TAX.docx - Week 12 CH 12 0 Submitted 4/4 Total...

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Unformatted text preview: Week 12 CH 12 0 Submitted 4/4 Total paintsawarded Help El“ 2 Problem 12-16 [LO 12-5] In 1994, Mr. and Mrs. Adams formed ADC by transterring $50,000 cash in exchange for 100 shares of common stock and a note from the corporation for $49,000. The note obligated ADC to pay 10 percent annual interest and to repay the $49,000 principal on demand. ADC has never declared a dividend nor made any Interest payments on the note. Last year, it distributed $25,000 casnto Mr. and Mrs. Adams as a principal repayment. When the IRS audited ADC's tax return, the revenue agent determined that this payment was a constructive dividend. (If there is no effect, select "no effect" from dropdown.) 1/1 points awarded 9mm I. If ADC's marginal tax rate is 34 percent, calculate any increase or decrease in A005 tax as a result of this constructive dividend. _..... as no References h. if Mr. and Mrs. Adam's marginal tax rate is 35 percent, calculate any increase or decrease in their tax as a result otthis constructive dividend. _......... as me Expla nation The agent's classification of‘lhe $25,000 nendeductible debt repayment as a nondeductible dividend had no effect on ABC's taxable income ortax. b. The classification of‘lhe nontaxable debt repayment as a constructive dividend increased Mr. and Mrs. Adam‘s taxable income by $25,000 and their tax by $3,750 ($25,000 I 15%). Week 12 CH 12 0 summed 4/4 Total pom awarded Help 1 m Graham is the sole shareholder of Logan Corporation. Forthe past five years, Logan has reported little or notaxable income, as a result of paying Graham a salary of$500,000 per year. During a recent IRS audit, the revenue agentdetermined that Graham's educational and business experience, and his time devoted to managing Logan,justit'ied a salary of only $200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend. Use in points awarded 3. Calculate the additional Income tax liability for Logan as a result ofthis constructive dividend treatment. Assume that taxable Income before audit was zero. [Ignore any payroll tax consequences.) 3 100,250 P” .3... — 9 ,... Print References b. What are the tax consequences to Graham as a result of the constructive dividend treatment? Calculate the change in Graham‘s income tax liability as a result ofthls change. Assume that Graham's marginal tax rate on ordinary income is 39.6 percent (Ignore any payroll tax consequences.) Annual texsavings as a result ofthis change 0 5 53,3000 c. Determine the total impact on Treasury tax collections as a result at this audit finding. 207. 50 Explanation Assuming taxable income before audit was zero, then taxabie income after audit is $300,000 wi'lh related tax liability of $100,250 per year. la. Graham's lax Fiabii‘rty will decrease because dividends are taxed at a iower rate than salary income. Assuming Graham‘s marginai tax rate on ordinary income is 39.6% his income tax Fiabiiity will deciine by $53,800 [$300,000 x (39.6% — 20%)} per year. C. $100,250 — $53,800 = $41,450 increase per year x 5 years = $207,250. 3 Problem 14-09 [LO 14-3, 14-4, 14-5] 1/1 Mr. and Mrs. D had the Following income items: points awarded m. D'a salary $52 500 5 ed - Hrs. D's Schedule I: not profit 41.300 Interest income 1,300 i eBmk Mrs. D's self-employmenttax was $5,906. The coupie had $8,070 iterni their Income tax on ajoint return. Use Individual Tax Rate Schedules and Reference; calculatlons and final answers to the nearest whole dollar amount.) ' AGI s 92,6470 Taxable Income 3 71'947° Income tax 3 9.3550 h'id n or other dependents. Compute Round your intermediate Prim ICES EXphnaflon Mr. and Mrs. D’e total income 3 95.60fl Above-the-line deduction for one-half SB tax (2.9531 RBI 5 92,64? Standard deduction (12,6001 Exemption amount ($4,050 I 2) (8,100) Taxable income 3 Tl.94? Income tax on $T1,94?(married filing jointly) $ 9,365 r——————————————————————————————————————————————————— ...
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  • Fall '15
  • monroe
  • Taxation in the United States, constructive dividend

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