Corporate Tax Rate

You may use the Tax Rate Table below if you need to in answering the questions

Corporate Tax Rate Schedule

If Taxable Income is
Not Over 50,000
Over $50,000 but not over 75,000
Over $75,000 but not over 100,000
Over $100,000 but not over $100,000

$335,000
Over $335,000 but not over $10,000
Over 10,000,000 but not over $15,000,000
Over 15,000,000 but not over $18,333,333
Over 18,333,333
The Tax is:
15% of the taxable income
$7,500 plus 25% of the amount over $50,000
$13,750 plus 34% of the amount over $75,000
$22,250 plus 39% of the amount over

$100,000
$113,900 plus 34% of the amount over $335,000
$3,400,000 plus 35% of the amount over $10,000,000
$5,150,000 plus 38% of the amount over $15,000,000
35% of the taxalbe income
Question I
Klara, Marta, and Gene went to college together. Thy each own one-third of the outstanding stock of Stewart INC, a C Corporation that sells kitchen cabinets and kitchen tables. Stewart Inc has 100,000 shares of common stock outstanding with each of the shareholder owning one-third of the shares. In addition Klara, Marta and Gene also own one-third of the 100 shares of common stock of Hampton INC a C Corporation that sells children furniture in California. IN the case of both Stewart INC and Hampton INC the only class of stock that the companies have is in the common stock which thus including voting stock.
A) How would you classify these two corporations? What are the required tests?
B) What are the tax effects of their classification?
C) What is an affiliated group? What are the required tests?
D) What is the significance of being an affiliated group?
Question II

X Corporation is a closely held C Corporation and has the following items to consider in computing the corporate tax it owes:

Line 28 Taxable Income was $137,000. Two years ago, it sold a garage that I had used for storing inventory for a gain $75,000 on an installment basis which is being reported over ten years and in the current year, included $7,500 in taxable income from the installment which buyer paid in the current year. It used MACRS depreciation. Had it used the alternative depreciation system, depreciation would have been only 8,000 less, It reported tax exempt interest of $30,000. X Corporation top officer died during the year and X Corporation received $100,000 under the life insurance policy that it owned. It paid $10,000 in the life insurance premiums on the life another one of its key officers. Compute the alternative minimum tax if any.
a) Determine the Pre-adjustment alternative taxable income

b) Compute the ACE adjustment

c) Compute the alternative minimum taxable income

d) Compute the alternative minimum tax

Question III

Georgia, INC is a privately owner business engaged in the architectural consulting business. The only shareholder is James who is an employee of the company and provides all of the architectural work Georgia INC performs.

You are preparing for a year end meeting with clients in November. They have sent you the following figures and have asked for some tax advice and a projection of taxable income and tax payable.

They have submitted the following data

Gross Income
Revenue $1,900,000
Dividends 200,000
Capital Gains 100,000
————————————
Gross Income 2,200,000
Trade and Business Expenses
Including Salaries of 300,000k (540,000)

Tax Exempt Interest
(not included in 2.2 million) 100,000

Loss from Passive income (70,000)
Capital Loss (400,000)

Assume that James owns 15% of the stock in the corporation which paid the $200,000 dividend.

Also assume the Georgia INC did not materially participate in the business enterprise which generated the loss.
Questions

1. Compute the company taxable income.

2. Compute the company tax

3. What planning suggestions can you make to reduce the company tax burdens?
4. Would you answers to number 1 and number 2 change if the company were not architectural firm but was publicly traded on the stock exchange but simply sold statues and fountains that could be purchased to put in front of new buildings? Answer yes or no and explain.
Question IV

Stanton, Aron, Amy, and Bert form corporation. Stanton transfer a $200,000 customer list with a basis of $100,000. Aron transfers cash of $200,000. Amy also contributes a customer list with an adjusted basis of $93,000 and a fair market value of $157,000 and Bert will provide services worth $157,000. Stanton receives 28 shares of stock, Aron receives 28 shares of stock, Amy receives 22 shares of stock and Pert receives 22 shares of stock.
a) What are the income tax consequences to the shareholders? What about each shareholders tax basis in stock and the corporation tax basis in assets?

b) What result if Pert transfers $18,000 cash and provides services worth $139,000? Explain the income tax effects, the effects of the shareholder’s basis in stock and the effect upon the corporation basis in stock

c) What is the adjusted basis of the stock held by Stanton, Aron, Amy, and Bert? What about the corporation adjusted basis in assets received.

d) Assume the same facts in b) above (Bert transfers $18,000 cash and provides servies worth $139,000) except that Amy adjusted basis is $221,000 instead $93,000. Would your answer or answers change and if so how? If not why not?
Question V

Assume that you are a financial planner and have been asked to provide some basic tax advice for two clients in two different situations

Client 1 has been having banner year and her business is thriving. She operates in a C Corporation and the company sells shoes and handbags. She and her husband work full time in the company and the couple are in their mid-thirties. Assume that the balance sheet shows a small portfolio of stock in a few public corporations has inventory cash and relatively little debt.
Client 2 is struggling as a C Corporation. It has low revenue and high expenses although it is not yet from showing a loss for the year. In addition the Company has received dividends from a modest portfolio of stocks that are publicly traded.
What are some tax planning suggestions that you could identify in preparation for your meeting with Client #1? What about for Client #2?

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