CHAPTER 20--CORPORATIONS AN

23 147 prior to the end of its tax year the

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147. Prior to the end of its tax year, the shareholders of an S corporation either make additional capital contributions or advance funds in the form of loans. Could this shareholder activity be motivated by income tax considerations? Explain. Yes, it could be motivated by income tax considerations. An S corporation may be involved that is anticipating net losses for the year. If the shareholders lack basis in order to take advantage of the passthrough of such losses, they could be making additional capital contributions or loans to increase basis. 148. Nick and Ava each own a 20% interest in the Tanager Partnership. For the current year, one of the pass-through items is a charitable contribution. On their individual income tax returns, Nick can deduct his share of the charitable contribution but Ava cannot. What could cause the disparity in results? Most likely, Ava is claiming the standard deduction, while Nick is itemizing his deductions from AGI. Less likely, both parties are itemizing, but Ava is subject to the percentage limitations imposed on charitable contributions, while Nick is not. 149. What causes a partner’s basis in a partnership interest to fluctuate? A partner’s basis is increased by additional contributions and the sum of the partner’s share of the partnership’s: · Taxable income (including capital gains). · Tax-exempt income. · The excess of the deductions for depletion over the basis of the partnership’s property subject to depletion. Similarly, a partner’s basis is decreased by the distributive share of the following: · Partnership losses (including capital losses). · Partnership expenditures that are not deductible in computing taxable income or loss and that are not capital expenditures. Changes in partnership liabilities also affect the basis of a partnership interest. 150. Margie owns a 30% direct interest in the capital and profits of a family partnership. During the year, Margie sells land (basis of $400,000) to the partnership for its fair market value of $380,000. Could there be a reason why Margie’s realized loss of $20,000 from the sale cannot be recognized? Explain. The loss can be recognized unless Margie and the partnership are related parties. Margie has no problem as to her direct ownership, but what about indirect ownership? Thus, who are the other partners and are they related parties? 24
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151. In some situations, a partnership makes guaranteed payments to one or more of its partners. a. What are these payments? b. What are their tax effects? a. These are payments made by a partnership to one or more of its partners for services rendered or for the use of capital, to the extent they are determined without regard to the income of the partnership. b. Guaranteed payments are deductible by the partnership and taxed as ordinary income to the receiving partner. 152. For various reasons, Bill would like to incorporate his very successful business. Before doing so, however, he has the following reservations: · Recognizing gain on appreciated business assets.
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  • Spring '12
  • honig
  • Corporation, Income tax in the United States, C CORPORATION

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