Week 4: Homework Problems

Questions:
14-4 The purpose of the nonrecognition of gains/losses upon transfers of property is to encourage corporate formation. Gains and losses are not recognized upon transfer of property to corporations because essentially the transferee has retained their investment in the property through a different form - stock. When the property is transferred for the stock, the transferee does not recognize a gain or loss and therefore there is no tax burden on the transfer.
14-20 Corporations have the flexibility of choosing their tax year. They can choose to run on the calendar year or a different fiscal year. In addition, their fiscal year does not have to match up to the same accounting periods as the owners of the corporation. In the beginning of a corporation’s life, there is usually a net loss and having a different accounting tax year than that of the owners can lead for a tax benefit for the owners when applying this net loss. In a proprietorship and partnerships generally have to use the same tax year as the owners and S-corporations are generally required to use the calendar year as their tax year. Corporations definitely have the advantage here.
14-22 Corporate capital gains and losses computation is very similar to capital gain/loss for individuals. Capital gains and losses can be short-term and long-term, just like individuals’ capital gains and losses. When a capital gain occurs for corporations, they are required to be included in gross income and are then taxed at the same rate as all other ordinary income. Individuals generally get a preferential tax rate for capitals gains. When a capital loss occurs for corporations, unlike individuals, corporations do not get to deduct the amount of the loss in the year in which it incurs. Corporate capital losses can only be used against capital gains. When a corporate capital loss