Unformatted text preview: e will be $7,000 ($20,000 35%), and the regular corporation's tax will be less than half this amount. (See pp. 19-18 through 19-20.) b. A personal service corporation conducts its business in a prescribed number of fields which does not include a beauty salon, and is owned mainly by its employees, retired employees, or their estates. [See 448(d)(2).] The flat rate of 35 percent was applied to discourage the use of PSCs as tax shelters. (See p. 19-20.) d. Capital gains are no longer a tax preference item. (See p. 19-20.) a. The corporate taxpayer is required to file its tax return by March 15 of the year following the close of its taxable year. [See p. 19-22 and 6072(b).] 36. 37. 38. 39. 40. Solutions to Test Bank 19-15 41. b. In addition to page 1, Form 1120 includes sections on the following: Cost of Goods Sold, Dividends and Special Deduction, Compensation of Officers, Tax Computation, and a Balance Sheet. (See pp. 19-24 through 19-28.) b. The transfer generally qualifies for nonrecognition under 351, since the transferors of property, F and G, control the corporation immediately after the exchange. However, 351 does not apply to contributions of services. Consequently, F must recognize income equal to the value of the services. (See p. 19-29.) c. The transfer generally qualifies for nonrecognition under 351, since the transferors of property, F and G, control the corporation immediately after the exchange. However, 351 does not apply to contributions of services. Consequently, F must recognize income equal to the value of the services. Under 358, F's basis is $15,000, the same as the property transferred, increased by gain recognized ($0) and decreased by boot received ($0). The basis for the stock received for services is equal to the income recognized, or $10,000. Thus, the total basis is $25,000 ($15,000 $10,000). (See p. 19-33.) c. Since the transaction qualifies for nontaxable treatment under 351, no gain is recognized unless boot is received. For this purpose, the liabilities are not considered boot under 357. However, 357(c) provides that gain must be recognized to the extent liabilities exceed the aggregate of the basis of property transferred, which in this case is $11,000 ($20,000 $9,000). (See pp. 19-31 and 19-32.) c. The corporation recognizes no income on the exchange, but is entitled to deduct the amount paid for the services, or alternatively to capitalize and amortize a portion of the amount attributable to the services. (See p. 19-33 and 1032.) c. The corporation's basis under 362 is the same as the transferor's, increased by any gain recognized, or $36,500 ($27,500 $9,000). (See p. 19-34.) e. Only stock can be received in a tax-free 351 transaction. (See p. 19-30.) d. 500 shares 80% 400 shares. The transferor (or transferors) must receive at least 80 percent of each class of nonvoting stock. [See p. 19-30, 368(c), and Rev. Rul. 59-259.] e. All of the statements are false. Excess liabilities result in gain regardless of the realized gain on the remainder of the transfer. (See pp. 19-29 through 19-32.) d. Sto...
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This note was uploaded on 02/05/2012 for the course ACCT 112 taught by Professor Smith during the Spring '11 term at Adrian College.
- Spring '11