Category: Writing

1.In terms of a corporation’s incurring liability for the
tax, what is the difference between the persona l hold ing company tax and the
accumu lated earnings tax? Do bot h taxes require a tax avoid – ance motive?
2. Why are controlled groups of corporations required co
apportion among group members tax attr ibutes such as the Sec. 179 expense
limitation and accumu lated earn ings credit?
3. Discuss the underlying rationale for the nonrec –
ognition of gain or loss in a Sec. 351 transaction.

How is Mario ‘s basis in his accrua l method part – nership
interest affected by each of the following changes in partnership assets and
liabilities (assuming he has a 50% interest in the partnership)?
a. Mario contributes a building with a $100,000 FMV, and a
$70,000 adjusted basis. The building is subject to a $50,000 mortgage, which
the partnership assumes.
b. The partnership’s accounts payable increase by $50,000
during the tax year.
c. The partnership pays off a $40,000 bank note that was
outstanding for several years.
d. The partnership distributes $10,000 cash each to Mario
and his partner.

In the current year, Penny contributes machinery to a
partnership in exchange for a minority part – nership interest. She acquired
the machinery five years earlier. le now has a $50,000 adjusted basis and a
$90,000 FMV. What are Penny’s basis and holding period for the partnership
interest? What is the partnership’s basis and holding period for the machine?
Why are the partnership formation rules structured in their current format?

In 2016, Peter purchased 150 shares of Able Manufacturing
Corpo ration stock for $75,000 . Able is a C corporation that has 40 shareho
lders. None of the other 39 share – holders own more than 5% of the 5,000
shares outstand ing. No events have occurred that have changed either the
number of shares of stock that Peter owns, or Peter’s total basis in his
shares. Peter is unhappy with Abie’s management . It is now Spring 2019 and
Peter would like to sell part or all of his Able stock and reinvest the
proceeds in the stock of another small corporation . At present, his tota l
unrealized gain is $300,000 . Peter was told by his stockbroker that he may be
eligible to exclude part or all of his profit on the sale of the Able shares
from current taxable income. What advice on reducing the tax cost of the sale
can you give him?
A partial list of research sources is:
• Sec. l(h)
• Sec. 1202
• Sec. 1044
• Sec. 1045
• Sec. 1244

Sandra and John, unrelated individuals, own all of Alpha and
Beta corporation stock. John owns 60% of Alpha stock and 40 % of Beta stock.
Sandra owns 40% of Alpha stock and 60% of Beta stock. For five years, Alpha has
conducted manufacturing activities and sold machine parts primarily in the eastern
United States. Alpha reported $75,000 of operating profits in each of the last
two years. Alpha’s operating profits are expected to grow to $150,000 during
the next five years. Alpha still has $100,000 of NOLs that must be used before
it incurs federal income tax liability. One-fourth of Alpha’s output is sold to
Beta, which is attempting to establish a market niche for reselling Alpha
products in the southwestern United States. In the start-up phase of this
effort, Beta incurred $200,000 of NOLs. Under the sales arrangement with Alpha,
the best that Beta can hope to do in the short run is break-even. What
suggestions can you offer Sandra and John about the short -term possibility of
offsetting Alpha and Beta’s NOLs against the profits that Alpha expects to earn
and minimizing their overall tax liabilities if both businesses become
profitable? Sandra has specifically asked about merging the two companies into
a single entity so that the losses of one entity can offset the profits of the
other and defer federal income taxes. Sandra indicates that the two companies
were created for non -tax reasons. The operating situation has changed, and
according to Sandra, now may be the time to consolidate the entities. John is
not sure that combining the two businesses is a good idea.

Corporate Liquidation . Several years ago, Tampa Corporation
acquired 100% of Union Corporatio n stock for $1,000,000. In the current year,
Tampa liquidates Union and receives all of its assets and liabilities. Tampa
continues to operate Union as a division. On the liquidation date, the basis
and FMV of Union’s assets are $700,000 and $2,500,000, respectively. Union also
has $100,000 of liabilities that were owed to third parties and E&P of $125,000
on the liquidation date.
a. How much gain or loss does Union recognize as a result of
the liquidation?
b. What is Tampa’s basis in the Union assets?
c. What Union tax attributes (if any) carry over to Tampa?