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Assignment Week 6 - under prevailing income tax laws 14-52...

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Week 6 Assignment Answers AC553 14-24 The purpose of the dividends-received deduction is to reduce the effect of multiple taxation that takes place when corporations are receiving dividend income. Only dividends received from domestic corporations subject to the corporate income tax are eligible for the dividends-received deduction. 14-51 Schedules M-1 and M-3 reconcile net income from the company’s books (i.e., book income) to taxable income by starting with book income and showing all the adjustments necessary to arrive at taxable income. This reconciliation is necessary because companies record certain income and expense items in their books for financial recordkeeping purposes (i.e., for purposes of reporting company performance to shareholders or for making management decisions) in a manner that is not allowed
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Unformatted text preview: under prevailing income tax laws. 14-52 a. No gain is recognized since the transaction qualifies under Code Sec. 351. Sam's basis in the stock is $15,000, the same as his basis in the property transferred to the corporation. b. Bill recognizes a $2,000 gain ($3,000 fair market value 1 $1,000 basis). The transfer does not qualify under Code Sec. 351 because Bill does not end up with 80 percent control after the transaction. Bill's basis in the stock is $3,000. c. The corporation recognizes no gain or loss on the issuance of stock. The corporation takes over the basis of Sam's property plus any gain recognized by Sam on the transfer —$15,000 ($15,000 + no gain recognized). d. The corporation recognizes no gain or loss on the issuance of stock. The corporation's basis in the property is $3,000....
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