Category: Writing

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?

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?

ls the $100 floor on personal-use casualty losses imposed on
each individual loss item if more than one item of property is destroyed in a
single casualty? ls the floor imposed before or after the casualty gains are
netted against the casualty losses?