Deck 3: Corporations: Special Situations

Question 1

The formula in determining the DPAD for individual taxpayers is the same as that applicable to corporations.

Answer 1

False

Question 2

DPGR - Allowable Indirect Costs = QPAI. Is this formula correct?

Answer 2

False

Question 3

DPAD for 2015 is 9% of the greater of QPAI or TI, but not to exceed the W-2 wages limitation.

Answer 3

False

Question 4

The domestic production activities deduction is limited to corporations.

Question 5

Modified AGI means AGI without any DPAD allowance.

Question 6

If QPAI cannot be used in any one year due to the TI limitation, it can be carried over for 3 years.

Question 7

The domestic production activities deduction is intended to preserve U.S. manufacturing jobs and discourage their outsourcing.

Question 8

In the case of an individual, modified AGI is substituted for taxable income in the DPAD formula.

Question 9

The overall effect of the domestic production activities deduction is similar to a deduction.

Question 10

The W-2 wages limitation as to the DPAD encourages the use of independent contractors.

Question 11

Green Company, a U.S. corporation based in Texas, manufactures and sells a product which includes some components made in the Dominican Republic. None of Green's income from sales constitute DPGR.

Question 12

The percentage applicable for computing the DPAD will ultimately increase to 12%.

Question 13

Fewer corporations are subject to the AMT than to the domestic production activities deduction.

Question 14

One of the components of DPGR is qualified production property (QPP). The QPP must be manufactured, produced, grown, or extracted entirely within the U.S.

Question 15

The DPAD is limited by 50% of the total W-2 wages paid by a taxpayer.

Question 16

DPGR cannot include the cost of an embedded service that is part of in the sale of a manufactured product.

Question 17

In connection with the construction of a housing project, a contractor pays an architect to design the homes being built. The architect's fee is not an embedded service that qualifies as DPGR.

Question 18

Harvey, a real estate developer, pays Abe, a general contractor, to construct an office building. Abe has no DPGR since he does not own the property.

Question 19

June Corporation, a Tampa contractor, pays Gull Engineering a fee to design bridges for a highway June will build in Haiti. The fee Gull receives is DPGR.

Question 20

In terms of the effect of the DPAD, the maximum tax savings for a corporation with $10 million of taxable income is $316,000 in 2015.

Question 21

Once a small corporation for AMT purposes, always a small corporation.

Question 22

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Question 23

Dennis, an advertising executive, pays a contractor to build a lodge on property he owns in Colorado. If Dennis sells the lodge, the proceeds (less the cost of the land) will be DPGR.

Question 24

The AMT rate for corporations is the same as for individuals.

Question 25

The objective of the AMT is to force taxpayers that are more profitable than their taxable income reflects to pay additional income taxes.

Question 26

The ACE adjustment can be positive or negative.

Question 27

The regular foreign tax credit is available to reduce AMT liability.

Question 28

In working with the W-2 wage limitation on DPAD, a partner can count any guaranteed payments he receives from the partnership.

Question 29

A taxpayer who prepares and sells Mexican food at several of its restaurant locations can qualify for DPAD as to the receipts only from take-out orders and home-delivery sales.

Question 30

Under some circumstances, the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.

Question 31

Tax-exempt interest on state and local private activity bonds (issued in 2010) is a tax preference item.

Question 32

A negative ACE adjustment is beneficial to a corporation.

Question 33

Intangible drilling costs are a tax preference item only for integrated oil companies.

Question 34

Some of the meals a food service company prepares for its chain of restaurants is frozen and shipped to supermarkets for resale. The proceeds from such sales will qualify as DPGR.

Question 35

If mining exploration and development costs are capitalized and written off over 10 years, no adjustment is necessary for AMT purposes.

Question 36

NOLs are negative adjustments.

Question 37

Gerbil Corporation was formed in 2005. If in 2015, it has average gross receipts of under $7.5 million, the company cannot be subject to the AMT.

Question 38

Passive activity losses of certain closely held corporations and personal service corporations are not tax preferences.

Question 39

The DPAD is not allowed for AMT purposes.

Question 40

Netting refers to the process of AMT adjustments reversing themselves and then being deducted from taxable income to arrive at AMTI.

Question 41

The personal holding company tax rate in 2015 is 39.6%.

Question 42

Reasonable needs for purposes of the accumulated earnings tax do not include loans to shareholders.

Question 43

​As taxable income is reduced by an NOL carryback, there is a corresponding increase in the DPAD.

Question 44

The penalty tax rate for the AET and PHC is the highest rate applicable to individual taxpayers.

Question 45

Yvonne Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the 2015 tax year, Yvonne had a U. S. profit of $1.3 million (QPAI) and a loss from the imported merchandise of $200,000. What is Yvonne's DPAD?

A) $33,000
B) $66,000
C) $99,000
D) $1,080,000
E) None of the above

Question 46

​ In the case of a sole proprietor, modified AGI is substituted for taxable income in the DPAD formula.

Question 47

​ A company with a NOL carryforward for a tax year is ineligible for the DPAD if the carryforward eliminates current income.

Question 48

In a sole proprietorship situation, a DPAD would be a:

A) Deduction from AGI.
B) Deduction for AGI.
C) Possible deduction from and deduction for.
D) Not deductible.
E) All of the above.

Question 49

Which, if any, of the following is a characteristic of the DPAD?

A) Not applicable in situations involving S corporations.
B) Applicable only to manufactured goods that are exported from the U.S.
C) Can never apply when the rendition of personal services is involved.
D) Can sometimes apply when some of the components of a product are manufactured in foreign countries.
E) None of the above.

Question 50

The accumulated earnings credit is always the greater of the minimum credit of $250,000 or the current E & P for the year needed to meet the reasonable needs of the business.

Question 51

Which statement is false?

A) The AMT is not limited to C corporations.
B) The DPAD is not limited to C corporations.
C) The penalty tax on PHCs is dependent on the existence of a tax avoidance motive.
D) In the case of a sole proprietor, the DPAD is a deduction for adjusted gross income.
E) All are true.

Question 52

The accumulated earnings credit for a personal service corporation is the greater of $150,000 or the current E & P for the year needed to meet the reasonable needs of the business.

Question 53

Long-term capital gains are taxed under the AET and PHC taxes.

Question 54

Jeff Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the 2015 tax year, Jeff had a U.S. profit of $1.2 million (QPAI) and a profit from the imported merchandise of $300,000. What is Jeff's DPAD?

A) $36,000
B) $72,000
C) $108,000
D) $117,000
E) None of the above

Question 55

Tanweer, Inc., manufactures and sells glassware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the 2015 tax year, Tanweer had a U.S. profit of $1.3 million (QPAI) and a loss from the imported dinnerware of $300,000. What is Tanweer's DPAD?

A) None
B) $33,000
C) $66,000
D) $90,000
E) None of the above

Question 56

The AMT exemption amount of $40,000 phases out entirely once a corporation's average gross receipts exceeds $310,000.

Question 57

Which statement is false?

A) The overall tax effect of a DPAD is a rate reduction or a tax credit.
B) For a flow-through entity, modified AGI is substituted for taxable income.
C) FASB requires the DPAD to be reported as a special charge.
D) MPGE refers to a merge, paid, gain, and expense.
E) All of the above are correct.

Question 58

Stacey, Inc., has taxable income of $10 million in 2015. What is the maximum DPAD tax savings for this C corporation?

A) None
B) $204,000
C) $306,000
D) $315,000
E) None of the above

Question 59

Which formula is correct for DPAD?

A) Smaller of 9% of QPAI or 9% of modified AGI, not to exceed 50% of allocable wages.
B) Larger of 9% of QPAI or 9% of taxable income, not to exceed 50% of allocable wages.
C) Smaller of 9% of QPAI or 9% of taxable income, not to exceed 60% of allocable wages.
D) Larger of 9% of QPAI or 9% of alternative minimum tax, not to exceed 60% of allocable wages.
E) None of the above.

Question 60

Lime, Inc., has taxable income of $13 million in 2015. What is the maximum DPAD tax savings for this C corporation?

A) $132,600
B) $265,200
C) $397,800
D) $409,500
E) None of the above

Question 61

Which of the following would not be a positive tax preference item in 2015?

A) Accelerated depreciation on real property in excess of straight-line.
B) Intangible drilling costs.
C) Alternative minimum tax NOL deduction.
D) Percentage depletion in excess of adjusted basis.
E) None of the above.

Question 62

Which of the following has no effect in arriving at ACE?

A) Tax-exempt income (net of expenses).
B) Excess charitable contributions.
C) Key employee insurance proceeds.
D) Deferred gain on installment sales.
E) Premiums paid on key employee insurance.

Question 63

Which statement, if any, is false?

A) An S corporation is subject to the corporate AMT.
B) A high level of investment in assets (e.g., equipment or structures) is a reason a company may be subject to the AMT.
C) Many of the adjustments that apply to individuals also apply to corporations.
D) The AMT is a separate tax system from the corporate income tax.
E) None of the above.

Question 64

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

A) Since the deduction is determined at the owner level, each owner must make the computation separately.
B) The entity allocates to each owner his or her share of any QPAI.
C) In the case of partnerships, guaranteed payments are regarded as W-2 wages.
D) A partner cannot be allocated any W-2 wages if the share of QPAI is zero.
E) None of the above.

Question 65

Kim's sole proprietorship consists of a bakery and retail food sales. The bakery's DPGR is $700,000, but after CGS, direct expenses, and a ratable portion of indirect expenses are deducted, QPAI is $100,000. W-2 wages related to DPGR are significant. The retail food sales have a loss of $900,000. If Kim files a joint return and her modified AGI is $119,500, what is her allowable DPAD, if any, for 2015?

A) None
B) $6,000
C) $7,170
D) $9,000
E) Some other amount

Question 66

In 2015, May Corporation (a calendar year taxpayer) had the following transactions: For 2015, May Corporation's AMTI is:

A) $6,300,000.
B) $7,150,000.
C) $7,250,000.
D) $7,300,000.
E) None of the above.

Question 67

Nickel Corporation, a calendar year corporation formed in 2013, has average gross receipts of $5.7 million, $4.2 million, and $4.8 million in 2013, 2014, and 2015, respectively. In 2015, Nickel is:

A) Not subject to the corporate income tax.
B) A small corporation with respect to the AMT.
C) Not subject to the AMT.
D) Subject to the AMT.
E) None of the above.

Question 68

Jackson, Inc., has the following items related to the AMT.
Alternative minimum tax base
$9,850,290
Regular tax
1,120,152
Foreign AMT tax credit
123,000
Cost of goods sold
2,000,000
The corporation's AMT, if any, is:

A) $0.
B) $709,906.
C) $726,906.
D) $1,847,058.
E) None of the above.

Question 69

Which of the following items will have an effect (add or subtract) on unadjusted AMTI to arrive at ACE?

A) Federal income tax.
B) Tax-exempt interest income.
C) Excess capital losses.
D) 80% dividends received deduction.
E) None of the above.

Question 70

A small corporation with unused minimum tax credits may use what percentage of regular tax as a minimum credit in 2015?

A) 0
B) 25%
C) 50%
D) 75%
E) None of the above

Question 71

Ford Corporation, a calendar year corporation, has alternative minimum taxable income (before any exemption) of $1.28 million for 2015. The company is not a small corporation. If the regular corporate tax is $209,000, Ford's alternative minimum tax for 2015 is:

A) $47,000.
B) $209,000.
C) $256,000.
D) $1,280,000.
E) None of the above.

Question 72

Which of the following items will be a deduction from unadjusted AMTI in arriving at ACE?

A) Federal income tax.
B) 80% dividends received deduction.
C) Penalties and fines.
D) Premiums paid on key employee insurance.
E) None of the above.

Question 73

During 2015, Red Corporation (a calendar year taxpayer) has $4,000,000 of taxable income and the following transactions:
​
Red Corporation's alternative minimum tax (AMT) for 2015 is:

A) $1,360,000.
B) $700,000.
C) $500,000.
D) $90,000.
E) None of the above.

Question 74

Which of the following is added in arriving at ACE?

A) Tax-exempt income (net of expenses).
B) Federal income tax.
C) Premiums paid on key employees insurance.
D) Loss on sale between related parties.
E) None of the above.

Question 75

Which AMT adjustment would only be negative?

A) Passive activity losses.
B) AMT NOL deduction.
C) DPAD.
D) Completed contract method.
E) None of the above.

Question 76

Which statement is false?

A) The starting point for computing AMTI is taxable income.
B) A tax preference is added to taxable income.
C) The ACE adjustment can be a negative amount.
D) The starting point for computing ACE is taxable income.
E) None of the above.

Question 77

Which of the following items will be an addition to AMTI in arriving at ACE?

A) Excess capital loss.
B) Federal income tax.
C) Tax-exempt income.
D) Excess charitable contributions.
E) None of the above.

Question 78

In 2015, Job Corporation, a calendar year taxpayer, has AMTI (before adjustment for adjusted current earnings) of $7 million. If Job Corporation's ACE is $16 million, its tentative minimum tax for 2015 is:

A) $2.55 million.
B) $2.75 million.
C) $3.45 million.
D) $4.2 million.
E) None of the above.

Question 79

Rose, Inc., an S corporation, has taxable income of $14 million in 2015. Assume there are two shareholders, each in the 35% tax bracket. What is the maximum total DPAD tax savings for the S corporation shareholders?

A) None
B) $168,000
C) $285,600
D) $441,000
E) None of the above

Question 80

Which reason is unlikely to cause a regular corporation to have to pay AMT?

A) A service-type of company with little inventory.
B) A high level of investment in assets such as equipment and structures.
C) Low taxable income due to a cyclical downturn, strong international competition, a low-margin industry, or other factors.
D) Investment at low real interest rates, which increases the company's deductions for depreciation relative to those for interest payments.
E) None of the above.