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1.The effective income tax rate on gain of $1 million
resulting from the sale of qualified small business stock obtained in 2005 in
an initial public offering and held more than five years is 14%. Do you agree
or disagree? Explain.
2. On January 1 of the current year, the Orange Corporation
issues $500,000 of 11 %, 20-year bonds for $480,000. Determine the amount of
original issue discount, if any.

Today, Juanita purchases a 15-year, 7% bond of the Sunflower
Corporation issued four years ago at par. She purchases the bond as an
investment at a discount from the par value. lf she sells the bonds two years
from now, explain why some or all of the gain may be ordinary income.

Judy just obtained a parent on a new product she has
developed. Bell Corporation wishes to market the product and will pay 12 % of
all future sales of the product to Judy. How can she be sure chat the payments
received will be created as a longterm capital gain?

1. When is the transferor of a franchise unable to treat the
transfer as a sale or an exchange of a capital asset?
2. How does a lessor treat payments received for canceling a
lease?
3. What is the first day that an individual could sell a
capital asset purchased on March 31, 2019 and have a holding period of more
than one year?

Phil, a cash-basis taxpayer, sells the following marketable
securities, which are capital assets during 2019. Determine whether the gains
or losses are long-term or short -term. Also determine the net capital gain and
adjusted net capital gain for 2019.

Lisa and John are in the business of breeding beavers to
produce fur for sale. They recently purchased a pair of breeding beavers for
$30,000 from XUN, Inc., and agreed to pay interest at 10% each year for five
years. After the five-year period, they could pay the debt by delivering seven
beavers to XUN, Inc., provided chat each beaver was at least nine months old.
Identify the tax issues involved in this situation.

Mike, a real estate broker in California, recently inherited
a farm from his deceased uncle and plans to sell the farm to the first
available buyer. His uncle purchased the property 12 years ago for $600,000.
The FMV of the farm on the date of the uncle’s death was $500,000. Mike sells
the farm for $520,000 seven months after his uncle’s death. What tax issues
should Mike consider?

Sylvia, a dentist with excellent skills as a carpenter,
started the construction of a house chat she planned to give ro her son as a
surprise when he returned from Afghanistan, where he is serving in the
military. She began construction on March 23, 2018, and finished the house on
July 10, 2019, at a total cost of $70,000. Her son is expected to be home on
September 1, 2019.
On July 30, 2019, Roscoe offered Sylvia $245,000 for the
house and Sylvia considered the offer to be so attractive chat she accepted it.
She decided that she could purchase a suitable home for her son for about
$200,000. What tax issues should Sylvia consider?

Amount Realized. Tracy owns a nondepreciable capital asset
held for investment. The asset was purchased for $250,000 six years earlier and
is now subject to a $75,000 liability. During the current year, Tracy transfers
the asset ro Tim in exchange for $94,000 cash and a new automobile with a
$50,000 FMV ro be used by Tracy for personal use; Tim assumes the $75,000
liability. Determine the amount of Tracy’s LTCG or LTCL.

Basis of Property Received as a Gifr. Doug receives a duplex
as a gift from his uncle. The uncle’s basis for the duplex and land is $90,000.
Ac the time of the gift, the land and building have FMVs of $40,000 and
$80,000, respectively. No gift tax is paid by Doug’s uncle at the time of the
gift.
a. To determine gain, what is Doug’s basis for the land?
b. To determine gain, what is Doug’s basis for the building?
c. Will the basis of the land and building be the same as in
Parts a and b for purposes of determining a loss?