x-547 Joint Stock Company

Here we will cover rules for ordinary domestic corporations. Examples of businesses taxed as corporations are businesses formed under a federal or state law that refers to it as a corporation, body corporate, or body politic, a business formed under a state law that refers to it as a joint-stock company or joint-stock association, an insurance company, certain banks and businesses owned by state or local governments.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. Fred bought new office equipment four years ago for $1,000. In April, a fire destroyed the equipment. Fred estimates that it will cost $1,200 to replace the equipment. Fred estimates the fair market value of the equipment was $500. He had no insurance and at the time of the fire his adjusted basis was $437. What is Fred's business loss?

A. $1,200.
B. $1,000.
C. $500.
D. $437.

2. Which of the following transactions is NOT a transaction that results in a gain or loss subject to section 1231 treatment?

A. Sales or exchanges of leaseholds.
B. Sales or exchanges of cattle and horses.
C. The sale of a copyright, literary, musical, or artistic composition that you created.
D. Sales or exchanges of unharvested crops sold together with land to the same buyer.

3. Larry owned 35 shares of Flower Corporation stock for which he had paid $3,500. He sold this stock to this sister, Karen, for $3,000. Karen later sold this stock to her cousin, Joe, for $10,000. What is Larry's and Karen's recognized gain or loss, if any?

A. $0 loss for Larry and $6,500 gain for Karen.
B. $0 loss for Larry and $7,000 gain for Karen.
C. $500 loss for Larry and $7,000 gain for Karen.
D. $0 for Larry and $0 for Karen.

4. Which of the following transactions qualifies as a like-kind exchange?

A. The exchange of a copyright on a novel for a copyright on a song.
B. An exchange of the "goodwill or going concern value" of another business.
C. An exchange of land improved with an apartment house for land improved with a store building.
D. An exchange of personal property used predominantly in the United States for personal property used predominantly outside the United States.

5. Special rules apply to like kind exchanges between related persons. Under these rules, related persons are:

A. The taxpayer and a member of his/her family.
B. The taxpayer and a corporation in which the taxpayer has a 25% ownership.
C. The taxpayer and a partnership in which the taxpayer directly or indirectly owns a 25% interest in the capital or profits.
D. All of the above.

6. Which of the following does not qualify as a nontaxable exchange or transfer?

A. A life insurance contract for an annuity contract.
B. A general partnership interest for a general partnership interest in the same partnership.
C. A transfer of property from an individual to a former spouse, incident to divorce.
D. None of the above.

7. Walter is an accrual basis taxpayer who has a business with significant accounts receivables. In 2007, Walter had an $8,000 receivable owed to his business from Fred. Fred was unable to pay the full amount, but did transfer a parcel of land with a fair market value of $6,000 to Walter in partial payment. Walter entered on his books the $2,000 difference as a business bad debt, but was unable to take a tax benefit from this bad debt deduction as he had no taxable income at the end of 2007. In 2008, Walter sold the land received from Fred at a $3,000 gain. At the end of 2008, how much gain from the sale of this land must Walter report in taxable income?

A. $3,000 - the entire gain.
B. $1,000 - the gain less the bad debt.
C. $0 - any gain is limited to the amount of bad debt.
D. None of the above.

8. In 2008 you used a fishing lodge as an entertainment facility. Which of the following incurred expenditures may be partially deductible?

A. Depreciation expense.
B. Fishing bait.
C. Natural gas to heat the lodge.
D. Repairs to the lodge roof.

9. The standard meal allowance cannot be used to figure a deduction for:

A. Business travel if you are self-employed.
B. Travel in connection with investment property.
C. Travel for qualifying educational purposes.
D. Travel to obtain medical treatment.

10. Under which situation below is a deduction allowance for an office in your home?

A. Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use your walk-in closet for storage of inventory and product samples. You also use this area occasionally for personal purposes.
B. You are an attorney and use a den in your home to write legal briefs. Your family also uses the den for recreation.
C. You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities to monitor personal investments.
D. You use your walk-in closet at home exclusively and regularly to bill customers, clients, or patients; to set up appointments; and to order supplies. You also rent office space downtown where you also conduct those same activities. You use the home office three days a week and the rented office space two days a week.

11. Pleasant Beach City, to improve downtown commercial business, converted a downtown business area street into an enclosed pedestrian mall. The city assessed the full cost of construction, financed with 10-year bonds, against the affected business properties. The city is paying the principal and interest with the annual payments made by the property owners. The portion that the business owners were assessed to pay the construction costs is:

A. Deductible as taxes.
B. Deductible as a business expense.
C. A non-depreciable capital expenditure.
D. A depreciable capital expenditure.

12. On November 15, 2008, Partnership Z paid $10,000 in accounting and legal fees to prepare and file the partnership agreement. The partnership began business on December 1, 2008. Which of the following is a permissible election for treatment of the $10,000 payment?

A. Deduct $10,000.
B. Deduct $5,000 and amortize the remaining $5,000 over a 5-year period.
C. Deduct $5,000 and amortize the remaining $5,000 over 180 months.
D. Amortize $10,000 over a 5-year period.

13. Amounts paid or incurred to demolish a structure are:

A. Deductible as a casualty loss.
B. Capitalized and amortized over a 180 month period.
C. Treated as a reduction of the basis of the structure.
D. Capitalized and added to the basis of the land where the demolished structure was located.

14. Kayla exchanged her unimproved land with an adjusted basis of $80,000 and a fair market value of $130,000 for unimproved land with a fair market value of $100,000 and $10,000 in cash. Kayla also paid $5,000 in closing costs. The unimproved land Kayla gave up was subject to a $300,000 mortgage for which she was liable. The other party assumed this mortgage. What is Kayla's realized gain on this exchange?

A. $40,000.
B. $55,000.
C. $35,000.
D. $25,000.

15. In 2004, you purchased a candy making machine for your business. The machine cost $50,000 and you claimed a $20,000 Internal Revenue Code section 179 deduction for that machine. IN 2008, you sold the machine for $52,000. Your accumulated depreciation from 2004 through 2008 was $18,974 (not including the section 179 deduction). How much is your taxable gain and what portion of that gain must be reported as ordinary income under Internal Revenue Code section 1245?

A. Taxable gain of $40,974 and ordinary income of $38,974.
B. Taxable gain of $40,974 and ordinary income of $40,974.
C. Taxable gain of $20,974 and ordinary income of $18,974.
D. Taxable gain of $2,000 and ordinary income of $2,000.

16. In 2002, XYZ Corporation issued qualified small business stock to you at a costs of $1,500. In 2008, you sold that stock for $50,000. How much of the gain on that sale is excludable from gross income?

A. $0.
B. $7,500.
C. $24,250.
D. $48,500.

17. In 2002 Adam purchased 100 shares of Call Corporation stock for $60 per share. During 2008 Call Corporation completely liquidated. After paying its liabilities, Call Corporation distributed to its shareholders $10,000 in cash and appreciated property sold for $90,000. Adam's portion received a liquidating distribution from Call Corporation of $10,000. Adam must report what amount of capital gains income from this distribution?

A. $4,500.
B. $5,000.
C. $22,500.
D. $25,000.

18. The Andee Partnership traded its panel truck with an adjusted basis of $10,000 for a pick-up truck with a fair market value of $15,000. Andee also received $3,500 cash on the trade. What is the gain, if any, on this trade?

A. $0.
B. $3,500.
C. $5,000.
D. $1,500.

19. The Sprinkly and Meato Partnership bought investment property on March 9, 2007 and sold it on March 9, 2008. The property cost $100,000 and it was sold for $135,000. What is the character of the gain or loss?

A. Long term gain of $35,000.
B. Ordinary income $135,000.
C. Short term gain of $35,000.
D. Long term gain of $135,000.

20. The Post and Rail Partnership traded a piece of farm land with an adjusted basis of $4,000 for a farm land with an adjusted basis of $4,000 for a farm tractor that has a fair market value of $9,000 and an adjusted basis of $8,000. What is the recognized gain or loss?

A. $5,000.
B. $4,000.
C. $1,000.
D. None, it is a like kind exchange.

21. Arthur is a proprietor of Arthur's Pizza Emporium. He bought a commercial building several years ago. He made a down payment of $20,000 in cash and assumed a mortgage for $100,000. After he paid off the mortgage, Arthur later sold the building for $180,000. Straight line depreciation taken up to the date of sale was $18,000. What is the total gain on the sale?

A. $78,000.
B. $80,000.
C. $60,000.
D. $160,000.