This paper explores a case on federal Income Taxes. Paper details: 1.Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000.

Federal Income Taxes.

Federal Income Taxes AS 5. Paper details: 1.Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E & P and no current E & P (before considering the effect of the distributions as noted below). What are the tax consequences to Heather (amount and type of income and basis in property received) and Silver Corporation (gain or loss and effect on E & P) in each of the following situations? Silver distributes land to Heather.

Federal Income Taxes.

The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000. Assume that Silver Corporation has no current or accumulated E & P prior to the distribution. How would your answer to part (a) change? Assume that the land distributed in part (a) is subject to a $46,000 mortgage (which Heather assumes). How would your answer change? Assume that the land has a fair market value of $54,000 and an adjusted basis of $62,000 on the date of the distribution. How would your answer to part (a) change? Instead of distributing land in part (a), assume that Silver decides to distribute equipment used in its business.

Federal Income Taxes.

The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes, and a $5,200 adjusted basis for E & P purposes. When the equipment was purchased four years ago, its original fair market value was $18,000. 2. Lime Corporation, with E & P of $500,000, distributes land (worth $300,000, adjusted basis of $350,000) to Harry, its sole shareholder. The land is subject to a liability of $120,000, which Harry assumes. What are the tax consequences to Lime and to Harry? 3. At the beginning of the year, Penguin Corporation (a calendar year taxpayer) has accumulated E & P of $55,000.

Federal Income Taxes.

During the year, Penguin incurs a $36,000 loss from operations that accrues ratably. On October 1, Penguin distributes $40,000 in cash to Holly, its sole shareholder. How is Holly taxed on the distribution? 4. Cerulean Corporation has two equal shareholders, Marco and Avery. Marco acquired his Cerulean stock three years ago by transferring property worth $700,000, basis of $300,000, for 70 shares of the stock. Avery acquired 70 shares in Cerulean Corporation two years ago by transferring property worth $660,000, basis of $110,000. Cerulean Corporation’s accumulated E & P as of January 1 of the current year is $350,000.

Federal Income Taxes.

On March 1 of the current year, the corporation distributed to Marco property worth $120,000, basis to Cerulean of $50,000. It distributed cash of $220,000 to Avery. On July 1 of the current year, Avery sold her stock to Harpreet for $820,000. On December 1 of the current year, Cerulean distributed cash of $90,000 each to Harpreet and Marco. What are the tax issues? 5. Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus.

Federal Income Taxes.

Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. How much better off would Kristen be if she were paid a dividend rather than salary? How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend? If Egret Corporation paid Kristen a salary bonus of $35,000 instead of a $30,000 dividend, how would your answers to parts (a) and (b) change? What should Kristen do? Summarize your conclusion in a two- to three-paragraph e-mail to your instructor. Complete Problems using MS-Excel, using functions and formulas as appropriate. https://youtu.be/ieA-bmoFk3k

Attached Files

Download  |