Reference no: EM132537141 , Length: word count:600

Problem 1
Your friends plan to form a corporation for purposes of constructing a shopping center. Charlie will be contributing the land for the project and wants more security than shareholder status provides. He is contemplating two possibilities: receive corporate bonds for his land, or take out a mortgage on the land before transferring it to the corporation. Comment on the choices Charlie is considering. What alternatives can you suggest?

When discussing this with Charlie, he also brought up the issue of deductible net operating losses. Please explain how Net Operating Losses are handled for a corporation.

Problem NO. 2

Please read carefully.

Main Problem below:
Jennifer and Jamie are starting a business and have asked you for advice about whether they should form a partnership, a corporation, or some other type of entity. Prepare a list of questions you would ask in helping them decide which type of entity they should choose and explain your reasons for asking each of the questions. Follow up by responding to your classmates posts discussing their questions and some of the advantages and disadvantages of each type of entity.
My answer for above question.
The decision of how to organize cannot be overlooked- as it can drastically influence how much revenue is wasted on taxes. Below is a detailed list of important questions and reasons to ask before going into business.
1) How many partners will the business have?
The number of partners eliminates some options. More than one person cannot own a Sole - Proprietorship, while having too many owners will affect your ability to designate a corporation as an S-
Corp, meaning you will be taxed on income and distributions.
2) What is your risk exposure?
Sole proprietorship have unlimited liability, while LLP's limit liability to limited partners. Corporations limit risk to investment and corporate assets. Liability must be considered to protect personal assets when forming a business.
3) What are your state income tax laws?
Since these may make forming a corporation less favorable than a partnership or sole proprietorship.
4) What is your preferred tax burden?
Corporations must pay a payroll tax while partnerships and S-Corps have self-employment taxes. You should review your expected income and tax burdens before formation.
5) What is the exit strategy and management plan for the business?

Anytime you form a business, you must ask how you will leave. Sole propritorships cease to exist when you stop working (not the liability). Partnerships must be bought out-which in terms of large companies means accounting for that liability or agreeing to long-term buyout plans so one partner's retirement does not financially ruin the company. Corporations allow for free safe of ownership, the downside however is that you may end up with new partners you did not want.
6) How are other companies in you state, industry, and of similar size formed?
Chances are most competitors have chosen the correct form and done many of the calculations you now face. If you choose a less chosen option be sure the reasoning is sound.
These are just a few questions that should be asked but should give you a good idea of what option is best suited for these people.
List of questions:
A. What type of business they are willing to operate? - Depending on that we have to decide on the need for limited liability or the need for raising capital by selling shares.
B. Determine the percentage of ownership both of them will hold within the business?
C. What type of income is anticipated? - Because that will flow through individual tax returns or will be reported as dividend payout in case of c corporation.
D. What will happen to the profit (if any) for each year? Will it roll over to the next business year or will be drawn out in the end of the year?

Problem No. 3
Multiple questions

Problem No. 1
If individual taxpayers are the shareholders of PST Corporation and PST corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

Multiple Choice
• No taxation.
• Single taxation.
• Double taxation.
• Triple taxation.

Problem NO. 2

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year ending in 2017?

Multiple Choice
• If it carries back the NOL and/or carries it forward, it may offset up to 80% of the taxable income (before the NOL deduction) in those years.
• It may carry the NOL forward for up to 20 years and offset up to 100% of the taxable income (before the NOL deduction) in those years.
• It may carry the NOL back two years and offset up to 100% of the taxable income (before the NOL deduction) in those years.
• None of these (selecting this option means you believe all of these responses are true).
Problem No. 3

Roberto and Reagan are both 25 percent owner/managers for Bright Light Enterprises. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light is taxed as a partnership and decides that Roberto and Reagan will be allocated 70 percent of his own store's profit with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan?

Multiple Choice
• ($25,000)
• ($17,500)
• $5,000
• $20,000
Problem No. 4
If C corporations retain their after-tax earnings, when will their shareholders who are individuals be taxed on the retained earnings?

Multiple Choice
• Shareholders will be taxed when they sell their shares at a gain.
• Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings.
• Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return.
• None of the choices are correct.
Problem No. 5
Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

Multiple Choice
• LLC - LLC members.
• Corporation - Corporation.
• General Partnership - Partnership.
• Limited Partnership - General partner.
• Corporation - Corporation and Limited Partnership - General partner.
Problem no. 6
On which tax form does a single member LLC with one individual owner report its income and losses?

Multiple Choice
• Form 1120.
• Form 1120S.
• Form 1065.
• Form 1040, Schedule C.
Problem No. 7
Which of the following legal entities file documents with the state to be formally recognized by the state?

Multiple Choice
• Limited Liability Company.
• General Partnership.
• Sole Proprietorship (non LLC).
• None of the choices are correct.
Problem No. 8

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

Multiple Choice
• Limited partnership.
• Limited Liability Company.
• General partnership.
• All of the choices are correct.
Problem No. 9

Which of the following entity characteristics are generally key drivers for small business owners in deciding which entity to choose?

Multiple Choice
• Rate at which income from entity will be taxed.
• Required accounting period.
• Liability protection.
• Rate at which income from entity will be taxed and required accounting period.
• Rate at which income from entity will be taxed and liability protection.
Problem NO. 10

What tax year-end must an unincorporated entity with only one owner adopt?

Multiple Choice
• The entity is free to adopt any tax year-end.
• The entity must adopt the same year-end as its owner.
• The entity must adopt a calendar year-end.
• The entity may adopt any year-end except for a calendar year-end.

Attachment:- Advanced Federal Taxation.rar