Entity Tax Research Problem Discussion
Entity Tax Research Problem
Problem 1: The taxpayer, a calendar year corporation, wants to change its company’s headquarters, which is currently a 10-story building. The company owns the property without a mortgage.
The company decides to exchange its existing property for a retail and residential building complex. You assisted the company is structuring the exchange. Both parties used the “middleman” corporation, to whom the properties were initially conveyed. The agreement with the middleman included the requirement that the taxpayer sell its property to the middleman, and then, within 45 days of the initial closing, formally identify which of the two new properties it intended to acquire. The identified property was also sold to the middleman corporation. The corporation would then transfer title to the taxpayer within 180 days after the date of initial closing.
Unfortunately, the transaction has not proceeded as planned. The taxpayer transferred its property to the middleman, receiving $10,000,000 in cash. The company formally identified the property it intended to acquire. Unfortunately, one week before the 180 days was up, the seller of the property backed out of the arrangement.
Taxpayer’s basis in the ten-story building is $2,000,000.
A) Will the company have to report an $8,000,000 gain since they can no longer get a “like-kind” exchange?
Problem 2: Terry owns real estate with an adjusted basis of $600,000 and a fair market value of $1.1 million. The amount of the mortgage on the property is $2.5 million. Because of substantial losses, Terry deeds/transfers the property back to the mortgage holder.
a) How much of a gain or loss does Terry recognize?
b) Suppose Terry is in bankruptcy, is your answer the same?
c) Suppose this is Terry’s personal residence for the last 7 years, is your answer the same as in a)?
Beginning by describe how this situation “swept” through the US around 2007 to 2010 (with appropriate citations) as part of the facts.
Directions: Each research problem should be answered in about 3 pages.
Please use the format of facts (4-6 lines), issues (question answerable as yes or no) and conclusion (yes or no) and analysis.
The analysis portion should be quotations from the source documents on RIA Checkpoint. It should be Tax Code, US Treasury Regulations, Revenue Rulings, Tax Cases. It should NOT be IRS publications from Google search, or page number references from the Pearson tax book. Also, your quotes should be short and on point. Your explanation – tying the quotation to the case at hand, should be at least as long, if not longer, than the quotation.
Also – look up “IRS Circular 230” on Google. In the paper, tell what Circular 230 is and then discuss two ways that a tax researcher/preparer could violate Circular 230 – with quotations from Circular 230 and application – in your own words- to the case. This should be in both the paper and the slide presentation. The citations should be from in Subpart B in Circular 230.
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