Statute of Limitations Federal Income Tax

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No. Ans
 1   D
 2   A
 3   C     Compute late filing penalty
           Due date for return                                4/15/08
           Actual filing date                                 5/25/08
           Amount Underpaid                                 $  2,500                    April 15
           Rate per month the payment is late                   5.0%                    May 15       One month
           Penalty per month                                $ 125.00                    May 28       Two months
           Number of months                                        2
           Late payment penalty                             $ 250.00

4    D     Statute of Limitations

          1. Compute Stockholder's Gain or Loss
             Value of all consideration received by stockholder:
                Value of Stock received                                  $    50,000
                Liabilities assumed                                          100,000
             Minus: Cost of all property transferred to corp.                (75,000)
             Equals Gain Realized                                        $    75,000
             Recognized Gain: Lesser of gain realized
5    B        or boot (include excess debt) received                     $    25,000
          2. Compute Stockholder's Basis in Stock
             Basis of all property transferred                           $   75,000
             Plus gain recognized                                            25,000
             Minus boot received (include all debt transferred)            (100,000)
6    A       Equals basis of stock received                              $      -
7    A    3. Compute Corporation's Gain                                         -
          4. Compute Corporation's Basis in Property
             Basis of property transferred by stockholder                $    75,000
               (Property other than cash)
             Add: Gain recognized by stockholder                              25,000
8    E       Equals: basis of property to corporation                    $   100,000

9    C    1. Compute Stockholder's Gain or Loss
             Value of all consideration received by stockholder:
                Value of Stock received                                  $ 1,180,000
                Liabilities assumed                                           20,000
             Minus: Cost of all property transferred to corp.               (800,000)
             Equals Gain Realized                                        $ 400,000
          Dan did not receive control of the corporation.
          Sec. 351 does not prevent the gain from being recognized

10        Sec. 1244 stock
          Gross income before considering stock sale        $ 150,000
          Less: Sec. 1244 ordinary loss                     $ (50,000)
          Less: Additional capital loss                     $ (3,000)
     D    Revised taxable income                            $ 97,000

11   C     Pixie Corp. provided the following information.
           Compute Pixie's taxable income for the year.                      Facts          Return
            Sales revenue                                                 $ 400,000 $ 400,000
            Cost of sales and other operating expenses                    $ 300,000 $ 300,000
            Short-term capital gain                          $ 10,000
            Long-term capital gain                           $ 12,000
            Short-term capital loss                          $ (20,000)
            Long-term capital loss                           $ (5,000) $       (3,000)
           Taxable income                                                                $ 100,000
            The corporation's deduction for capital losses is limited to amount of capital gains.
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12   D Local Corp. provided the following information:
       What is the corporation’s net income before credits?
         Sales revenue                        $400,000
                                             ($350,000)
         Cost of sales and other operating expenses
         Long-term capital gain                $10,000
                                               $60,000
                                               $50,000           15%        $7,500
                                               $10,000           25%        $2,500
       Tax liability                                                       $10,000

13   A     Asset                                            Equip.
           Owner                                            Corp.
           Selling Price                                    $60,000
           Cost                                 $70,000
           Accum. Depreciation (S/L)           ($30,000)
           Adjusted Basis                                     $40,000
           Gain                                               $20,000
           Section 1245 Gain (Ordinary)                       $20,000
           Section 1231 Gain (Capital)                             $0

14   C   Owner                                                                         Big Corp.
         Asset                                                                       NonRes-Realty
         Selling Price                                                                  $700,000
         Cost                                                           $1,000,000
         Accum. Depreciation (S/L)                                       ($400,000)
         Extra Depreciation                                                     $0
         Adjusted Basis                                                                 $600,000
         Gain                                                                           $100,000
         Recapture under sec. 1250 (Excess Depreciation)                                      $0
         Section 1231 gain- before considering Sec. 291                                 $100,000
         Amount that would be recaptured if 1245 applied                                $100,000
         Section 291 recapture (20% rule)                                                $20,000
         Section 1231 gain- after considering Sec. 291                                   $80,000


15   A    Potter Corporation - Dividends Received
          Income from operations                                                         $210,000
          Expenses of operations                                                          230,000
          Net Operating Income                                                          ($20,000)
          Dividend income from Cooper Corp. (10% owned)                                  $150,000
          Total                                                                          $130,000
          Dividend Received deduction percentage                                             80%
          Dividend Received deduction amount - % of dividends                           $120,000
          Dividend Received deduction amount - % of net income                          $104,000

16   B    In 2008, Concord Corp., a domestic corporation, had income, expenses and deductions:
           Gross receipts (Operating Revenues)                                            $100,000
           Operating Expenses, not including Cash Contributions                              60,000
           Net income before deducting charitable contributions                             $40,000
           Cash contributions to qualified charities                                         20,000
           Net income (GAAP) before federal income tax                                      $10,000
          What is the amount of Concord’s allowable charitable contribution deduction for 2008?
           Charitable contribution ded. is limited to 10% of taxable income before charity ded.

17   A     Which expense is an organizational cost?

18   B
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19   B     AMT Exemption
           AMTI                                                            $   210,000
           Floor                                                               150,000
           Excess over Floor                                                    60,000
           Phase-out Rate                                                          25%
           Reduction in exemption                                               15,000
           Unadjusted Exemption Amount                                          40,000
           Exemption allowed                                               $    25,000

20   D     Tentative AMT is less than regular tax, so there is no AMT liability.

       Brother Sister Corporations
21   D Taxable income                            $100,000
                                                  $25,000           15%          3,750
                                                  $12,500           25%          3,125
                                                  $12,500           34%          4,250
                                                  $50,000           39%         19,500
                                                 $100,000                       30,625
                                                                                      2
                                                                                61,250

         Proof                                   $200,000
                                                  $50,000           15%         $7,500
                                                  $25,000           25%         $6,250
                                                  $25,000           34%         $8,500
                                                 $100,000           39%        $39,000
                                                 $200,000                      $61,250

22   C The outstanding stock of Corporations A, B, and C is owned by these unrelated individuals:
          Individuals                         -------------- Corporations --------------
                                                     A            B             C             ALL     AB
           Bonnie                                  80%           70%           5%                5%        70%
           Bart                                     5%           10%           5%                5%         5%
           Delaney                                  5%           10%          25%                5%         5%
           Danette                                 10%           10%          65%               10%        10%
                                                                                                25%        90%
         Each corporation has taxable income of $50,000 for 2008.
         What is the total federal income tax liability of all three corporations for 2008?

         A and B are brother sister corporations
         C is not;.
         A and B will have combined tax liabilty:
                                                $100,000
                                                  $50,000           15%         $7,500
                                                  $25,000           25%         $6,250
                                                  $25,000           34%         $8,500
                                                       $0           39%            -
                                                $100,000                       $22,250

         C's tax liability at 15%                                               $7,500
         Total income tax liability                                            $29,750

23   B
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24   B Future, Inc. reported the following results for the year:
                                                                           Facts        Solution
           Net income per books                                           $110,000       $110,000
           Federal income taxes                                             36,170         36,170
           Life insurance proceeds on death of key employee                 15,000        (15,000)
           Tax-exempt interest income                                       13,000        (13,000)
           Net capital loss                                                 25,000         25,000
           Future's taxable income for the year was:                                     $143,170

25   D Charlotte Corporation's partial income statement after its first year of operations is as follows:
       Income before income taxes                                                                         $500,000
       Federal & state income taxes payable currently                                     $260,000
       Deferred income taxes                                                                 60,000
       Income tax expense                                                                                  200,000
       Net income                                                                                         $300,000
       Charlotte estimates its annual warranty expense as a percentage of sales.
       The amount charged to warranty expense in its accounting records this year was $400,000.
        No difference existed between pretax accounting income and
       taxable income except the warranty expense.
       Assuming a 40% income tax rate, what amount
        was actually paid this year on the corporation's warranty?

       Warranty Expense per books                                                      $400,000
       Difference between books and tax warranty expense                                (150,000)
     D Warranty Expense per tax return                                                 $250,000
       Tax savings on the extra warranty epense                                       $ (60,000)

				
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