ACC 547 Week 3 DQ I6-23 Problems: I8-40, C3-38, C3-58, C3-59 ,I10-52 Tax Strategy I13-65

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ACC 547 Week 3 DQ I6-23 Problems I8-40, C3-38,
C3-58, C3-59 ,I10-52 Tax Strategy I13-65 To
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eek-3-DQ-I6-23-Problems-I8-40,-C3-38,-C3-58,-C3-5
9-,I10-52-Tax-Strategy-I13-65 Complete the
following in Federal Taxation Comprehensive o  
 Discussion Question I6-23o    Problems I8-40,
C3-38, C3-58, C3-59o    Case Study I10-52o  
 Tax Strategy Problem I13-65 Discussion
Question I6-23 Under the related party rules of
Sec. 267, why has Congress imposed the concept of
constructive ownership? Problem I8-40 Amount and
Character of Loss Transactions. On September 30
of the current year Silver Fox Corporation files
for bankruptcy.
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At the time, it estimates that the total FMV of
its assets is 725,000, whereas the total amount
of its outstanding debt amounts to 950,000.
Silver Fox Corporation has been engaged in the
resale of tax preparation and tax
research-related books and software for several
years. a. At the time of the bankruptcy, Silver
Fox is owned by Randall, who purchased the stock
from an investor for 250,000 several years ago.
Randall is single. What are the amount and
character of the loss sustained by Randall upon
Silver Foxs bankruptcy? b. How would your answer
to part a change if Randall originally organized
Silver Fox Corporation, capitalizing it with
250,000 of cash and assuming Silver Fox
qualifies as a small business corporation? c. How
would your answer to Part a change if Randall
were a corporation instead of an individual? d.
How would your answer to Part b change if Randall
were a corporation instead of an individual? Prob
lem C3-38 Charitable Contribution Deduction
Limitation. Zeta Corporation reports the
following results for 2006 and 2007 Adjusted
taxable income 180,000 125,000 Charitable
contributions (cash) 20,000 12,000 The adjusted
taxable income is before Zeta claims any
charitable contributions deduction, NOL or
capital loss carryback, dividends-received
deduction, or U.S. production activities
deduction. 
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a. How much is Zetas charitable contributions
deduction in 2006? In 2007? b. What is Zetas
contribution carryover to 2008, if any? Problem
C3-58 Converting Book Income to Taxable Income.
The following income and expense accounts
appeared in the accounting records of Rocket
Corporation, an accrual basis taxpayer, for the
current calendar year. ... .... .... ... (details
in the pdf file) The following additional
information applies. 1. Dividends were from Star
Corporation, a 30-owned domestic corporation. 2.
Interest revenue consists of interest on
corporate bonds, 15,000 and municipal bonds,
3,000. 3. The stock is a capital asset held for
three years prior to sale. 4. Rocket uses the
specific writeoff method of accounting for bad
debts. 5. Interest expense consists of 11,000
interest incurred on funds borrowed for
working capital and 1,000 interest on funds
borrowed to purchase municipal bonds. 6. Rocket
paid all contributions in cash during the current
year to State University. 7. Rocket calculated
depreciation per books using the straight-line
method. For income tax purposes, depreciation
amounted to 85,000. 8. Other expenses include
premiums of 5,000 on the key-person life
insurance policy covering Rockets president, who
died in December.9. Qualified production
activities income is 250,000. Required Prepare
a worksheet reconciling Rockets book income with
its taxable income (before special deductions).
Six columns should be usedtwo (one debit and
one credit) for each of the following three major
headings book income,
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Schedule M-1 adjustments, and taxable income.
(See the sample worksheet with Form 1120
in Appendix B if you need assistance). Problem
C3-59 Reconciling Book Income and Taxable Income.
Zero Corporation reports the following results
for the current year Net income per books (after
taxes) 33,000 Federal income tax per books
12,000 Tax-exempt interest income 6,000 Interest
on loan to purchase tax-exempt bonds 8,000 MACRS
depreciation exceeding book depreciation
3,000 Net capital loss 5,000 Insurance premium on
life of corporate officer where Zero is the
beneficiary 10,000 Excess charitable
contributions carried over to next year
2,500 U.S. production activities deduction
1,000 Prepare a reconciliation of Zeros taxable
income before special deductions with its
book income. Case Study I10-52Able Corporation
is a manufacturer of electrical lighting
fixtures. Able is currently negotiating with
Ralph Johnson, the owner of an unincorporated
business, to acquire his retail electrical
lighting sales business.
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Johnsons assets that are to be acquired include
the following Inventory of electrical fixtures
30,000 50,000 Store buildings 80,000
100,000 Land 40,000 100,000 Equipment 7-year
recovery period 30,000 50,000 Equipment 5-year
recovery period Mr. Johnson indicates that a
total purchase price of 1,000,000 in cash is
warranted for the business because of its high
profitability and strategic locations and Able
has agreed that the business is worth 1,000,000.
Despite the fact that both parties attribute
the excess payment to be for goodwill, Able would
prefer that the 600,000 excess amount be
designated as a 5-year covenant not to compete so
that he can amortize the excess overa 5-year
period. You are a tax consultant for Able who has
been asked to make recommendations as to the
structuring of the purchase agreement and the
amounts to be assigned to individual assets.
Prepare a client memo to reflect your
recommendations.    Tax Strategy Problem
I13-65Russ has never recognized any Sec. 1231
gains or losses. In December 2006, Russ is
considering the sale of two Sec. 1231 assets. The
sale of one asset will result in a 20,000
Sec. 1231 gain while the sale of the other asset
will result in a 20,000 Sec. 1231 loss. Russ
has no other capital or Sec. 1231 gains and
losses in 2006 and does not expect to have
any other capital or Sec. 1231 gains and losses
in 2006.
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He is aware that it might be advantageousto
recognize the Sec. 1231 gain and the Sec. 1231
loss in different tax years. However, he does not
know whether he should recognize the Sec. 1231
gain in 2006 and the Sec. 1231 loss in 2007 or
vice versa. His marginal tax rate for each year
is expected to be 33. Advise the taxpayer with
respect to these two alternatives a. Recognize
the 20,000 Sec. 1231 loss in 2006 and the
20,000 Sec. 1231 gain in 2007. b. Recognize the
20,000 Sec. 1231 gain in 2006 and the 20,000
Sec. 1231 loss in 2007. For more
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