Umass Boston-AF 450 Professor Gallagher Homework 1
Gene is the CEO and sole owner of a music-themed amusement park called Hug World LLC, which is a disregarded entity and a cash basis taxpayer. While Gene is the sole owner of the park, the land that the park is built on is owned by a partnership, in which Gene and his friends, Ace, Paul, and Peter, are each equal partners. The park pays the partnership rent for use of the land. During the year, the amusement park had $18,500,000 in revenue. Additionally, it had numerous expenses in order to run the park, as shown below:
- Salaries: $7,000,000
- Maintenance: $2,000,000
- Food: $1,000,000
- State & local Taxes: $750,000
- Health Insurance: $2,500,000
- Employee Retirement contributions: $225,000
- Group Term Life insurance Prem.: $75,000
- Rent: $3,000,000
Personally, Gene received the following cash flows. As CEO of the LLC, Gene received a salary of $2,000,000 in cash. He also owned US government bonds which paid him $100,000 in income during the year. Finally, he also maintained a brokerage account that held the following assets: Boeing Stock that was purchased on June 6 for $200,000 and was sold on October 25 for $195,000. This stock paid him a dividend of $10,000 on October 30, with a record date of October 12. Additionally, he owned shares of the Brazilian oil company Petrobras, which paid him $10,000 in dividends, which he owned at the end of the year.
Finally, Gene had the following expenses:
- Mortgage Principal Paid: $500,000
- Mortgage Interest: $200,000
- Student Loan Interest: $20,000
- State Taxes: $200,000
- Real Estate Taxes: $50,000
- Charitable Contributions: $10,000
Gene comes to you regarding his Federal Income tax liability. Please advise him regarding his rights and liabilities regarding his situation.
