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(Solved) Hello, I need help with solving these questions for a study guide.


Hello, I need help with solving these questions for a study guide.


Q-1

 

Dress for Success is a 501 (c) (3) organization that provides clothes and job training to homeless individuals. Its annual operating

 

budget is $100 million. Steve Jobs, a philanthropist, would like to will his computer company, Apple Tools (a C. Corp) to Dress for

 

Success. Dress for Success has retained your services to provide an analysis of the tax consequences of each option.

 

(a) Sell the Apple Tools business and contribute the net proceeds to Dress for Success;

 

(b) Continue to operate the Apple Tools business as a division of Dress for Success

 

(c) Continue to conduct the Apple Tools business as a wholly owned subsidiary of Dress for Success.

 


 

Q-2

 

George, a sole shareholder, has a $17,000 stock basis and $16,000 basis in a loan that he made to George and Sons a calendar year S

 

Corporation with no AEP. At the beginning of the tax year, the corporation?s AAA and OAA balances are $0. Subchapter S ordinary

 

income for the year is $18,200 during which George and Sons, received $8,000 of tax-exempt interest income. Cash of $17,300 is

 

distributed to George on November 15. Please compute George?s Stock basis, loan basis and capital gain/loss.

 


 

Q-3

 


 

William and Katherine intend to start a flower shop business in which they both will participate on an active basis. They have

 

adequate amounts in their savings to finance the business. Limited liability is a significant factor for the business, but equally

 

important is the minimization of income taxes. They have narrowed the choice of the business form to either a C Corporation or a

 

general partnership. Assume that earnings of the business before taxes are expected to be $400,000 and any after-tax profits will be

 

distributed to William and Katherine. Assume that both William and Katherine are single and their marginal tax rate is 28%. Advise

 

William and Katherine on the choice of business form. Please limit your answers to the portions covered in class only.

 

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