JKL, inc. is a rapidly growing development and construction company operating in Denver. Several years ago it decided to expand its business to the mountains so it could take advantage of the lucrative condominium market. To this end, the corporation persuaded M, N, and O, all of whom had built several projects in mountain communities communities to become a part of JKL, and JKL contributed assets to a new corporation, X, in a transaction qualifying under code section 351. M contributed the following assets for 25% of the stock, worth $450,000, and $50,000 cash: land worth $300,000 (basis $25,000); office building worth $70,000 (basis $90,000); and a crane worth $130,000 (basis $100,000). This year the corporation subdivided the land and began selling the unimproved property. What basis should X corporation assign to the land for purposes of computing gain and loss on the lot sales? 

 

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Jo and Velma are equal owners of the JV Partnership, with Jo investing $500,000 and Velma contributing land and a building (adjusted basis of $125,000; fair market value of $500,000). In addition, the entity borrows $250,000 using recourse financing and $100,000 using nonrecourse financing.

a. Jo’s outside basis is $___, and Velma’s is $___.

b. 

 

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 Joachim wants to take his little sister to the zoo. He knows that if he gets out on the highway and takes the last exit that he will be at the zoo because that is how he got there when he went with his mother. His friends have told him that there is a quicker way to get to the zoo if he takes the streets through town, rather than going out on the highway. However, Joachim decides to go to the zoo by way of the highway because of ________.

 

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Joan, a widow, died on January 15, 2019. At her death Joan owned many assets with the following FMV at DOD (fair market value at time of death):

• savings account     $2,350,000
• checking account   $3,000
• California tax exempt municipal bonds $1,000,000
• 10,000 shares of Cisco stock [the high and low for the Cisco share on DOD (date of death) was $19 and $21]
• A thoroughbred horse named George appraised at DOD for $900,000 but the executor of the estate was only able to sell it at the Kentucky yearly thoroughbred auction on February 20, 2019 for $500,000.
• residence $6,500,000, which is subject to a mortgage of $300,000
• joint and survivor checking account with her son John in which she contributed all the funds $50,000
• personal and household goods $15,000
• Joan was a beneficiary of a testamentary trust created under the will of her late uncle George, pursuant to which she was entitled to income for life from the trust payable at least annually and over which she had a power to appoint the entire trust assets in favor of anyone. The value of the trust corpus at Joan’s DOD equals $1,000,000.
• In June of 2008 Joan created an irrevocable trust with $500,000. She was the income beneficiary for 10 years and the remainderman was her nephew Jimmy. The value of the trust at Joan’s DOD was $4,500,000 (Use Table B Term Certain for assumed 4% rate in June of 2008…(actual IRC 7520 rate was 3.8%)) (Hint: possible prior taxable gift?).
• Joan transferred her $500,000 term life insurance on her life into an irrevocable insurance trust in December of 2016. The yearly insurance premium did not exceed the Section 2503 exclusion. (Watch for Section 2035(a))
• Joan was the income beneficiary for her life of a trust created by her Uncle Tom. The remainderman was her nephew Jimmy. The value of the trust $300,000.
• Joan owned whole life $300,000 insurance policy on the life of her son John. At the time of her death the replacement value is $20,000. John is still alive.
• Joan owned single annuity for her life. During her lifetime she received $12,000 per year.
• funeral and administrative expenses $25,000
• charitable donation to Rady Children’s Hospital $100,000
• her will provides that all her estate is to pass to John.

a.   Calculate Joan’s taxable estate

Any kind of help and guidance would be greatly appreciated. Thank you!

 

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3. Joan buys gasoline and food. When the price of gasoline is $1.00 per gallon, she

buys 50 gallons per week and spends $50 on food per week. the government want to

reduce consumption of gasoline as part of an environmental policy and is considering two

alternatives. They are: (1) restrict the number of gallons of gasoline anyone can buy to

40 gallons per week, and (2) Raise the price of gasoline to $1.25 per gallon. Assume for

simplicity that food always costs $1 per unit.

(a) Show on a graph Joan’s initial budget line and the budget lines under policy (1)

and policy (2).

(b) Suppose that Joan’s most preferred market basket under policy (2) is to consume

40 gallons per week. Show this on the consumption diagram. Would Joan be better o

under policy (1) or (2)?

(c) If Joan’s preferred market basket under policy (2) is to consume 70 gallons per

week, would your answer to (b) change?

 

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