tax problems - questions,.,.,.,.,.,.
Question # 00029842
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Updated on: 10/29/2014 11:53 PM Due on: 11/12/2014
1. LO.1 Identify two provisions designed to limit the tax benefits a taxpayer may obtain from a tax shelter investment. Describe how these rules reduce or defer the recognition of tax losses.
2. LO.2 Ken invested $200,000 for a 30% interest in a partnership in which he is a material participant.
The partnership borrowed $250,000 from a bank and used the proceeds to acquire equipment. What is Ken’s at-risk amount if the $250,000 was borrowed on a nonrecourse loan?
How could Ken’s at-risk amount differ if the partnership’s business involved a real estate development activity and the debt was secured by land the partnership owns?
3. LO.2 List some events that increase and decrease an investor’s at-risk amount. What are some strategies that a taxpayer can employ to increase the at-risk amount to claim a higher deduction for losses?
4. LO.2, 3 Roberto invested $18,000 in a chicken production operation. Using nonrecourse notes, the business purchases $120,000 worth of grain to feed the chickens. If
Roberto’s share of the expense is $26,000, how much can he deduct?
5. LO.3 Explain the meaning of the terms active income, portfolio income, and passive income.
6. LO.3 Carlos owns an interest in an activity that produces a $100,000 loss during the year. Would he prefer to have the activity classified as active or passive? Explain.
7. LO.3 Kim owns an interest in an activity that produces $100,000 of income during the year. Would Kim prefer to have the activity classified as active or passive? Discuss.
8. LO.3 Pamela owns a passive activity acquired several years ago that has incurred losses since its acquisition. This is the only passive activity she has ever owned. How will these passive losses affect Pamela’s tax computation when she disposes of the activity?
9. LO.3 Upon a taxable disposition of a passive activity, the taxpayer can utilize any suspended losses and credits related to that activity. Do you agree? Explain.
10. LO.3 Discuss whether the passive loss rules apply to the following: individuals, closely held C corporations, S corporations, partnerships, and personal service corporations.
11. LO.3 New-Tech Services, Inc., is owned by four engineers, all of whom work full-time for the corporation. The corporation has eight other full-time employees, all on the clerical staff. New-Tech provides consulting services to inventors. The corporation has invested in a passive activity that produces a $60,000 loss this year. Can New-Tech deduct the loss in the current year? Explain.
12. LO.3 Bronze Corporation has $100,000 of active income, $55,000 of portfolio income, and a $55,000 passive loss. Under what circumstances is Bronze prohibited from deducting the loss? Allowed to deduct the loss?
13. LO.4 Discuss what constitutes a passive activity.
14. LO.4 Under what circumstances may the IRS regroup activities in a different way than the taxpayer?
15. LO.5 What is the significance of the term material participation? Why is the extent of a taxpayer’s participation in an activity important in determining whether a loss from the activity is deductible or nondeductible?
16. LO.5 Why did the IRS adopt the more-than-500-hour standard for material participation?
2. LO.2 Ken invested $200,000 for a 30% interest in a partnership in which he is a material participant.
The partnership borrowed $250,000 from a bank and used the proceeds to acquire equipment. What is Ken’s at-risk amount if the $250,000 was borrowed on a nonrecourse loan?
How could Ken’s at-risk amount differ if the partnership’s business involved a real estate development activity and the debt was secured by land the partnership owns?
3. LO.2 List some events that increase and decrease an investor’s at-risk amount. What are some strategies that a taxpayer can employ to increase the at-risk amount to claim a higher deduction for losses?
4. LO.2, 3 Roberto invested $18,000 in a chicken production operation. Using nonrecourse notes, the business purchases $120,000 worth of grain to feed the chickens. If
Roberto’s share of the expense is $26,000, how much can he deduct?
5. LO.3 Explain the meaning of the terms active income, portfolio income, and passive income.
6. LO.3 Carlos owns an interest in an activity that produces a $100,000 loss during the year. Would he prefer to have the activity classified as active or passive? Explain.
7. LO.3 Kim owns an interest in an activity that produces $100,000 of income during the year. Would Kim prefer to have the activity classified as active or passive? Discuss.
8. LO.3 Pamela owns a passive activity acquired several years ago that has incurred losses since its acquisition. This is the only passive activity she has ever owned. How will these passive losses affect Pamela’s tax computation when she disposes of the activity?
9. LO.3 Upon a taxable disposition of a passive activity, the taxpayer can utilize any suspended losses and credits related to that activity. Do you agree? Explain.
10. LO.3 Discuss whether the passive loss rules apply to the following: individuals, closely held C corporations, S corporations, partnerships, and personal service corporations.
11. LO.3 New-Tech Services, Inc., is owned by four engineers, all of whom work full-time for the corporation. The corporation has eight other full-time employees, all on the clerical staff. New-Tech provides consulting services to inventors. The corporation has invested in a passive activity that produces a $60,000 loss this year. Can New-Tech deduct the loss in the current year? Explain.
12. LO.3 Bronze Corporation has $100,000 of active income, $55,000 of portfolio income, and a $55,000 passive loss. Under what circumstances is Bronze prohibited from deducting the loss? Allowed to deduct the loss?
13. LO.4 Discuss what constitutes a passive activity.
14. LO.4 Under what circumstances may the IRS regroup activities in a different way than the taxpayer?
15. LO.5 What is the significance of the term material participation? Why is the extent of a taxpayer’s participation in an activity important in determining whether a loss from the activity is deductible or nondeductible?
16. LO.5 Why did the IRS adopt the more-than-500-hour standard for material participation?
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