25 May Question 1. Paigeis thesole shareholderofCitron Corporation.During theyear,Paige
Question
1. Paigeis thesole shareholderofCitron Corporation.During theyear,Paige leasesabuildingtoCitronforamonthlyrentalof$80,000.Ifthefairrentalvalueofthebuildingis$60,000,whataretheincometaxconsequencestotheparties involved?
2. In1985, Royleasedreal estateto DrabCorporation for20 years.Drab Corporationmade significantcapitalimprovementsto theproperty. In2005, Drabdecides notto renewthe leaseand vacatesthe property.At thattime,thevalue ofthe improvementsis$800,000. Roysellsthe realestatein 2014for $1,200,000ofwhich $900,000isattributableto theimprovements. Whenis Roytaxed onthe improvementsmade byDrab Corporation?
3. TheFederal incometax isbased onapayasyougosystemandhasbecomea“masstax.”Explainthisstatement.
4. Interms ofAdam Smith’scanons oftaxation, howdoes theFederal incometax fareas faras economyisconcerned?
5. Duetothepopulationchange,theGooseCreekSchoolDistricthasdecidedto closeoneofitshighschools.Sinceithasno furtherneed ofthe property,the schoolis listedfor sale.The twobids itreceives areas follows:
United MethodistChurch $1,700,000
Planet Motors 1,600,000
TheUnitedMethodist Churchwould usethe propertytoestablish asectarianmiddleschool.Planet,awell-knowncardealership,wouldrevampthepropertyandoperateitasabranchlocation.
If youwere amemberoftheSchoolDistrictboard,whatfactorswouldyouconsiderinevaluatingthetwobids?
6. Morganinheritsherfather’spersonalresidence includingallofthefurnishings. Sheplansto addaswimmingpoolandsaunatothepropertyandrentitasafurnishedhouse.Whataresomeoftheadvalorempropertytaxproblems Morgancananticipate?
7. In2012,Deborahbecame65yearsold. In2013sheaddedaswimmingpool,andin2014sheconvertedtheresidence torentalpropertyandmovedintoanassistedlivingfacility.Since2011,Deborah’sadvalorempropertytaxeshavedecreasedonceandincreasedtwice.Explain.
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