How can the risk of adverse tax consequences be minimized?.
- Hoffman, W. H., Raabe, W. A., Smith, J. E., Maloney, D. M., & Young, J. C. (2016). South-western federal taxation 2016: Corporations, partnerships, estates and trusts( 39th ed.). Mason, OH: South-Western Cengage Learning.
- Chapter 10: Partnerships: Formation, Operation, and Basis
- Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations
These chapters are for questions 1 and 2
- Jonathan owns property (basis of $200,000, value of $300,000). He plans to contribute the property to the JJG Partnership in exchange for a 25% interest.
- What issues arise if the partnership distributes $150,000 of cash to Jonathan three months after the property contribution?
- How can the risk of adverse tax consequences be minimized?
- At the beginning of the tax year, Melody’s basis in the MIP LLC was $60,000, including her $40,000 share of the LLC’s liabilities. At the end of the year, MIP distributed to Melody a cash amount of $10,000 and inventory (basis of $6,000, fair market value of $10,000). In addition, MIP repaid all of its liabilities by the end of the year.
- If this is a proportionate non-liquidating distribution, what is the tax effect of the distribution to Melody and MIP?
- After the distribution, what is Melody’s basis in the inventory and in her MIP interest?
- Would your answers to (a) change if this had been a proportionate liquidating distribution? Explain.
Hoffman, W. H., Raabe, W. A., Smith, J. E., Maloney, D. M., & Young, J. C. (2016). South-western federal taxation 2016: Corporations, partnerships, estates and trusts ( 39th ed.). Mason, OH: South-Western Cengage Learning.
- Chapter 12: S Corporations
- Chapter 15: Exempt Entities
These chapters are for questions 3 and 4
3.Collette’s S Corporation has a small amount of accumulated earnings and profits (AEP), requiring the use of the more complex distribution rules. Collette’s accountant tells her that this AEP forces the maintenance of the AAA figure each year. Assume you are the S Corporation’s accountant and do the following:
- Draft a letter to your client, identifying any relevant tax issues Collette faces.
- Offer any advice that you feel might be important to consider.
- An exempt hospital receives all of the shares of stock of Compute, Inc., a retail computer chain, as a gift from a wealthy donor. Because the chain is very profitable and its CEO has offered to continue to manage it, the hospital has decided to operate the chain rather than sell the stock. All of the chain’s profits will be used in carrying out the exempt mission of the hospital.
- Advise the hospital on whether better Federal income tax consequences can be achieved by operating the chain as a subsidiary or as a division of the hospital corporation.
- The following is a related article about President-elect Donald Trump’s proposed tax policies from the Forbes.com(2016) attached below. After reading the article, what are your thoughts? How does this article relate to the Sullivan article? How relevant do you think the arguments posed in the Sullivan article (written in 2014) will be under the Trump presidency in 2017?
Drange, M. (2016). Why Trump’s Tax Plan Will Be Good News For Silicon Valley’s Biggest Companies. Forbes.Com, 9.
Trumps Tax Plan Good News for Silicon Valley Companies article.htm
30 Years after the Tax Reform Act of 1986 article
The following is a related article about the Tax Reform Act of 1986 from the Journal of Accountancy (2016) attached below. This article may provide some background information and thoughts about possibility of current tax reform in addition to the previous article about the President-elect’s proposed policies as you formulate your thoughts about this issue. What are your thoughts?
Nellen, A., & Porter, J. (2016). 30 years after the Tax Reform Act: Still aiming for a better tax system. Journal Of Accountancy, 222(4), 1
30 years after the Tax Reform Act_ Still aiming for a better tax system._ article.html