1. From the e-Activity, evaluate the importance of the principal issue litigated in the case in question using the tax research steps outlined in Appendix A of your text.
Compare the American Institute of CPAs (AICPA) Statements on Tax Standards (SSTS) and the Treasury Department Circular 230 rules to practice before the Internal Revenue Service (IRS). Suggest which document creates better guidance in the preparation of tax returns and written advice provided to taxpayers.
2. Create a scenario where the transfer of property to a controlled corporation under Section 351 of the Internal Revenue Code (IRC) results in the taxation to the transferor. Evaluate the fairness of the taxation of the transaction to the transferor. Provide a tax-planning strategy to prevent taxation of similar transfers.
Section 267 of the IRC disallows a deduction on losses realized on the sale of property and a deduction for accrued expenses between a corporation and a controlling shareholder. Generally Accepted Accounting Principles (GAAP) does not include this disallowance provision. Create an argument for allowing a loss on a sales transaction between a controlled corporation and shareholder when the transaction includes an independent appraisal and the loss is similar to losses incurred in arms length transactions. Provide an example of allowing such loss to support your argument.
3. From your analysis of Section 306 in the e-Activity, differentiate between the tax treatment of earnings and profit on the distributing corporation of both a sale of Section 306 stock and redemption of Section 306 stock. Suggest the most important reasons for this differentiation in tax treatment.
Per the text, the personal holding company (PHC) tax penalizes taxpayers who enter into tax-motivated transactions designed to shelter passive income of closely held corporations from higher individual tax rates. Suppose you represent a professional athlete who is the majority owner of a corporation. The corporation has several personal service contracts with advertising agencies and endorsements for your client in addition to passive income. Propose a plan in which you eliminate the potential for the PHC tax on the clients corporation.
