CHAPTER 17 CORPORATIONS: INTRODUCTION AND

1. Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation’s CFO. On December 31, 2014, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.

a. Leticia owns 35% of Canary Corporation’s stock and the corporation pays the bonus to

Leticia on February 3, 2015.

b. Leticia owns 75% of Canary Corporation’s stock and the corporation pays the bonus to

Leticia on April 3, 2015.

c. Leticia owns 75% of Canary Corporation’s stock and the corporation pays the bonus to

Leticia on February 3, 2015.

2. Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2014. Ostrich also has taxable income from other sources of $1 million. Prior years’ transactions included the following:

2010 net short-term capital gains	$20,000
2011 net long-term capital gains	15,000
2012 net short-term capital gains	25,000
2013 net long-term capital gains	5,000

a. How are the capital gains and losses treated on Ostrich’s 2014 tax return?

b. Determine the amount of the 2014 net capital loss that is carried back to each of the previous years.

c. Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried.

d. If Ostrich were a proprietorship, how would Ellen, the owner, report these transactions on her 2014 tax return?

3. During the current year, Gray Corporation, a C corporation in the financial services business, made charitable contributions to qualified organizations as follows:

· Stock (basis of $20,000, fair market value of $45,000) in Drab Corporation, held for six months as an investment, to the Salvation Army. (Salvation Army plans on selling the stock.)

· Painting (basis of $90,000, fair market value of $250,000), held for four years as an investment, to the Museum of Fine Arts. (The Museum plans on including the painting in its collection.)

Gray Corporation’s taxable income (before any charitable contribution deduction) is $1.8 million.

a. What is the total amount of Gray’s charitable contributions for the year?

b. What is the amount of Gray’s charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

4. On December 26, 2014, the board of directors of Taupe Corporation, a calendar year, accrual method C corporation, authorized a contribution of land to a qualified charitable organization. The land (basis of $75,000, fair market value of $125,000) was acquired five years ago and held as an investment. For purposes of the taxable income limitation applicable to charitable deductions, Taupe has taxable income of $800,000 and $950,000 for 2014 and 2015, respectively. Describe the tax consequences to Taupe Corporation under the following independent situations.

a. The donation is made on February 20, 2015.

b. The donation is made on April 10, 2015.

5. During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions:

Income from operations	$350,000
Expenses from operations	370,000
Dividends received from ABC Corporation	50,000

Quartz owns 25% of ABC Corporation’s stock. How much is Quartz Corporation’s taxable income (loss) for the year?

6. During the current year, Coyote Corporation (a calendar year C corporation) has the following transactions:

Income from operations	$260,000
Expenses from operations	285,000
Dividends received from Roadrunner Corporation	115,000

a. Coyote owns 5% of Roadrunner Corporation’s stock. How much is Coyote Corporation’s taxable income (loss) for the year?

b. Would your answer change if Coyote owned 25% of Roadrunner Corporation’s stock?

7. Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2014. The following expenses were incurred during its first year of operations (March 1 - December 31, 2014):

Expenses of temporary directors and organizational meetings $25,000 Incorporation fee paid to state 2,000

Expenses incurred in printing and selling stock certificates 10,000

Accounting services incident to organization 12,000

a. Assuming a valid election under § 248 to amortize organizational expenditures, what is the amount of Warbler’s deduction for 2014?

b. Same as a., except that Warbler also incurred in 2014 legal fees of $15,000 for the drafting of the corporate charter and bylaws. What is the amount of Warbler’s 2014 deduction for organizational expenditures?