3/21 Deck

Question 1

Debtor not eligible for ch 11

Answer 1

Stockbroker

Question 2

Under Sales Article of the UCC the warranty of title

Answer 2

Provides the seller deliver goods free from any lien the buyer lacked knowledge of.

Question 3

Right of the surety to compel debtor to pay creditors

Answer 3

Exoneration

Question 4

S Corp makes a liquidating distribution to a shareholder. Shareholder basis is 175,000. The shareholder receives land with a 85,000 basis and 160,000 FMV. The land has a 60,000 mortgage. What is the gain/loss recognized, post distribution stock basis and basis in property distributed?

Answer 4

A S Corp recognized the liquidation same as a C Corp, as if the corp sold the property at FMV.
Shareholder basis is first increased/reduced by their share of S Corp Gain/Loss.
Gain/Loss recognized - Basis - FMV + liability assumed. Which is part loss from S Corp and from loss from distribution. 170,000-160,000+60,000=70,000
Since it is a liquidating distribution the post distribution stock basis is 0.
Basis in the property will be the FMV of the land. 160,000

Question 5

An S Corp makes a liquidating distribution to a shareholder. Shareholder basis is 125,000. Basis in the inventory is 190,000 and has a FMV of 100,000. What is the gain/loss recognized, post distribution stock basis and basis in property distributed?

Answer 5

An S Corp will follow the same rules as a C Corp. The distribution will be as if the S Corp sold the property at FMV.
The shareholder’s basis is first recognized their portion of the gain/loss from the S Corp of the liquidation.
Gain/Loss Recognized - FMV of property - Basis. Recognize loss if basis is larger than FMV. 100,000-120,000=20000 plus 5,000 flow through from S Corp
Post distribution stock basis will be zero.
Basis in property distributed will be the FMV.

Question 6

A partnership makes a liquidating distribution to its shareholders. The partners basis is 150,000. Receives inventory with a FMV of 100,000 and a basis of 110,000. What is the Gain/Loss Recognized, basis in partnership post distribution, and basis in property distributed?

Answer 6

The partnership will not recognized any gain/loss from the liquidation.
The partner’s basis is first reduced by any debt relief. 150,000-20,000=130,000
Gain/Loss recognized - Partner basis - property basis - 130,000-110,000=20,000. Recognize loss if basis is more that property
Post distribution basis will be zero as it is a liquidation.
Basis in property will be 110,000. The rollover basis.

Note this only applies to inventory and unrealized receivables. Any other property the basis in property distributed what equal the partners basis. No gain or loss would be recognized.

Question 7

Roth IRA contributions are

Answer 7

Not deductible

Earnings and distributions are not included in gross income.

Question 8

Sales taxes are

Answer 8

Deductible from AGI.

Taxpayer my choose higher of income tax paid or sales tax.

Question 9

Interest Expenses are a deduction

Answer 9

from AGI, limited to interest income.

Question 10

An S Corp makes a liquidating distribution to a shareholder. Shareholder basis is 85,000. Receives 100,000 in cash for liquidation. What is the Shareholders recognized gain, post distribution stock basis and basis in property received?

Answer 10

The S Corp will recognize gain or loss bases on the FMV of assets minus adjusted basis.
The shareholders basis is reduced by their portion of the loss.
The shareholder then recognizes the gain for cash in excess of basis.
This gain is reduced by the recognized loss flow through from the S Corp.
The post distribution basis in stock is zero as it is a liquidating distribution.
The shareholder has a basis in cash of 100,000.

Question 11

For a 20% interest, a partner contributed 5,000 and land with a 12,000 basis and FMV 20,000. Land was subject to 10,000 mortgage that the partnership assumed. The partnership had 20,000 in recourse debt. What is the partners basis?

Answer 11

Cash contributed 5,000
Basis in land 12,000
Less mortgage assume by other partners (8,000) - 80% of 10,000
Liabilities assume by partner 4,000 - 20% of 20,000
= 13,000 basis

Question 12

A signed contract to bind books at 80 cents per. Later an oral agreement to reduce the price to 70 cents per. Is this oral agreement enforceable?

Answer 12

The contract is for services which means it is governed by common law.
Under common law, modifications must have consideration.
No consideration was given so, unenforceable.

Question 13

Partner contributes land with a 20,000 FMV in exchange for 50% interest. Land had an adjusted basis of 12,000 and subject to a 4,000 mortgage which the partnership assumed. What is the adjust basis for the partner?

Answer 13

12,000 Land basis
(2,000) Mortgage assume by by other partner (4,000x50%)
=10,000 basis

Question 14

The parole evidence rule prohibits

Answer 14

Introduction of prior or contemporaneous oral statements that seek to vary the terms of a written Contract.

It does not prohibit subsequent oral statements that modify the contract.

Question 15

Contract with CPA and client. 15 months to complete, 5,000 price. Client did not sign contract but signed checks to CPA. Does the statute of frauds apply?

Answer 15

Statute of frauds does apply to contracts that cannot be completed in one year and sale of goods over 500.

However there is nothing stating this cannot be performed before one year. And the sale is for services not goods.

The Statute of frauds does not apply and the contract is enforceable.

Question 16

What type of conduct generally will make a contract voidable?

Answer 16

Fraud in inducement

defrauded into a contract because terms are not represented.

Question 17

Entities that must include 100% of dividends received from unrelated taxable domestic entities?

Answer 17

Personal Service Corporations

Personal Holding Companies

Question 18

Amount realized calc

Answer 18

\+FMV of new property
\+Cash / Boot received
\+Net reduction in debt
-Cash / Boot paid
-Net increase in debt
-adj basis of old property

Question 19

General / Limited partner loans the partnership money. Who bears the risk of loss

Answer 19

The partner who made the loan

No share of loan will be allocated to other partners.

Question 20

Decisions sustained in Small Claims Division of the U.S. Tax Court have

Answer 20

Little significance on precedent in the US Tax Court.

Small claims division decisions cannot be relied on as precedent.

Question 21

Under federal bankruptcy code, what parties cannot be petitioned into involuntary bankruptcy

Answer 21

Farmers and nonprofit charities

Question 22

Under the Revised Model Business Corporation Act a shareholder may inspect a corporations books and records

Answer 22

After 5 days notice and for a proper purpose. This right cannot be limited or abolished by articles or bylaws.

Question 23

Corp has 3,000,000 in income. The following property purchased in year
Building 825,000 with 100,000 in land
Computers 750,000
Trucks 525,000
Qualified Improvement Property 1,300,000
Office Furniture 400,000

What is the 179 deduction? What is the bonus depr? What is the Macrs depr?

Answer 23

The building is not 179 or bonus depr.

Section 179 deduction would be 750,000 computers, 525,000 trucks, 1,300,000 QIP, and 400,000 Office Furniture. 2,975,000 - 2,620,000 phase out = 355,000. 1,050,000 max amount - 355,000 = 695,000 179 deduction

Bonus depr will be all property less that 20 years. If 179 deduction is take, bonus depr is reduced by that amount.
w/ 2,280,000 w/o 2,975,000

Macrs will be the left over after 179 and bonus times the macrs reference table.

Question 24

Under the Sales Article of the UCC, contracts over $500 are

Answer 24

typically unenforceable unless material terms of the contract are in writing and signed by the enforceable party.

Specifically manufactured, admitted to in court,

Question 25

Section 1244 stock that becomes worthless

Answer 25

Is an ordinary loss, not a capital loss.

Not netted with capital gains/losses.

Question 26

In determining partnership income, charitable contributions

Answer 26

Are not used in determining ordinary income. They are a separately stated item.

Question 27

The child tax credit

Answer 27

2,000 for each qualifying child.

1,000 in bonus for each 6 - 17. Reduced by 50 for each 1000 above 150,000 MFJ.

Question 28

A third party to a contract with an agent for an undisclosed principal may

Answer 28

elect to hold either the principal or the agent liable.

Question 29

In a liquidating distribution LLC’s and partnerships

Answer 29

Do not recognize a gain or loss.

Partnership basis is reduced by their share of liabilities

Basis in property distributed will the shareholder basis minus any cash received.

Question 30

Estate taxes paid on inherited property

Answer 30

Do not affect basis.