Deck 20: Corporations and Partnerships

Question 1

In computing the NOL of a corporation, the dividends received deduction cannot be claimed.

Answer 1

False

Question 2

Taxpayers who want both limited liability and the passthrough of losses should choose either the Subchapter S or the LLC entity form of doing business.

Answer 2

True

Question 3

Some corporations (e.g., personal service corporations) cannot use a calendar year for tax purposes.

Answer 3

False

Question 4

A C corporation donates inventory (basis of $9,000, fair market value of $10,000) to charity. Under certain circumstances, it can claim a charitable contribution deduction of $9,500.

Question 5

Like individuals, corporations can claim both deductions for and deductions from AGI.

Question 6

Both individuals and corporations can carry over excess charitable contributions indefinitely.

Question 7

Like individuals, corporations can take advantage of § 1031 to elect to defer recognizing gain on like-kind exchanges.

Question 8

Although the corporate income tax is progressive, the lower brackets are phased out at higher taxable income levels.

Question 9

A corporation's election to forego a net operating loss carryback is irrevocable and cannot later be changed.

Question 10

The domestic production activities deduction of an S corporation can be passed through to its shareholders.

Question 11

Under the check-the-box Regulations, an entity is allowed an annual election on how it will be treated (e.g., corporation, partnership) for Federal income tax purposes.

Question 12

For income tax purposes, excess capital losses of individuals and corporations are treated in the same manner.

Question 13

The amount of the dividends received deduction is affected by the percentage of ownership held by the recipient corporation in the paying corporation.

Question 14

The domestic production activities deduction (DPAD) for a corporation is 9% of the greater of QPAI or TI.

Question 15

The foreign tax credit is available only to individuals and not to C corporations.

Question 16

Under the check-the-box Regulations, a multi-owner entity that defaults (i.e., makes no election) will be taxed as a partnership.

Question 17

In order to obtain limited liability, a sole proprietor incorporates his business. Under the check-the-box Regulations, the entity can elect to be treated as a partnership.

Question 18

For corporations and individuals, net short-term capital gains are taxed at ordinary income rates.

Question 19

In determining whether an entity is to be recognized as a corporation for Federal income tax purposes, classification under state law is not conclusive.

Question 20

In terms of the pass-through of tax attributes to the owners, both partnerships and C corporations follow the conduit approach.

Question 21

Organizational expenditures include the costs of transferring assets to the new corporation.

Question 22

The Schedule M-1 to Form 1120 starts with taxable income and, after making various negative and positive adjustments, ends up with net income per books.

Question 23

In a § 351 transfer to a controlled corporation, the corporation's basis for the property it receives is the shareholder's basis increased by any boot given by the corporation.

Question 24

A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.

Question 25

A city donates land to a corporation in return for the corporation's construction of an assembly plant on the site. The fair market value of the land is taxed to the corporation as income.

Question 26

Property distributions to shareholders can result in the distributing corporation recognizing gains and losses.

Question 27

In forming a corporation in the current year, organizational expenditures are incurred and paid. These expenditures must be amortized over a period of 180 months.

Question 28

In the formation of a corporation under § 351, the shareholder's basis in the stock received is decreased by loss recognized and boot received.

Question 29

If a C corporation has taxable income in excess of $18,333,333, the corporate tax rate is 35% on all of its taxable income.

Question 30

A corporation whose major source of income is tax-exempt interest probably will not have much E & P.

Question 31

Currently all C corporations must file a Schedule M-3 with Form 1120.

Question 32

An individual with a fiscal year of July 1-June 30 has a due date for filing its Federal income tax return of October 15.

Question 33

Qualified personal service corporations are subject to a flat income tax rate of 35% and are not allowed to use the graduated rates available to regular corporations.

Question 34

The AMT tax rate applicable to corporations is the same as that applicable to individuals.

Question 35

In determining which organizational expenditures can be amortized, it is the year incurred (and not paid) that controls if the corporation uses the cash method of accounting.

Question 36

When forming a corporation under § 351, recognized gain is the lesser of realized gain or the amount of boot received.

Question 37

Certain small business C corporations are not subject to the alternative minimum tax (AMT).

Question 38

Schedule M-2 of Form 1120 reconciles unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at year-end.

Question 39

If a corporation does not choose to amortize its organizational expenditures, such expenses can never be deducted.

Question 40

Emerald Corporation and Gold Corporation each own 500 shares of IBM Corporation common stock and each receives the same amount of cash dividends on their stock investment. The dividends received deduction each corporation can claim will be the same.

Question 41

An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000. The distribution will result in a $1,000 negative basis in the stock.

Question 42

The amortization of organizational expenditures and the dividends received deduction are allowed in determining the taxable income of an S corporation.

Question 43

An S corporation can be a shareholder in another corporation.

Question 44

In computing the taxable income (or loss) of an S corporation, a domestic production activities deduction (DPAD) is allowed.

Question 45

Under certain circumstances, an S corporation can have more than 100 shareholders.

Question 46

If the shareholders of a calendar year C corporation elect S status on Friday, March 11, 2017, the election is effective for all of 2017.

Question 47

Canary Corporation, a calendar year S corporation, issues some of its stock to a nonresident alien on March 4, 2017. Canary becomes a C corporation as of March 5, 2017.

Question 48

Darlene, a 30% shareholder in a calendar year S corporation, sells her stock on June 6, 2017. If the corporation has an operating loss for 2017, none of this loss can be claimed by Darlene because she was not a shareholder as of December 31, 2017.

Question 49

Satisfying the definition of a small business corporation is no longer necessary once the S election is initially made.

Question 50

On March 4, 2017, all of the shareholders of Kingfisher Corporation (a calendar year entity) voluntarily revoke the S election (effective as soon as possible). For all of 2017, Kingfisher Corporation will be a C corporation.

Question 51

In computing the taxable income (or loss) of an S corporation, an NOL carryover from a prior year is not allowed.

Question 52

A shareholder's basis in property received as a dividend is its fair market value on the date of the distribution.

Question 53

Sarah, a sole shareholder, rents property to her corporation. The rent income she receives from the lease is a constructive dividend to Sarah.

Question 54

If a corporation has no E & P, its shareholders will not have constructive dividends.

Question 55

Unlike regular dividends, constructive dividends need not be distributed to a corporation's shareholders on a pro rata basis.

Question 56

Examples of separately stated items of an S corporation include tax-exempt interest.

Question 57

The taxable income (or loss) of an S corporation is allocated to each shareholder on a per-share and per-day of stock ownership basis.

Question 58

Jacob is a shareholder in Robin Corporation, an S corporation. Jacob's share of Robin's activities for the current year is a short-term capital gain of $80,000 and an operating loss of $50,000. As a result of these transactions, Jacob should increase his basis in the Robin stock by $30,000.

Question 59

In order to voluntarily revoke an S election, all of the shareholders must consent to the revocation.

Question 60

As a separately stated item, the long-term capital losses of an S corporation will pass through to its shareholders as short-term capital losses.

Question 61

If a partnership interest is received in exchange for services rendered, ordinary income must be recognized by the recipient of the capital interest.

Question 62

Even though partnerships are not subject to income tax, they are required to file income tax returns.

Question 63

A partner's basis in the partnership interest is decreased by his or her share of the capital losses incurred by the partnership.

Question 64

Like S corporations, partnerships serve as conduits for their owners.

Question 65

Jenny contributes land (adjusted basis of $300,000; fair market value of $280,000) and cash of $40,000 to the newly formed Green Partnership. Green will have a basis in the land of $280,000.

Question 66

Guaranteed payments have no effect on the basis of a partner's interest in the partnership.

Question 67

The domestic production activities deduction (DPAD) is determined at the partnership level and then passed through to each individual partner based on his or her partnership interest.

Question 68

A partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership.

Question 69

Changes in the liabilities (trade accounts payable, bank loans, etc.) of a partnership will not affect the basis of a partnership interest.

Question 70

Which of the following, if any, incorrectly characterize the check-the-box Regulations?

A)A one-owner business is a sole proprietorship if default (no election is made) occurs.
B)A one-owner business can elect to be taxed as a corporation.
C)If default (no election is made) occurs, a limited liability company is taxed as a partnership.
D)The check-the-box Regulations can apply to entities that are already incorporated under state law.
E)None of the above.

Question 71

Jordan and his two brothers are equal owners in Taupe Partnership. If Jordan sells business property (basis of $230,000; fair market value of $280,000) to Taupe for $280,000, he must recognize the $50,000 realized gain.

Question 72

Partnerships are not considered to be separate taxable entities and, consequently, are not taxed at the entity level.

Question 73

If a shareholder in an S corporation makes a loan to the corporation, this increases the basis in his stock investment.

Question 74

If property contributed to a partnership is subject to a liability (assumed by the partnership), gain is recognized to the contributing partner to the extent of the liability.

Question 75

If the basis of a partnership interest is exhausted, a partner can use loans made to the partnership to absorb excess losses.

Question 76

Partners can carry over partnership losses that exceed the basis in their partnership interests.

Question 77

The holding period to the partnership of property contributed by a partner includes the period during which the property was held by the contributing partner.

Question 78

A partnership's ordinary income or loss is computed without considering any charitable contributions. This item is separately stated and passes through to the individual partners.

Question 79

Guaranteed payments are deductible by the partnership and are taxable to the partner receiving the payments.

Question 80

In return for a 10% interest in the Sapphire Partnership, Lily transfers cash of $50,000 and land (basis of $200,000; fair market value of $300,000). Lily's basis in her Sapphire Partnership interest is $250,000.