Question & Answer

If we would all like more money, why does the government not print a lot more? Could it not thereby solve the problem of scarcity ‘at a stroke’?

Could each of these types of resources be increased in quantity or quality? Is there a time dimension to your answer?

Before reading on, how would you define scarcity? Must goods be at least temporarily unattainable to be scarce?

Could production and consumption take place without money? If you think they could, give examples.

For what reasons may governments want other governments to stick to tough climate or emissions targets and yet be not willing to so so themselves?

Give some other examples of choices that governments had to make during the pandemic. To what extent were they economic choices?

Flintstone Corporation is owned equally by Fred and his sister Wilma, each of whom holds 1,000 shares in Flintstone. Wilma wants to reduce her ownership in the company, and it is decided that Flintstone will redeem 250 of her shares for $25,000 per share on December 31 of this year. Wilma’s tax basis in each share is $5,000.  Flintstone has current E&P of $10,000,000 and accumulated E&P at the beginning of the year is $50,000,000. 

Wildcat Corporation is owned equally by Evan and his sister Sara, each of whom hold 1,000 shares in Wildcat. Sara wants to reduce her ownership in the company, and it was decided that Wildcat will redeem 500 of her shares for $25,000 per share on December 31 of this year. Sara’s tax basis in each share is $5,000. Wildcat has current E&P of $10,000,000 and at the beginning of the year accumulated E&P is $50,000,000. 

Badger Corporation declared a stock distribution to all shareholders of record on March 25 of this year. Shareholders will receive one share of Badger stock for every 10 shares of stock they already own. Madison owns 1,000 shares of Badger stock with a tax basis of $100 per share. The fair market value of the Badger stock was $110 per share on March 25 of this year. 

Hoosier Corporation declared a stock distribution to all shareholders of record on March 25 of this year. Shareholders will receive one share of Hoosier Corporation stock for each share of stock they already own. Hoosier reported current E&P of $600,000 and accumulated E&P of $3,000,000. The total fair market value of the stock distributed was $1,500,000. Barbara owned 1,000 shares of Hoosier stock with a tax basis of $100 per share. 

Tiny and Tim each owns half of the 100 outstanding shares of Flower Corporation. This year, Flower reported taxable income of $10,000.  In addition, Flower received $20,000 of life insurance proceeds due to the death of an employee (Flower paid $900 in life insurance premiums this year). Flower had $5,000 of accumulated E&P at the beginning of the year.

Beaver Corporation reported taxable income of $500,000 from operations this year. In addition, Beaver distributed land to its sole shareholder, Eugenia. The land’s fair market value was $20,000 and its income tax and E&P basis to Beaver was $50,000. Eugenia assumed a mortgage on the land of $25,000. Beaver Corporation had accumulated E&P of $1,500,000 at the beginning of the year. 

Illini Corporation reported taxable income of $500,000 from operations for this year. In addition, the company distributed an automobile to its sole shareholder, Yuki. The auto’s fair market value was $30,000 and its tax basis to Illini was $0. The auto’s E&P tax basis was $15,000. Illini had accumulated E&P of $1,500,000 at the beginning of the year. 

Tiger Corporation reported taxable income of $500,000 from operations this year.  During the year, the company made a distribution of land to its sole shareholder, Mike Fairway. The land’s fair market value was $75,000 and its tax and E&P basis to Tiger was $125,000. Mike assumed a mortgage attached to the land of $15,000. Tiger had accumulated E&P of $750,000 at the beginning of the year. 

Volunteer Corporation reported taxable income of $500,000 from operations this year. The company paid federal income taxes of $105,000 on this taxable income.  During the year, the company made a distribution of land to its sole shareholder, Rocky. The land’s fair market value was $75,000 and its tax and E&P basis to Volunteer was $25,000. Rocky assumed a mortgage attached to the land of $15,000. Volunteer had accumulated E&P of $750,000 at the beginning of the year. 

Paladin Inc. reported taxable income of $1,000,000 this year and paid federal 

Gator Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $210,000. Included in the company’s computation of taxable income is gain from the sale of a depreciable asset of $50,000. The income tax basis of the asset was $100,000. The E&P basis of the asset using the alternative depreciation system was $175,000. Compute Gator’s current E&P. 

Boilermaker Inc. reported taxable income of $500,000 this year and paid federal income taxes of $105,000. Not included in the company’s computation of taxable income is tax-exempt income of $20,000, disallowed meals and entertainment expenses of $30,000, and disallowed expenses related to the tax-exempt income of $1,000.  Boilermaker deducted depreciation of $100,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $60,000.  Compute Boilermaker’s current E&P. 

In the current year, Jolt Inc. reported $40,000 of taxable income before any charitable contribution deduction. Jolt contributed $10,000 this year to Goodwill Industries, a public charity. Compute Jolt’s current E&P.  

This year, Bobcat Corporation reports a deficit in current E&P of ($300,000) that accrued evenly throughout the year. At the beginning of the year, Bobcat’s accumulated E&P was $200,000. Bobcat distributed $200,000 to its sole shareholder, Melanie, on June 30 of this year. Melanie’s tax basis in her Bobcat stock before the distribution was $75,000. 

This year, Sooner Corporation reports a deficit in current E&P of ($300,000).  Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $75,000. 

Jayhawk Corporation reports current E&P of $300,000 and a deficit in accumulated E&P of ($200,000). Jayhawk distributed $400,000 to its sole shareholder, Christine, on the last day of the year. Christine’s tax basis in her Jayhawk stock before the distribution is $75,000. 

Hawkeye Corporation reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Kinsella, on December 31 of this year. Kinsella’s tax basis in his Hawkeye stock before the distribution is $75,000. 

Gopher Corporation reported taxable income of $500,000 this year.  Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson. The dividend meets the requirements to be a qualified dividend, and Sven is subject to a tax rate of 15 percent on the dividend. What income tax is imposed on the corporate income earned by Gopher and the income tax on the dividend distributed to Sven? 

Compare and contrast the built-in loss duplication rule as it relates to §351 with the built-in loss disallowance rule as it applies to a complete liquidation.