Address the following Scenarios:As of January 1, 2016, Taber Corporation has a deficit in accumulated E&P of $120,000. For tax year 2016, current E&P (all of which accrued ratably) is $140,000 (prior...

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Address the following Scenarios:



  1. As of January 1, 2016, Taber Corporation has a deficit in accumulated E&P of $120,000. For tax year 2016, current E&P (all of which accrued ratably) is $140,000 (prior to any distribution). On July 1, 2016, Taber Corporation distributes $100,000 to its sole, noncorporate shareholder. What is the amount of the distribution that is a dividend?

  2. On January 1, ACME Corporation (a calendar year taxpayer) has accumulated E&P of $60,000. During the year, ACME incurs a net loss of $100,000 from operations that accrues ratably. On June 30, ACME distributes $25,000 to Mary, its sole shareholder. How much of the $25,000 represents ordinary dividend income to Mary?

  3. Five years ago, Debbie purchased 1,000 shares of common stock in Jones Corporation for $21,000. In the current year, Debbie receives a nontaxable stock dividend of 50 shares of Jones preferred. Total values at the time of the dividend are: $50,000 for the preferred and $100,000 for the common. Based on this information, what is Debbie’s basis?

  4. Packard Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Packard also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a library.) Packard borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding these items, Packard's taxable income is $500,000.

    1. What is Packard Corporation’s taxable income after these items are taken into account?

    2. What is Packard Corporation’s accumulated E&P at the start of next year if its beginning balance this year is $150,000?



  5. On September 30, Cranson Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due next year. Because Cranson did not elect out of the installment method, none of the $600,000 gain is taxed this year.

    Cranson Corporation had a $300,000 deficit in accumulated E&P at the beginning of the year. Before considering the effect of the land sale, Cranson had a deficit in current E&P of $50,000.


    Larry, the sole shareholder of Cranson, has a basis of $200,000 in his stock. If Cranson distributes $900,000 to Larry on December 31, how much income must he report for tax purposes?





  1. Martha, an individual, owns all of the outstanding stock in Cranson Corporation. Martha purchased her stock in Cranson nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E&P and no current E&P (before considering the effect of the distributions as noted below). What are the tax consequences to Martha (amount and type of income and basis in property received) and Cranson Corporation (gain or loss and effect on E&P) in each of the following situations?

    1. Cranson distributes land to Martha. The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000.

    2. Assume that Cranson Corporation has no current or accumulated E&P prior to the distribution. How would your answer to (a) change?

    3. Assume that the land distributed in (a) is subject to a $46,000 mortgage (which Martha assumes). How would your answer change?

    4. Assume that the land has a fair market value of $54,000 and an adjusted basis of $62,000 on the date of the distribution. How would your answer to (a) change?

    5. Instead of distributing land in (a), assume that Cranson decides to distribute equipment used in its business. The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes, and a $5,200 adjusted basis for E&P purposes. When the equipment was purchased four years ago, its original fair market value was $18,000.



  2. Annette, the president and sole shareholder of Meteor Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Annette is considering substituting a dividend for the bonus. Assume that the tax rates are 28% for Annette and 34% for Meteor Corporation.

    1. How much better off would Annette be if she were paid a dividend rather than salary?

    2. How much better off would Meteor Corporation be if it paid Annette a salary rather than a dividend?

    3. If Meteor Corporation pays Annette a salary bonus of $40,000 instead of a $30,000 dividend, how would your answers to (a) and (b) change?

    4. What should Annette do?





Submission Guidelines:



  • Submit your answers in a 3-4 page Microsoft Word document or in a Microsoft Excel spreadsheet.

  • Also submit your completed sections of theFederal Tax Form 1040and supporting forms where required.

Answered 2 days AfterOct 05, 2022

Answer To: Address the following Scenarios:As of January 1, 2016, Taber Corporation has a deficit in...

Simran answered on Oct 08 2022
53 Votes
2021 Schedule SE (Form 1040)
SCHEDULE SE
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Self-Employment Tax
▶ Go to www.irs.gov/ScheduleSE for instructions and the latest information.
▶ Attach to Form 1040, 1040-SR, or 1040-NR.
OMB No. 1545-0074
2021
Attachment
Sequence No. 17
Name
of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Social security number of person
with self-employment income ▶
Part I Self-Employment Tax
Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income
and the definition of church employee income.
A

If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had
$400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . ▶
Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions.
1 a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065),
box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a
b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve
Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( )
Skip line 2 if you use the nonfarm optional method in Part II. See instructions.
2

Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than
farming). See instructions for other income to report or if you are a minister or member of a religious order 2
3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a
Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions.
b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b
c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If
less than $400 and you had church employee income, enter -0- and continue . . . . . . . ▶ 4c
5

a Enter your church employee income from Form W-2. See instructions for
definition of church employee income . . . . . . . . . . . . . 5a
b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b
6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7

Maximum amount of combined wages and self-employment earnings subject to social security tax or
the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2021 . . . . . . . . . . . 7 142,800
8


a


Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2)
and railroad retirement (tier 1) compensation. If $142,800 or more, skip lines
8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a
b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b
c Wages subject to social security tax from Form 8919, line 10 . . . . . ....
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