Assumptions: Use a flat corporate tax rate of 21% for all problems. Assume a tax
ID: 2342974 • Letter: A
Question
Assumptions:
Use a flat corporate tax rate of 21% for all problems. Assume a tax rate of 15% for all dividends and capital gains.
Assume there is no Alternative Minimum Tax for these problems.
Assume that all entities are US domestic corporations, taxed under Subchapter C of the IRC unless otherwise noted.
the internal revenue code.
Question 1, 50 Points
Ocean Corporation has two equal shareholders - Moana and Maui. At January 1 2018
Moana and Maui each have a basis in the corporation of $100,000. During 2018
Ocean Corporation had the following items of income (before considering any distributions):
Gross Receipts 200,000
Non-deductible expenses (30,000)
Other operating expenses (100,000) (Assume all deductible)
Book Income 70,000
On March 1, Ocean Corporation distributed cash of $50,000 to each Moana and Maui (total distributions of $100,000).
On June 1 Moana sold all her stock in Ocean Corporation to Pua for $200,000. On September 1 Maui
Corporation made another cash distribution of $50,000 to Pua and distributed property to Maui with a fair market
value (FMV) of $50,000, and a basis of $40,000 (total FMV of all September 1 distributions was $100,000).
At January 1, 2018, Ocean corporation had $100,000 in accumulated earnings and profits.
Questions:
A What is Ocean's taxable income for 2018?
B What is Ocean's current earnings and profits for 2018?
C What are the tax consequences to Moana as a result of the March 1 distribution?
D What are the tax consequences to Moana as a result of the June 1 sale?
E What are the tax consequences to Maui as a result of the September 1 distribution?
F What are the tax consequences to Pua as a result of the September 1 distribution?
G What is Ocean's accumulated earnings and profits at January 1, 2019?
Explanation / Answer
Answer part A
Ocean's taxable income for 2018
Answer part B
79000
Answer part G
Answer part A
Ocean's taxable income for 2018
Particulars $ Gross Receipts 200000 Other operating expenses 100000 Taxable income 100000Related Questions
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