Premium Essay

Acct553 Week 4 Assignment

In:

Submitted By thebeano
Words 355
Pages 2
Chapter 14

14-4

Code Sec. 351 states that no gain or loss be recognized upon transfer of property to a newly forming corporation in exchange for stock. This serves a beneficial purpose to those sole proprietors who are looking to move to the corporate form. If the sole proprietor were to transfer property that has appreciated and recognized a gain without Code Sec. 351, then this would constitute as a taxable transaction. Code Sec. 351 allows sole proprietors and partnerships to form corporations without negative tax consequences.

14-20

A C-Corporation can elect any end of month as the end of its fiscal year, however, S-Corporations must use the calender year as its fiscal period. S-Corporations can elect a different fiscal period if it meets certain requirements but this is not the norm. These options differ from those of a sole proprietorship and partnership in that a proprietorship or partnership must follow the same tax year as its owners. This allows the corporation to adjust its tax year to reflect its operations.

14-22

Corporations do not receive preferential treatment in regards to net-long term capital gains when compared to individuals. Capital gains must be included in the corporations ordinary income and taxed at the same rate as ordinary income. Furthermore, corporations are not allowed to deduct the excess of capital losses over capital gains against ordinary income in the year in which they occurred. Corporations must claim capital losses against capital gains. Individuals would be allowed to deduct capital losses against ordinary income up to a certain level.

14-55

a) There is no tax consequence for Susan in this exchange.

b) There is no tax consequence for the corporation in this exchange.

c) Since Susan would only be at 50% after the transfer, she would not be considered in control of the corporation and

Similar Documents

Premium Essay

Ac553 Week 4-You Decide

...You Decide-Week 4 ACCT553 John Smith tax issues: a. How is the $300,000 treated for purposes of federal tax income? Mr. Smith, in regards to your $300,000 earnings for the successful litigation of your clients case, this will be treated as current year earnings. The payment fits all three doctrines of income starting with the economic doctrine which states “all income from whatever source derived” IRC Code Sec. 61 (a). The constructive receipt doctrine, outlining constructive receipt of payments, allows us to treat the payment for this current year only even though it was income from a case that lasted two years. “Income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.” Reg. §1.451-2. Since these earnings were under the restriction of a successful verdict for your client, the payment could not be considered as earned any sooner than now. Since you operate your legal practice through an LLC, the assignment of income falls to the Limited Liability Corporation of which you are the primary member. Although the income is assigned to the LLC, there is only one layer of income tax, yours, since the LLC is treated as a conduit entity. All income will pass through to you as ordinary income, after business exclusions and deductions of course. The LLC is a disregarded entity and for federal tax purposes the activities of the business will be treated as if you were a sole proprietor (IRC Code Sec.752)...

Words: 1623 - Pages: 7