Author: admin

Section 1244 Losses. During the current year, Karen sells
her entire interest in Central Corporation common stock for $22,000. She is the
sole shareholder, and originally organized the corporation several years ago by
contributing $89,000 in exchange for her stock, which qualifies as Sec. 1244
stock. Since its incorporation, Central has been involved in the manufacture of
items that protect personal computers from static electricity. Unfortunately,
chis market is extremely competitive, and Central Corporation incurs
substantial losses throughout its existence.
a. Assuming Karen is single, what are the amount and the
character of the loss recognized on the sale of the Central Corporation stock?
b. Assuming Karen is married and files a joint return, what
are the amount and the character of the loss recognized on the sale of the
Central Corporation stock?
c. How would your answer to Part a change if Karen had
originally purchased the stock from another shareholder rather than organizing
the corporation?
d. How might Karen have structured the transaction in Part a
to receive a greater tax advantage?

Amount and Character of Loss Transactions . On September 30
of the current year, Fox Corporation files for bankruptcy. Ac the time, it
estimates chat the total FMV of its assets is $725,000, whereas the total
amount of its outstanding debt amounts to $950,000. Fox Corporation has been
engaged in the resale of tax preparation and tax research -related books and
software for several years.
a. Ac the time of the bankruptcy, Fox is owned by Randall,
who purchased the stock from an investor for $250,000 several years ago.
Randall is single. What are the amount and character of the loss sustained by
Randall upon Fox’s bankruptcy?
b. How would your answer to part a change if Randall
originally organized Fox Corporation, capitalizing it with $250,000 of cash and
assuming Fox qualifies as a small business corporation?
c. How would your answer to Part a change if Randall were a
corporation instead of an individual?
d. How would your answer to Part b change if Randall were a
corporation instead of an individual?

Amount and Character of Loss Transactions . Five years ago,
Brian and his brother Boyd formed Stewart Corp., a golf apparel manufacturing
corporation. At that time, Brian con – tributed $300,000 to the corporation in
exchange for 50 % of its stock. During the current year, Brian needed some cash
to purchase a golf course so he sold a third of his interest in Stewart Corp.
for $85,000. He also sold stock in the following companies for the amounts
indicated:
During the year Brian hired a collection agency to collect a
$14,000 loan he made to an old friend, which was due in full on January 1 of
the current year. The agency found no trace of his friend. Also during the
year, BTR Corporation, in which he owns stock, went bankrupt. His investment
was worth $94,000 on January 1, he purchased it six years ago for $100,000, and
he expects to receive only $8,000 in redemption of his stock. Finally, Brian’s
salary for the year was $114,000 for his work as an associate
a.professor. a. What are the net gains and losses from the
above items and their character?
b. What is Brian’s AGI for the year assuming he has no other
items of income or deduction?

Passive Losses. In the current year Alice reports $150,000
of salary income, $20,000 of income from activity X, and $35,000 and $15,000
losses from activities Y and Z, respectively. All three activities are passive
with respect to Alice and are purchased during the current year. What is the
amount of loss that may be deducted with respect to each of these activities?
Also compute the amount of loss that must be carried over for each activity.
1:9-43 Passive L osses. In the current year Clay reports income and losses from
the following activities:
Activities X, Y, and Z are all passive with respect to Clay.
Activity Z has $40,000 in passive losses which are carried over from the prior
year. In the current year Clay sells activity Z for a taxable gain of $30,000.
a. What is the amount of loss that Clay may deduct and what
is the amount that must be carried over in the current year?
b. Based solely on the amounts above, compute Clay’s AGI for
the current year.