Question 1. Albatross Corporation acquired land for investment purpose

1. Albatross Corporation acquired land for investment purposes in 2000 at a cost of $100,000. Albatross sold the land to Monty on December 30, 2014, and did not elect out of the installment method of accounting. The selling price of the property was $400,000. Monty made a cash down payment of $50,000 on the date of sale and executed a $350,000 note, payable in seven annual installments of $50,000 each plus interest at the rate of 6% per annum. The first installment of $50,000 was due in 2015 which Monty paid, plus interest of $21,000. Discuss the effect of this sale on Albatross’s taxable income and its E & P account in 2014 and 2015.

2. Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2015. Among its transactions for the year are the following:

Collection of proceeds from insurance policy on life of corporate

officer (in excess of cash surrender value) $ 9,000

Realized gain (not recognized) on an involuntary conversion 10,000

Nondeductible fines and penalties 21,000

Disregarding any provision for Federal income taxes, determine Kite Corporation’s current E & P for 2015.

3. Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo’s current E & P is $120,000 and its accumulated E & P is $500,000. What are the tax implications of the distributions to Maria and Christopher?

4. Jen, the sole shareholder of Mahogany Corporation, sold her stock to Jason on July 1 for $90,000. Jen’s stock basis at the beginning of the year was $60,000. Mahogany made a $30,000 cash distribution to Jen immediately before the sale, while Jason received a $60,000 cash distribution from Mahogany on November 1. As of the beginning of the current year, Mahogany had $16,000 in accumulated E & P, while current E & P (before distributions) is $30,000. What are the tax consequences of these transactions to Jen and Jason?

5. At the beginning of the current year, Paul and John each own 50% of Apple Corporation. In July, Paul sold his stock to Sarah for $110,000. At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions). Apple distributed $260,000 on March 1 ($130,000 to Paul and $130,000 to John) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to John). What are the tax implications of the $130,000 distribution to Sarah?

6. Tanya is in the 33% tax bracket. She acquired 1,000 shares of stock in Swan Corporation seven years ago for $100 a share. In the current year, Swan Corporation (E & P of $1.2 million) redeems all of her shares for $160,000. What are the income tax consequences to Tanya if:

a. The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets?

b. The redemption does not qualify for sale or exchange treatment?

157. Steve has a capital loss carryover in the current year of $30,000. He owns 3,000 shares of stock in Carmine Corporation, which he purchased six years ago for $20 per share. In the current year, Carmine Corporation (E & P of $750,000) redeems all of his shares for $140,000. Steve is in the 33% tax bracket. What is his income tax liability with respect to the corporate distribution if:

a. The redemption qualifies for sale or exchange treatment, and Steve has no other transactions in the current y

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