SOLUTIONS MANUAL and TEST BANK 2013 Corporations Partnerships Trusts. 

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Contents:
* Test Bank
* Solutions Manual (Complete)
* Solution Transparency Masters
* Practice Set Solutions
* Instructor's Guide
* Research Problem Solutions
* Solutions to Appendix E

Contents of Appendix E

Chapter 2
Problem 1 – Pet Kingdom – Form 1120 Corporate Tax Return E-1
Problem 2 – By the Numbers – Form 1120 Corporate Tax Return E-15
Chapter 9
Problem 1 – Fleming Products – Form 1118 E-23
Problem 2 – Cotton Export, Inc. – Form 1118 E-26
Chapter 10
Problem 1 – Rock the Ages – Form 1065 tax return E-28
Problem 2 – Branto, LLC – Form 1065 return E-38
Chapter 12
Problem 1 – Chocolat, Inc – Form 1120S E-55
Problem 2 – Textiles, Inc. – Form 1120S E-62
Chapter 18
Problem 1 – Daniel and Lisa Ward – Form 709 tax returns E-72
Problem 2 – Rachel Keating – Form 709 tax return E-81
Problem 3 – Pam Butler – Form 706 Tax Return E-85
Chapter 20
Problem 1 – Blue Trust – Form 1041 tax return E-99
Problem 2 – Green – Form 1041 tax return E-103




CHAPTER 2 Corporations: Introduction and Operating Rules


1. LO.1 Jennifer and Jamie are starting a business and have asked you for advice about whether they should form a partnership, a corporation, or some other type of entity. Prepare a list of questions you would ask in helping them decide which type of entity they should choose. Explain your reasons for asking each of the questions.

2. LO.1 Barbara owns 40% of the stock of Cassowary Corporation (a C corporation) and 40% of the stock of Emu Corporation (an S corporation). During 2012, each corporation has operating income of $120,000 and tax-exempt interest income of $8,000. Neither corporation pays any dividends during the year. Discuss how this information will be reported by the corporations and Barbara for 2012.

3. LO.1, 7 Art, an executive with Azure Corporation, plans to start a part-time business selling products on the Internet. He will devote about 15 hours each week to running the business. Art’s salary from Azure places him in the 35% tax bracket. He projects substantial losses from the new business in each of the first three years and expects sizable profits thereafter. Art plans to leave the profits in the business for several years, sell the business, and retire. Would you advise Art to incorporate the business or operate it as a sole proprietorship? Why?

4. LO.1, 2 In 2012, Plover Corporation, a C corporation with four equal shareholders, had an operating loss of $80,000 and a long-term capital gain of $20,000. Also in 2012, Vireo Partnership, with four equal partners, had an operating loss of $80,000 and a long-term capital gain of $20,000. Plover did not pay any dividends, and Vireo’s partners did not make any withdrawals. Contrast the tax treatment of the entities and their owners.

5. LO.1, 2 Samantha is the sole owner of Blue Company. In 2012, Blue had operating income of $200,000, a short-term capital loss of $10,000, and tax-exempt interest income of $3,000. Samantha withdrew $50,000 of profit from Blue. How should Samantha report this information on her individual tax return for 2012 if Blue Company is:

a. An LLC?
 b. An S corporation?
c. A C corporation?

6. LO.1, 7 Shareholders of closely held corporations frequently engage in dealings with such corporations. These dealings provide an opportunity to extract earnings out of a corporate entity in some form other than a nondeductible dividend distribution. Provide several examples of shareholder-corporation transactions, and for each example, briefly note the requirement that would need to be satisfied to avoid recharacterization by the IRS as a disguised dividend distribution.

7. LO.1 Contrast the marginal tax rates of C corporations with those of individuals.

8. LO.1 Briefly describe how LLCs are treated for Federal income tax purposes.

9. LO.1 In the current year, Juanita and Joseph form a two-member LLC and do not file Form 8832 (Entity Classification Election). As a result, the LLC will be treated as a partnership for Federal tax purposes. Assess the validity of this statement.

10. LO.2 A corporate taxpayer may select either a calendar year or a fiscal year for its reporting period. Assess the validity of this statement.

11. LO.2 Ann is the sole shareholder of Salmon Corporation, a newly formed C corporation. Fran is the sole shareholder of Scarlet Corporation, a newly formed C corporation that is a personal service corporation. Both Ann and Fran plan to have their corporations elect a March 31 fiscal year-end. Will the IRS treat both corporations alike with respect to the fiscal year election? Why or why not?

12. LO.2 Which of the following C corporations will be allowed to use the cash method of accounting for 2012? Explain your answers.

a. Jade Corporation, which had gross receipts of $5.3 million in 2009, $4.1 million in 2010, and $5 million in 2011. b. Lime Corporation, a personal service corporation, which had gross receipts of $5.8 million in 2009, $5.2 million in 2010, and $4.4 million in 2011.

13. LO.2 Wang, a cash basis taxpayer, owns 65% of the stock of Pink, Inc., a calendar year, accrual basis C corporation. On January 2, 2012, Wang loaned Pink a substantial amount of money. On December 31, 2012, Pink, Inc., accrued $35,000 of interest expense on the loan but does not pay the interest to Wang until February 1, 2013. In which year can Pink deduct the interest? When must Wang report the interest income?

14. LO.2 In 2012, Jeanette, an individual in the 35% marginal tax bracket, recognized a $50,000 long-term capital gain. Also in 2012, Parrot Corporation, a C corporation in the 35% marginal tax bracket, recognized a $50,000 long-term capital gain. Neither taxpayer had any other property transactions in the year. What tax rates are applicable to these capital gains?

15. LO.2 John (a sole proprietor) and Eagle Corporation (a C corporation) each recognize a short-term capital gain of $6,000 and a long-term capital loss of $8,000 on the sale of capital assets. Neither taxpayer had any other property transactions during the year. Describe the tax consequences of these gains and losses for John and for Eagle.

16. LO.2 A taxpayer sells a warehouse for a recognized gain. Depreciation had been properly claimed on the property, based on the straight-line method over a 39-year recovery period. Will the same amount of depreciation recapture result whether the taxpayer is an individual or a C corporation? Explain.

17. LO.2 Osprey Corporation, a closely held corporation, has $75,000 of active income, $25,000 of portfolio income, and a $60,000 loss from a passive activity.

a. How much of the passive loss can Osprey deduct in the current year if it is a PSC? b. If it is not a PSC?

18. LO.2 Hummingbird Corporation, a closely held corporation that is not a PSC, has $40,000 of active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. What is Hummingbird’s taxable income for the year?

19. LO.2 On December 20, 2012, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $25,000 to the American Cancer Association. The payment is made on February 14, 2013. Can Partridge deduct the charitable contribution in 2012? Explain.

20. LO.2 Briefly describe how the amount of a charitable contribution of property by a C corporation is determined.

21. LO.2, 7 The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 28, 2012. One topic on the board’s agenda is the approval of a $25,000 gift to a qualified charitable organization. Orange has a $20,000 charitable contribution carryover to 2012 from a prior year. Identify the tax issues the board should consider regarding the proposed contribution.

22. LO.2 For 2012, the domestic production activities deduction for a C corporation is 9% of the taxpayer’s qualified production activities income. Assess the validity of this statement.

23. LO.2, 3, 7 Gold Corporation, a calendar year C corporation, was formed in 2006 and has been profitable until the current year. In 2012, Gold incurs a net operating loss. Identify the issues that Gold Corporation should consider regarding its NOL carryback and carryover options.

24. LO.1, 3 Marmot Corporation pays a dividend of $250,000 in 2012. Otter Corporation, which is in the 35% marginal bracket, owns 15% of Marmot’s stock. Gerald, an individual taxpayer in the 35% marginal bracket, also owns 15% of Marmot’s stock. Compare and contrast the treatment of the dividend by Otter Corporation and Gerald.

25. LO.3 Mauve Corporation (a C corporation) owns 85% of the stock of Lavender Corporation (a C corporation), which pays Mauve a substantial dividend each year. Mauve Corporation plans on selling half of its stock in Lavender Corporation. How will this stock disposition affect the amount of Mauve’s dividends received deduction?

26. LO.3 Describe the holding period requirement of the dividends received deduction.

27. LO.3 Determine whether the following expenditures by Cuckoo Corporation are organizational expenditures, startup expenditures, or neither.

a. Legal expenses incurred for drafting the corporate charter and bylaws. b. Expenses incurred in printing stock certificates. c. Expenses of temporary board of directors’ organizational meetings. d. Employee salaries incurred during the training period before opening for business. e. State incorporation fee.

28. LO.4 The highest marginal tax rate for a C corporation is 35%. Assess the validity of this statement.

29. LO.5 Omar is the sole shareholder of Plum Corporation, which has annual taxable income of approximately $200,000. Omar formed a new solely owned corporation, Ivory Corporation, and had Plum Corporation transfer one-half of its assets to Ivory Corporation. Because this results in each of the two corporations having approximately $100,000 of taxable income each year, Omar believes it will reduce overall corporate income taxes. Will Omar’s plan work? Discuss.

30. LO.6 When are C corporations required to make estimated tax payments? How are these payments calculated?

31. LO.6 Schedule M–1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation’s income tax return as follows: net income per books + additions − subtractions = taxable income. Classify the following items as additions or subtractions in the Schedule M–1 reconciliation.

a. Nondeductible portion of meals and entertainment. b. Tax depreciation in excess of book depreciation. c. Federal income tax per books. d. Capital loss in excess of capital gain. e. Charitable contributions in excess of taxable income limitation. f. Tax-exempt interest income. g. Domestic production activities deduction.

32. LO.6 In 2012, Woodpecker, Inc., a C corporation with $8.5 million in assets, deducted amortization of $40,000 on its financial statements and $55,000 on its Federal tax return. Is Woodpecker required to file Schedule M–3? If a Schedule M–3 is filed by Woodpecker, how is the difference in amortization amounts treated on that schedule? PROB L E MS

33. LO.1 In 2012, Osprey Company had operating income of $320,000, operating expenses of $270,000, and a long-term capital gain of $20,000. How does Juanita, the sole owner of Osprey Company, report this information on her individual tax return under the following assumptions?

a. Osprey Company is a proprietorship, and Juanita did not make any withdrawals from the business during the year. b. Osprey Company is a C corporation and pays no dividends during the year.

34. LO.1 Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a short-term capital loss of $15,000 and makes distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is:

a. A partnership. b. An S corporation. c. A C corporation.

35. LO.1, 2 In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payment to its sole owner, Sash

a. In addition, Azure has interest on municipal bonds of $25,000. Sasha has significant income from other sources and is in the 35% marginal tax bracket. Based on this information, determine the income tax consequences to Azure Company and to Sasha during the year for each of the following independent situations.

a. Azure is a C corporation and pays no dividends or salary to Sasha. b. Azure is a C corporation and distributes $75,000 of dividends to Sasha. c. Azure is a C corporation and pays $75,000 of salary to Sasha. d. Azure is a sole proprietorship, and Sasha withdraws $0. e. Azure is a sole proprietorship, and Sasha withdraws $75,000.

36. LO.1, 2 Charlene owns 100% of Taupe Corporation, which had net operating income of $420,000 and long-term capital gain of $30,000 in 2012. Charlene has sufficient income from other sources to be in the 35% marginal tax bracket without regard to the results of Taupe Corporation. The corporation makes no distributions to Charlene during the year. Explain the tax treatment if Taupe Corporation is:

a. An S corporation. b. A C corporation.

37. LO.1 Purple Company has $200,000 in net income for 2012 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and has no dependents. She claims the $5,950 standard deduction, and her personal exemption is $3,800 for 2012. Purple Company is Kirsten’s only source of income. Ignoring any employment tax considerations, compute Kirsten’s after-tax income if:

a. Purple Company is a proprietorship and Kirsten withdraws $50,000 from the business during the year. b. Purple Company is a C corporation and the corporation pays out all of its after-tax income as a dividend to Kirsten. c. Purple Company is a C corporation and the corporation pays Kirsten a salary of $138,750.

38. LO.2 In 2012, Wilson Enterprises, a calendar year taxpayer, suffers a casualty loss of $90,000. How much of the casualty loss will be deductible by Wilson under the following circumstances?

a. Wilson is an individual proprietor and has AGI of $225,000. The casualty loss was a personal loss, and the insurance recovered was $50,000. b. Wilson is a corporation, and the insurance recovered was $50,000.

39. LO.1, 4, 7 Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket. BC’s gross income is $295,000, and its ordinary trade or business deductions are $135,000. Compute the tax liability on BC’s income for 2012 under the following assumptions:

a. BC is operated as a proprietorship, and the owner withdraws $70,000 for personal use. b. BC is operated as a corporation, pays out $70,000 as salary, and pays no dividends to its shareholder. c. BC is operated as a corporation and pays out no salary or dividends to its shareholder. d. BC is operated as a corporation, pays out $70,000 as salary, and pays out the remainder of its earnings as dividends. e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of BC, which was operated as a proprietorship in 2012. Robert is thinking about incorporating the business in 2013 and asks your advice. He expects about the same amounts of income and expenses in 2013 and plans to take $70,000 per year out of the company whether he incorporates or not. Write a letter to Robert [based on your analysis in (a) and (b)] containing your recommendations.

40. LO.2, 4 Juan, an attorney, is the sole shareholder of Carmine Corporation, a C corporation and professional association. The corporation paid Juan a salary of $336,000 during its fiscal year ending September 30, 2012.

a. How much salary must Carmine pay Juan during the period October 1 through December 31, 2012, to permit the corporation to continue to use its fiscal year without negative tax effects? b. Carmine Corporation had taxable income of $95,000 for the year ending September 30, 2012. Compute the corporation’s income tax liability for the year.

41. LO.2 Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by the corporation at an annual salary of $240,000. During 2012, Broadbill paid each shareholder-employee $220,000 of his or her annual salary, with the remaining $20,000 paid in January 2013. How much of the 2012 salaries for Marcia and Zack is deductible by Broadbill in 2012 if the corporation is:

a. A cash method taxpayer? b. An accrual method taxpayer?

42. LO.2, 4 Ramona owns 100% of Violet Company. In 2012, Violet recognizes a longterm capital gain of $85,000 and no other income (or loss). Ramona is in the 35% tax bracket and has no recognized capital gains (or losses) before considering her ownership interest in Violet. How much income tax results from the $85,000 long-term capital gain if Violet is:

a. A C corporation? b. A proprietorship?

43. LO.2 In the current year, Sandpiper Corporation (a C corporation) had operating income of $215,000 and operating expenses of $155,000. In addition, Sandpiper had a long-term capital gain of $12,000 and a short-term capital loss of $27,000.

a. Compute Sandpiper’s taxable income and tax for the year. b. Assume the same facts except that Sandpiper’s long-term capital gain was $35,000. Compute Sandpiper’s taxable income and tax for the year.

44. LO.2 In 2012, Bronze Company had operating profit of $75,000 ($125,000 operating income − $50,000 operating expenses). In addition, Bronze had a short-term capital gain of $16,000 and a long-term capital loss of $31,000. How much of the long-term capital loss may be deducted in 2012, and how much is carried back or forward under the following circumstances?

a. Bronze Company is a proprietorship owned by Kenneth, and he had no other property transactions in 2012. b. Bronze Company is a C corporation.

45. LO.2 During 2012, Gorilla Corporation has net short-term capital gains of $70,000, net long-term capital losses of $195,000, and taxable income from other sources of $620,000. Prior years’ transactions included the following: 2008 net short-term capital gains $30,000 2009 net long-term capital gains 55,000 2010 net short-term capital gains 15,000 2011 net long-term capital gains 40,000

a. How are the capital gains and losses treated on Gorilla’s 2012 tax return? b. Determine the amount of the 2012 capital loss that is carried back to each of the previous years. c. Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried. d. If Gorilla is a sole proprietorship, rather than a corporation, how would the owner report these transactions on her 2012 tax return?

46. LO.2 Heron Company purchases commercial realty on November 13, 1994, for $650,000. Straight-line depreciation of $287,492 is claimed before the property is sold on February 22, 2012, for $850,000. What are the tax consequences of the sale of realty if Heron is:

a. A C corporation? b. A sole proprietorship?

47. LO.2 In 2012, Condor Corporation, a closely held C corporation that is not a PSC, has $225,000 of active business income, $35,000 of portfolio income, and a $300,000 passive loss from a rental activity. How much of the passive loss can Condor deduct in 2012? Would your answer differ if Condor were a PSC? Explain.

48. LO.2 Aquamarine Corporation, a calendar year C corporation, makes the following donations to qualified charitable organizations during the current year: Adjusted Basis Fair Market Value Painting held four years as an investment, to a church, which sold it immediately $15,000 $25,000 Apple stock held two years as an investment, to United Way, which sold it immediately 40,000 90,000 Canned groceries held one month as inventory, to Catholic Meals for the Poor 10,000 17,000 Determine the amount of Aquamarine Corporation’s charitable deduction for the current year. (Ignore the taxable income limitation.)

49. LO.2, 7 Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2012, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the University of Maine, a qualified public charity. Joe is considering the following alternatives as charitable contributions in December 2012: Fair Market Value (1) Cash donation $200,000 (2) Unimproved land held for six years ($310,000 basis) 200,000 (3) Maize Corporation stock held for eight years ($120,000 basis) 200,000 (4) Brown Corporation stock held for nine months ($70,000 basis) 200,000

Joe has asked you to help him decide which of these potential contributions will be most advantageous taxwise. Jay’s taxable income is $3.5 million before considering the contribution. Rank the four alternatives and write a letter to Joe communicating your advice. The corporation’s address is 1442 Main Street, Freeport, ME 04032.

50. LO.2, 7 In 2012, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2007. Gray is contemplating a gift of land to a qualified charity in either 2012 or 2013. Gray purchased the land as an investment five years ago for $100,000 (current fair market value is $250,000). Before considering any charitable deduction, Gray projects taxable income of $1 million for 2012 and $1.2 million for 2013. Should Gray make the gift of the land to charity in 2012 or in 2013? Provide support for your answer.

51. LO.2, 7 Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the corporation donate Jaybird Corporation stock, held for five years, with a basis of $11,000 and a fair market value of $25,000. Dan projects a $310,000 net profit for Simms Corporation in 2012 and a $100,000 net profit in 2013. Dan calls you on December 13, 2012, and asks whether he should make the contribution in 2012 or 2013. Write a letter advising Dan about the timing of the contribution.

52. LO.2 White Corporation, a calendar year C corporation, manufactures plumbing fixtures. For 2012, White has taxable income [before the domestic production activities deduction (DPAD)] of $900,000, qualified production activities income (QPAI) of $1.2 million, and W–2 wages attributable to QPAI of $200,000.

a. How much is White Corporation’s DPAD for 2012?

b. Assume instead that W–2 wages attributable to QPAI are $150,000. How much is White’s DPAD for 2012?

53. LO.2, 3 During the current year, Swallow Corporation, a calendar year C corporation, has the following transactions: Income from operations $660,000 Expenses from operations 720,000 Dividends received from Brown Corporation 240,000

a. Swallow Corporation owns 12% of Brown Corporation’s stock. How much is Swallow’s taxable income or NOL for the year?

b. Assume instead that Swallow Corporation owns 26% of Brown Corporation’s stock. How much is Swallow’s taxable income or NOL for the year?

54. LO.3 In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends. Green Corporation Orange Corporation Yellow Corporation Income from operations $ 700,000 $ 700,000 $ 700,000 Expenses from operation (650,000) (750,000) (850,000) Qualifying dividends 200,000 200,000 200,000

55. LO.3 Gull Corporation, a cash method, calendar year C corporation, was formed and began business on July 1, 2012. Gull incurred the following expenses during its first year of operations (July 1, 2012–December 31, 2012): Expenses of temporary directors and organizational meetings $17,000 Fee paid to state of incorporation 2,500 Expenses for printing and sale of stock certificates 8,000 Legal services for drafting the corporate charter and bylaws (not paid until January 2013) 25,000

a. Assuming that Gull Corporation elects under § 248 to expense and amortize organizational expenditures, what amount may be deducted in 2012?

b. Assume the same facts as above, except that the amount paid for the legal services was $35,000 (instead of $25,000). What amount may be deducted as organizational expenditures in 2012?

56. LO.3 Egret Corporation, a calendar year C corporation, was formed on March 7, 2012, and opened for business on July 1, 2012. After its formation but prior to opening for business, Egret incurred the following expenditures: Accounting $ 7,000 Advertising 14,500 Employee payroll 11,000 Rent 8,000 Utilities 1,000 What is the maximum amount of these expenditures that Egret can deduct in 2012?

57. LO.4 In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved is 2012. Taxable Income Purple Corporation $ 45,000 Azul Corporation 310,000 Pink Corporation 2,350,000 Turquoise Corporation 21,000,000 Teal Corporation (a personal service corporation) 80,000

58. LO.5 Red Corporation and White Corporation, both calendar year C corporations, are members of a controlled group of corporations. For 2012, Red has taxable income of $130,000, and White has taxable income of $200,000. Assuming that the controlled group does not make an election regarding the apportionment of the marginal tax brackets, what is the income tax liability for each of the corporations?

59. LO.6 Grouse Corporation, a calendar year C corporation, had taxable income of $1.4 million, $1.2 million, and $700,000 for 2009, 2010, and 2011, respectively. Grouse has taxable income of $1.6 million for 2012. What are Grouse Corporation’s minimum required estimated tax payments for 2012?  

Research Problem 1. A personal service corporation (PSC) generally is limited to the calendar year for reporting purposes. One exception to this rule is when the PSC can demonstrate a business purpose for a fiscal year-end. Discuss the business purpose exception, including examples of when the standard is and is not satisfied. Support your research with proper citations of tax authority. Partial list of research aids: § 441(i). Reg. § 1.441–3.

Research Problem 2. A new client, Southwest Grocers, is a calendar year C corporation that owns and operates a chain of grocery stores. Southwest Grocers is interested in donating food inventory to one or more charitable organizations. In some cases, the donated items would consist of dented canned food and fungible food items (e.g., baked goods) nearing their freshness expiration dates. Inedible food or food past its expiration date would not be included in any donation. Prepare an outline detailing the information you would provide to Southwest Grocers regarding charitable contributions of food inventory. Make sure you include support for the content of your outline.

Research Problem 3. Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2009 has been land surveying services. In Tern’s state of incorporation, land surveying can be performed only by a licensed surveyor. Jessica, Tern’s only employee, is a licensed surveyor but is not a licensed engineer. Upon audit of Tern’s 2009 and 2010 tax returns, the IRS assessed tax deficiencies stemming from its conclusion that the corporation was a personal service corporation subject to the flat tax rate of 35%. Jessica believes that the IRS’s determination is incorrect, and she has asked you for advice on how to proceed. Evaluate the IRS’s position regarding the treatment of Tern Corporation as a personal service corporation, and prepare a memo for the client files describing the results of your research.

Research Problem 4. Some states assess a corporate income tax or franchise tax on entities formed as S corporations, LLCs, and/or partnerships. To compare the overall tax burdens associated with the various entity forms, consideration must be given to state taxation of the entities and their owners. Using only the Internet for your research, prepare an outline describing state tax ramifications of the various business forms. Your outline should include as examples the tax policies of several specific states.

Research Problem 5. A significant percentage of U.S. corporations are closely held corporations, with the stock of such corporations often owned predominately or exclusively by family members. Using the Internet as your sole research source, prepare an outline describing the tax implications and planning opportunities unique to family-owned, closely held corporations.

Research Problem 6. Download Schedule M–3 and the accompanying instructions from the IRS website. The instructions provide several examples of adjustments that are reported on Schedule M–3. Select three of these examples, and make the required entries on the appropriate parts and lines of Schedule M–3.