Fleming, Inc a domestic corporation, operates in both Canada
and the United States. This year, the business generated taxable income
of $400,000 from foreign sources and $300,000 from US sources. All of
Fleming’s foreign-source income is in the general limitation basket.
Fleming’s total worldwide taxable income is $700,000. Fleming pays
Canadian taxes of $152,000. What iws Fleming’s allowed FTC for the tax
year? Assume a 35% US income tax rate.
Write a memo for
the tax research file on the difference between “inbound” and “outbound”
activities in the context of U.S. taxation of international income.
which has been an S corporation since inception, is subject to tax in
States Y and Z. On schedule K of its federal form 1120S, Hernandez
reported ordinary income of $500,000 from its business, taxable interest
income of $10,000, capital loss of $30,000 and $40,000 of dividend
income from a corporation in which it owns 30%.
Both states apportion
income by use of a three-factor formula that equally weights sales,
payroll, and the average cost of property; both states treat interest
and dividends as business income. In addition, both Y and Z follow
Federal provisions with respect to the determination of taxable income
for a corporation. Y recognizes S states, but Z does not based on the
following information, write a memo to the shareholders of Hernandez
detailing the amount of taxable income on which Hernandez will pay tax
in Y and Z. Hernandez corporate offices are located at***** Koopville,
State Y State Z
Sales $1,000,000 $800,000
Property (average cost) 500,000 100,000
Payroll 800,000 200,000
March 2014, Grackle inc acquired used equipment for its business at a
cost of $300,000. The equipment is five-year class property for regular
income tax purposes and for AMT purposes. Grackle does not claim any
available additional first-year depreciation.
a. If Grackle
depreciates the equipment using the method that will produce the
greatest deduction for 2014 for regular income tax purposes, what is the
amount of the AMT adjustment? Grackle does not elect section 179
b. How can Grackle reduce the AMT adjustment to $0? What circumstances would motivate Grackle to do so?
Draft a letter to Helen Carlon, Grackle’s controller, regarding the
choice of depreciation methods. Helen’s address is***** Glendale, AZ
Allie, who was an accounting major in college, is
the controller of a medium-size construction corporation. She prepares
the corporate tax return each year. Due to reporting a home
construction contract using the completed contract method, the
corporation is subject to the AMT in 2014. Allie files the 2014
corporate tax return in early February 2015. The total tax liability is
$58,000 ($53,000 regular income tax liability + $5,000 AMT).
early March, Allie reads an article on minimizing income taxes. Based
on this article, she decides that it would be beneficial for the
corporation to report the home construction contract using the
percentage of the completion method on its 2014 return. Although this
will increase the corporation’s 2014 income tax liability, it will
minimize the total income tax liability over the two-year construction
period. Therefore, Allie files an amended return on March 14, 2015.
Evaluate Allie’s actions from both a tax avoidance and an ethical
Purple Corporation, a calendar year taxpayer,
began operations in 2012. It reported the following amounts for its
first four tax years. Calculate Purple’s positive and negative ACE
adjustments for each year
Unadjusted AMTI ACE
2012 $85,000,000 $70,000,000
2013 70,000,000 90,000,000
2014 54,000,000 40,000,000
2015 60,000,000 20,000,000
Grayson, who is single with no dependents and does not itemize, provides you with the following information for 2014.
Short-term capital loss $4,000
Long-Term capital gain 19,000
Municipal bond interest received on private activity bonds acquired in 1997 17,000
Dividends from IBM 6,500
Excess of FMV over exercise price for incentive stock options (no restrictions
Apply to the stock received as a result of the options exercised) 40,000
Charitable contributions 10,000
Qualified residence interest 9,000
What are Grayson’s tax preference items and AMT adjustments for 2014?