x-551 - Business Taxed as Corporations

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. The XYZ Partnership bought a business for $1,000,000 in January. Included in the purchase price were business assets as follows: Certificate of deposit $100,000, accounts receivable of $200,000, and inventory of $300,000. Also purchased but not separately valued were an office building, land, and going concern value. The real estate tax assessment was $300,000 and the buyer estimated the building was worth twice the land value. What values would you assign to the building, land and going concern?

A. Building $200,000, Land $100,000, Going Concern $100,000.
B. Building $100,000, Land $200,000, Going Concern $100,000.
C. Building $200,000, Land $200,000, Going Concern $0.
D. Building $250,000, Land $150,000, Going Concern $0.

2. Joe traded a truck with adjusted basis of $10,000 and received a new truck with a fair market value of $9,000 and $1,500 cash. What is the basis of Joe's new truck?

A. $8,500.
B. $10,500.
C. $10,000.
D. $9,000.

3. Setting Sun Partnership purchased a business, Family Dry Cleaners, for $750,000. The acquired Family Dry Cleaners assets consisted of the following:

For real estate tax purposes, the city assessed the value of the land at $100,000 and the building at $200,000. The buyer and seller did not enter into an allocation agreement for this transaction. What basis must Setting Sun Partnership use for the land, building, and intangible asset "goodwill"?

A. Land $100,000, Building $200,000, and Goodwill $150,000.
B. Land $150,000, Building $300,000, and Goodwill $0.
C. Land $150,000, Building $300,000, and Goodwill $50,000.
D. Land $100,000, Building $350,000, and Goodwill $50,000.

4. Nelson, Inc. owned a manufacturing building with a fair market value of $95,000 and an adjusted basis of $75,000. Nelson, Inc. entered into an agreement to exchange the manufacturing building for a warehouse with an adjusted basis of $80,000 and a fair market value of $90,000 with Roberts Corporation. In addition, Nelson, Inc. would pay Roberts Corporation $5,000 in cash. Nelson, Inc. also incurred and paid attorney and deed preparation fees of $5,000 on this exchange. What is Nelson, Inc.'s basis in the warehouse it received in this like-kind exchange?

A. $85,000.
B. $90,000.
C. $95,000.
D. $100,000.

5. Sally exchanges an apartment building with an adjusted basis of $400,000 for an office building with a fair market value of $750,000. She also agrees to assume the mortgage on the office building in the amount of $200,000 and paid exchange expenses of $25,000. The other party agreed to assume Sally's mortgage on the apartment building in the amount of $125,000. What is Sally's adjusted basis in the new office building?

A. $425,000.
B. $500,000.
C. $625,000.
D. $750,000.

6. Rich, Inc., a calendar-year taxpayer employing the accrual method of accounting, acquired a business warehouse building in 2007 for $100,000. Rich, Inc. deducted $3,000 in warehouse asset depreciation expense on December 31, 2007. In January of 2008, Rich, Inc. incurred a $2,000 legal bill, successfully defending its title to the building. Later in the year a second floor office was added to the warehouse at a cost of $10,000. Rich, Inc. deducted $5,000 in warehouse asset depreciation expense on December 31, 2008. What is Rich, Inc.'s adjusted basis in the warehouse asset on January 1, 2009?

A. $100,000.
B. $104,000.
C. $110,000.
D. $112,000.

7. The Phineas and Lily Partnership bought a business of $500,000 on January 15, 2008. Included in the purchase price were business assets as follows: a certificate of deposit $100,000, accounts receivable of $50,000, a truck with fair market value of $80,000, and a milling machine with a fair market value of $20,000 and an adjusted basis of $18,000. For depreciation purposes, what option of the $500,000 lump-sum payment is allocated to the milling machine?

A. $18,000.
B. $53,320.
C. $20,000.
D. $50,000.

8. Dianne's Desserts, a sole proprietorship, bought a building for $350,000 cash in January 2008. Settlement costs were $12,500. The business placed $15,000 in escrow for future payment on taxes and insurance and assumed an existing mortgage of $20,000 on the property. Legal fees of $7,500 were incurred for defending and perfecting title in a lawsuit that occurred during 2008. What is the adjusted basis of the building on December 31, 2008?

A. $390,000.
B. $405,000.
C. $385.000.
D. $377,500.

9. The Needle and Thread Partnership traded an old machine having an adjusted basis of $10,000 and cash of $2,000 for a new machine with a fair market value of $15,000. What is the recognized gain and what is the basis of the new machine?

A. Gain $-0-        Basis $10,000.
B. Gain $-0-        Basis $10,000.
C. Gain $2,000     Basis $15,000.
D. Gain $3,000     Basis $12,000.

10. George purchased a business on May 31, 2008, for a lump sum price of $1,400,000. The values of the assets on the seller's books were as follows:

George did not assume any loans. What is his basis for goodwill and the equipment?

A. Goodwill $0           Equipment $300,000.
B. Goodwill $200,000  Equipment $300,000.
C. Goodwill $200,000  Equipment $350,000.
D. Goodwill $        0   Equipment $350,000.

11. Larry purchased an office building and land on February 1, 2008, for $1,000,000. No liabilities were assumed. The assessed value of the assets for real estate purposes at the time of the purchase were as follows:

What is the basis of the building?

A. $500,000.
B. $600,000.
C. $625,000.
D. $700,000.

12. Several years ago, you paid $150,000 to build your home on a lot that cost you $50,000. Before converting the property to rental use last year, you paid $30,000 for permanent improvements to the house. You received a $5,000 easement payment from the State of California for use of the land for a power line. The county indicates the FMV of the house is $250,000 and the land is $100,000. What is your basis for depreciation?

A. $150,000.
B. $175,000.
C. $180,000.
D. $250,000.

13. The Taft, Lincoln & Garfield partnership owned a vacant lot of land, which it used in its business. The partnership exchanged the lot for another vacant lot, which was used for business purposes. The adjusted basis of the old lot was $20,000 (FMV $31,000) and the adjusted basis of the new lot was $19,000 (FMV $30,000). The partnership incurred exchange expenses of $500 for attorney fees and $75 for deed fees to record the exchange. What is the basis of the new property on the books of the partnership?

A. $29,425.
B. $20,000.
C. $20,575.
D. $19,575.

14. Fred exchanged his rental property with an adjusted basis of $220,000 and an FMV of $250,000 for a storefront worth $230,000 and paid $20,000 cash. Fred paid exchange costs of $15,000 from his personal checking account. The property given up had a mortgage of $100,000, that the other party in the trade assumed. Fred assumed a $90,000 liability on the new property. What is Fred's recognized gain?

A. $0.
B. $15,000.
C. $20,000.
D. $25,000.

15. David owned a car, which he used in his business for the past two years. Its adjusted basis was $13,500. David sells his car to a dealer for $14,500. He then buys a new car for $20,500 from the same dealer. What is David's basis in the new car?

A. $13,500.
B. $14,500.
C. $19,500.
D. $20,500.

16. P&L Partnership purchased a building for commercial purposes on July 1, 2008, for $200,000. Carpeting was installed at a cost of $8,000 on August 30, 2008. Furniture was purchased at a cost of $10,000 on September 1, 2008. Legal fees of $700 and recording fees of $100 were incurred at the time the building was purchased. What is the cost basis of the building?

A. $218,800.
B. $200,000.
C. $200,800.
D. $218,000.

17. Rebecca exchanges real estate held for investment with an adjusted basis of $400,000 and a mortgage of $100,000 for other real estate to be held for investment. The other party agrees to assume the mortgage. The fair market value of the real estate Rebecca receives is $500,000. She pays exchange expenses of $10,000. What amount of gain does Rebecca realize?

A. $100,000 gain.
B. $190,000 gain.
C. $90,000 gain.
D. $200,000 gain.

18. Bob Moon Forms Moon Enterprises LLC (Limited Liability Company) during the year. What form must Moon Enterprises LLC file in order to elect to be taxed as a C corporation?

A. Form 1065 (U.S. Partnership Tax Return).
B. Form 8832 (Entity Classification Election).
C. Form 1120 (U.S. Corporation Income Tax Return).
D. Form 7004 (Application for Extension of time to file for Corporations).

19. ABC Corporation is dissolved on July 9, 2008. What is the due date, without extensions, for filing of the final corporate income tax return?

A. March 15, 2009.
B. December 31, 2008.
C. October 15, 2008.
D. October 9, 2008.

20. The corporation's basis of property contributed to capital by a shareholder is

A. Zero.
B. The same as the basis the shareholder had in the property.
C. Not taxable to the corporation.
D. None of the above.