CHAPTER 20--CORPORATIONS AN

A what is noahs basis for his partnership interest as

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a. What is Noah’s basis for his partnership interest as of January 1, 2011? b. What is Noah’s basis for his partnership interest as of January 1, 2012? a. $0. $70,000 (1/1/10 basis in partnership interest) – $90,000 (Noah’s share of loss) = $0 (basis cannot be negative). b. $40,000. $0 (1/1/11 basis in partnership interest ) + $60,000 (Noah’s share of profit) – $20,000 (unabsorbed loss from 2010) = $40,000 (1/1/12 basis in partnership interest). 133. Regarding the check-the-box Regulations, comment on each of the following: a. The main reason these Regulations were issued. b. An entity is a corporation under state laws c. A limited liability company defaults (no election is made). d. A one-person business defaults (no election is made). a. The confusion over the income tax status of limited liability companies led to the promulgation of the check-the-box Regulations. Under these Regulations, the presence (or absence) of corporate characteristics is of no consequence. b. If an entity is incorporated under state law, then it is a corporation. The check-the-box Regulations are not applicable to such situations. c. Under the Regulations, it will be treated as a partnership for Federal income tax purposes. d. A sole proprietorship is the result for Federal income tax purposes, since no election was made. 20
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134. Corporate taxpayers lose the benefits of lower tax brackets and the rates cease to be progressive once taxable income reaches a certain level. Explain this statement. The lower tax rates of 15% and 25% begin to phase out once the $335,000 bracket is reached. The benefit of the lower brackets is recovered by imposing a 39% rate. When taxable income reaches $15,000,000, a 38% rate recovers any income taxed at 34%. Once taxable income reaches $18,333,333, all benefits of the lower rates (i.e., below 35%) have been recouped. Thus, progression is eliminated and every dollar is subject to a marginal tax rate of 35%. 135. In what manner do the tax rules dealing with capital gains differ for corporations and individuals? Corporations do not have access to the alternative tax available for net long-term capital gains. Thus, such gains are taxed as ordinary income and are not subject to a maximum rate of 15% (0% in some cases) available to individuals. 136. In contrasting the tax treatment of excess capital losses with individual taxpayers: a. What advantages do corporate taxpayers enjoy? b. Disadvantages? a. Capital losses can be carried back three years. b. Cannot apply up to $3,000 offset against ordinary income. Carryovers limited to five years (not indefinite). 137. Regarding the tax treatment of charitable contributions, corporations enjoy two major advantages over individuals. Explain. If certain requirements are satisfied, accrual basis corporations can deduct a contribution in the year it was authorized, rather than the year paid. Also, it is possible for corporate taxpayers to deduct one-half of the appreciation on certain ordinary income property. 138. How does the domestic production activities deduction differ for corporations than for individuals?
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  • Spring '12
  • honig
  • Corporation, Income tax in the United States, C CORPORATION

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