and Ron, the housing bubble burst soon after incorporation and the value of the house fell all the way to $100,000. Ron decided he wanted to live in the house, so they decided to liquidate the corporation and return direct ownership to them both in equal shares. Ron will eventually buy out Harry’s half of the house. How much gain or loss will HR Corporation recognize and how much income or loss will Harry recognize?
Group of answer choices
($200,000) and ($15,000)
$0 and ($65,000)
($130,000) and ($65,000)
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- Seth, Pete, Cara, and Jen form SPCJ Corp. (a controlled corporation) by contributing the following consideration: • Seth contributes furniture & fixtures (FMV = $96,000; Seth's basis = $30,000) • Pete contributes equipment (FMV = $99,000; Pete's basis = $45,000) • Cara contributes land (FMV = $90,000; Cara's basis = $15,000) • Jen contributes cash (FMV = $30,000) In exchange, Seth, Pete, Cara, and Jen receive the following: • Seth receives 30 shares of SPCJ Corp. plus $6,000 cash. Pete receives 30 shares of SPCJ Corp. plus $9,000 cash. • Cara receives 30 shares of SPCJ Corp. • Jen receives 10 shares of SPCJ Corp. Each share of SPCJ Corp. is worth $3,000. What is Seth's basis in his shares of SPCJ Corp.?Sam owns 1,500 shares of Eagle, Inc. stock that he purchased over 10 years ago for $80,000. Although the stock has a current market value of $52,000, Sam still views the stock as a solid long-term investment. He has sold other stock during the year with overall gains of $30,000, so he would like to sell the Eagle stock and offset the $28,000 loss against these gains—but somehow keep his Eagle investment. He has devised a plan to keep his Eagle investment by using funds in his traditional IRA to purchase 1,500 Eagle shares immediately after selling the shares he currently owns. Evaluate Sam’s treatment of these stock transactions. Can his plan work?Bob and Steve form S corporation with Bob contributing land with a basis of $1,000 and fair market value of $4,000 in exchange for 40% of the stock and Steve contributing cash of $6,000 in exchange for 60% of the stock. They properly make the election under subchapter S of the Code to tax the corporation as an S corporation. During year 1 of operations, the corporation earns $10,000 of net profit, which consists of net ordinary income of $8,000 plus $2,000 of capital gain. During the year, the corporation distributes of $6,000 to shareholders. What is Bob’s adjusted basis in his stock of S corporation at the end of year 1?
- Dave and his friend Stewart each owns 50 percent of KBS. During the year, Dave receives $75,000 compensation for services he performs for KBS during the year. He performed a significant amount of work for the entity, and he was heavily involved in management decisions for the entity (he was not a passive investor in KBS). After deducting Dave's compensation, KBS reports taxable income of $30,000. How much FICA and/or self-employment tax is Dave required to pay on his compensation and his share of the KBS income if KBS is formed as a C corporation, an S corporation, or a limited liability company (taxed as a partnership) (ignore the 0.9 percent additional Medicare tax)? (Do not round any percentage calculations. Round other intermediate calculations and final answers to the nearest whole dollar amount.) C Corporation S Corporation Limited liability companyWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $60,000 in exchange for a 50 percent ownership interest. GTE also borrowed $240,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $500,000 of sales revenue and reported $230,000 of cost of goods sold (it did not have any ending inventory). GTE paid $35,000 compensation to James, $35,000 compensation to Paul, and $45,000 of compensation to other employees…Rondo and his business associate, Larry, are considering forming a business entity called R&L, but they are unsure about whether to form it as a C corporation, an S corporation, or an LLC taxed as a partnership. Rondo and Larry would each invest $150,000 in the business. Thus, each owner would take an initial basis in his ownership interest of $150,000 no matter which entity type is formed. Shortly after the formation of the entity, the business borrowed $50,000 from the bank. If applicable, this debt will be shared equally between the two owners. a. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as a C corporation? b. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as an S corporation? c. After taking the loan into account, what is Rondo's tax basis in his R&L ownership interest if R&L is formed as an LLC and taxed as a partnership?
- Ray and Matias own 50 percent capital and profits interests in Alpine Properties LLC. Alpine builds and manages rental real estate, and Ray and Matias each works full time (over 1,000 hours per year) managing Alpine. Alpine's liabilities (at both the beginning and end of the year) consist of $1,550,000 in nonrecourse mortgages obtained from an unrelated bank and secured by various rental properties. At the beginning of the current year, Ray and Matias each had a tax basis of $250,000 in his respective LLC interest, including his share of the nonrecourse mortgage liability. Alpine's ordinary business losses for the current year totaled $610,000, and neither member is involved in other activities that generate passive income. c. How much of each member's loss is suspended because of the passive activity loss limitation? [Hint: See §469(c)(7).] d. If both Ray and Matias are single and Ray has a current-year loss of $55,000 from a sole proprietorship, how much trade or business loss can…Dave and his friend Stewart each owns 50 percent of KBS. During the year, Dave received $86,000 compensation for services he performed for KBS during the year. He performed a significant amount of work for the entity, and he was heavily involved in management decisions for the entity (he was not a passive investor in KBS). After deducting Dave's compensation, KBS reported taxable income of $34,400. How much FICA and/or self-employment tax is Dave required to pay on his compensation and his share of the KBS income if KBS is formed as a C corporation, an S corporation, or a limited liability company (taxed as a partnership) (ignore the 0.9 percent additional Medicare tax)? How much FICA tax would the entity be required to pay on the compensation paid to Dave? Note: Do not round any percentage calculations. Round other intermediate calculations and final answers to the nearest whole dollar amount. C Corporation S Corporation Limited liability companyMarcus and Madison are equal members of an LLC. On January 1 of the current year, to acquire a one-third interest in the entity, Nora contributed a parcel of land she had held for investment. (At this time, the entity will be renamed MMN LLC.) Nora had purchased the land for $120,000; its fair market value was $90,000 at the contribution date. A few years later, the LLC sells Nora’s land for $84,000. At the beginning of that year, Nora’s capital account (determined using the tax basis) was $200,000 and Marcus and Madison’s capital accounts (also calculated on the tax basis) were $170,000. a. What is the LLC’s recognized gain or loss? How is it allocated among the LLC members? b. Use Microsoft Excel to prepare schedules that compute the partners’ tax basis capital accounts immediately after the sale. Use variables to input the amount allocated to each LLC member and the total not specially allocated.
