1. (TCO 8) Copper, an S corporation, has gross receipts of $190,000 and gross income of $170,000. Copper has AEP of $22,000 and ordinary income of $29,000. It has passive investment income of $100,000, with $40,000 of expenses directly related to the production of passive investment income.
(I) What are the requirements to elect S corporation status?
(II) Calculate Copper's excess net passive income.
(III) Calculate the passive investment income penalty tax. (Points : 30)
2. Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1, 2004, and begins to materially participate in the partnership's business. The Haymarket Partnership uses the calendar year as its tax year. At the time of the purchase, the Haymarket Partnership has $2,000 in liabilities, and Dan's share is 25%. During the year, the Haymarket Partnership incurs $8,000 in losses and its liabilities increase by $4000. What is Dan's basis in his partnership interest on December 31st?(Points : 20)
3. White Corporation is a calendar year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is $25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to Wilhelmina. Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations.
a. Current E&P $15,000, accumulated E&P $50,000.
b. Current E&P $25,000, accumulated E&P $(25,000).
c. Current E&P ($36,500), accumulated E&P $65,000.
d. Current E&P ($10,000), accumulated E&P $(25,000)
Be careful on #c-date of distribution is important
(Points : 20)
4. Jackel, Inc. has the following information for the current tax year.
Gross sales $350,000
Cost of goods sold 50,000
Dividends received (10%) 40,000
Operating expenses 30,000
Charitable contributions 45,000
What is Jackel's charitable contribution deduction? What is Jackel’s taxable income?
(Points : 25)
5. Francine Corporation reports the following income and expense items for the tax year ending December 31.
Gross receipts from sales $55,000
Dividends received from 15%-owned domestic corporation 28,000
Expenses connected with sales 20,000
What is Francine Corporation's taxable income
(Points : 15)