30 May ACC 455 Week 4 Discussion Question Worksheet New
Week 4 – Discussion Questions Worksheet
1. The holding company Port, Inc. is owned 50% by John and 50% by Peter. The company invests in real estate bonds and stocks, land and buildings from different enterprises, including Omega, Inc.; Landside, Inc.; and Best Properties, LLC. In order to avoid personal holding company tax, Peter and John plan to liquidate Port, Inc. within the next quarter. Please consider the following questions with respect to this case:
a. In which case would the open transaction doctrine apply to Port, Inc.?
b. Can Port, Inc. change its market composition/activities to decrease personal holding company tax?
2. Nancy owns 25% of Mayfair Corporation stock. She currently has $200,000 adjusted basis. She is a cash basis accounting taxpayer. Mayfair has indicated that they will issue a year-end, $270,000 liquidating distribution to Nancy for year 2016. This distribution will be paid on January 3, 2017
. a) What is the amount of gain or loss that Nancy will report in 2016?
b) What about in 2017? Please explain in detail or provide calculations.
c) How would your answer differ if Nancy was an accrual method accounting taxpayer.
3. The Best of Boston, Inc. is a company that provides customized tourist services, such as charters and sightseeing tours in the city of Boston. The company is owned 75% by Linda Smith and 25% by her sister, Amy Smith. Linda has recently married and she is moving with her husband to New York City. As such, Linda and Amy have decided to liquidate the business. Linda will open a new business, the Best of New York, once she is settled. She has decided to take two small vans that belong to Best of Boston, Inc. as her final distribution. Amy, on the other hand, will keep the existing savings of $50,000. Please consider the following questions with respect to this case:
a. Assume you are Best of Boston’s accountant. Would you suggest an alternate strategy to minimize or avoid liquidation tax?
b. What gain or loss would Amy recognize?
c. Would Best of Boston recognize a loss on the distribution of the two vans?
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