ACC 317 Week 6 Homework Chapter 23

This pack of ACC 317 Week 6 Homework Chapter 23 comprehends:

Chapter 23: Exempt Entities

Homework Submission
32a. Quail is subject to the Federal income tax on corporations. The income tax on corporate taxable income of $550,000 is $187,000. b. Mr. Arthur Morgan, Treasurer Roadrunner, Inc. 500 Rouse Tower Rochester, NY 14627 Dear Mr. Morgan: I am responding to your inquiry regarding the appropriate actions needed to enable the earnings of Quail, Inc. to become a tax-exempt corporation. Currently, the earnings of Quail, Inc. are subject to the Federal corporate income tax. Based on your
projection of annual earnings of approximately $550,000, Quails
corporate tax liability would be $187,000. If you liquidated 100% of Quail, Inc. into Roadrunner, Inc. you would bring about the legal dissolution of Quail which would terminate it being taxed as a separate entity. Unfortunately, Quail, Inc. is considered to be in the sporting goods industry and thus would be classified as an unrelated trade or business and subject to the unrelated business income tax. Even though Roadrunner, Inc. is tax-exempt, the earnings of the sporting goods business conducted by it still would be subject to taxation. The corporate tax liability on the $550,000 would remain the same. If there are no other reasons for liquidating Quail, Inc. other than to reduce your income tax liability, I recommend that you continue to operate Quail as a subsidiary. If you would like to discuss this further, please contact me. Sincerely, Leah Pasternak, CPA c. The answer would not change if Roadrunner acquired the Quail stock by either purchase or by gift. d. Quail would still be considered a feeder organization so its tax liability would be $22,250. 34a. In order for an organization to qualify as receiving broad public support, external and internal support tests must be satisfied. The total support received by Pigeon is $310,800. The external support test is satisfied, $244,500 / $310,800 = 78.7%. The internal support is also satisfied, $39,000 / $310,800 = 12.5%. Pigeon satisfies both tests for receiving broad public support. b. Since Pigeon satisfies both of the required tests for being an organization that is broadly supported by the public, it is not a private foundation.

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