Week 4 Assignments
AC553 Federal Taxes and Management Decisions

Question 14-4:
Code Sec. 351 allows investors to avoid recognizing gains on transfers of assets to a corporation in return of property. The purpose is to avoid discouraging investors from contributing to corporations. Corporations are considered significant stimulants of the economy.

Question 14-20:
Corporations may elect a calendar year, or a fiscal year, regardless of the tax years of its owners. Partnerships need to have the same tax year as the principal partners. S corporations are required to adopt the calendar year for tax purposes. The difference as illustrated is that corporations have more flexibility is choosing their tax year. Both, personal service corporations and S corporations may elect a fiscal year if they can establish a business purpose for it.

Question 14-22:
Corporations are allowed to net long-term capital gains or losses against short-term gains and losses to arrive at a net gain or loss. If the both long-term and short-term balances where the same trend, i.e. both gains and both losses, they must be reported separately. Net capital gains are taxed as ordinary income. However, net capital losses may not be deducted in the year incurred. They may only be deducted against net capital gains carried 3 years backwards with the remaining balance carried 5 years forward.

Problem 14-55:
a) There are no tax consequences to Susan at transfer. However, her basis in previously owned stock will be increased by the adjusted basis of the contributed assets, i.e. 2,000.
b) The corporation will recognize no income on such a transaction even though no stock has been issued. The corporation will credit the adjusted basis of the contribution of 2,000 to a special additional-paid-in capital account illustrating an increase in the price paid by the shareholder.
c) Susan