Deck 20: Corporations and Partnerships

Question 1

Unlike individuals,corporations cannot take advantage of § 1033 to elect to defer recognizing gain on involuntary conversions.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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

Question 6

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 7

In order to obtain limited liability,a sole proprietor incorporates his business.Under the check-the-box Regulations,the entity cannot elect to be treated as a partnership.

Question 8

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

Question 9

In computing the NOL of a corporation,the dividends received deduction can be claimed.

Question 10

In the case of a corporation,net long-term capital gains can be taxed at a rate as low as 15%.

Question 11

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

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 could be affected by the percentage of ownership held by the recipient corporation in the paying corporation.

Question 14

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

Question 15

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

Question 16

A corporation's election to forego a net operating loss carryback is revocable and can later be changed.

Question 17

The domestic production activities deduction of a C corporation can be passed through to its shareholders.

Question 18

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 19

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 20

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 may not be the same.

Question 21

A distribution to a shareholder will not be treated as dividend income if the corporation had a deficit in accumulated E & P.

Question 22

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

Question 23

Qualified dividends received by a noncorporate shareholder cannot be taxed at a rate higher than 15% and can be taxed as low as 0%.

Question 24

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

Question 25

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 26

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 27

Property distributions to shareholders can result in the distributing corporation recognizing gains but not losses.

Question 28

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 not taxed to the corporation as income.

Question 29

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

Question 30

In forming a corporation in 2012,organizational expenditures are incurred and paid.These expenditures must be amortized over a period of 180 months.

Question 31

Betty,a sole shareholder,rents property to her corporation.The lease could result in a constructive dividend to Betty.

Question 32

A corporation 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

Organizational expenditures do not include the costs of transferring assets to the new corporation.

Question 34

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

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

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 37

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

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

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 40

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 41

An S corporation cannot be a partner in a partnership.

Question 42

In computing the taxable income (or loss)of an S corporation,a domestic production activities deduction (DPAD)is not allowed.

Question 43

Pursuant to a complete liquidation,a corporation sells its assets to third parties and distributes the cash proceeds to its individual shareholders.As a result of the sales,the corporation must recognize both realized gains and losses.

Question 44

If the shareholders of a calendar year C corporation elect S status on Thursday,March 15,2012,the election is effective for all of 2012.

Question 45

If a subsidiary is liquidated under § 332,no gain or loss is recognized to the parent company.

Question 46

In computing the taxable income (or loss)of an S corporation,an NOL carryover from a prior year is allowed.

Question 47

Examples of separately stated items of an S corporation include charitable contributions.

Question 48

Like regular dividends,constructive dividends must be distributed to a corporation's shareholders on a pro rata basis.

Question 49

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 50

On March 9,2012,all of the shareholders of Kingfisher Corporation (a calendar year entity)voluntarily revoke the S election (effective as soon as possible).For all of 2012,Kingfisher Corporation will be a C corporation.

Question 51

Darlene,a 30% shareholder in a calendar year S corporation,sells her stock on June 8,2012.If the corporation has an operating loss for 2012,none of this loss can be claimed by Darlene because she was not a shareholder as of December 31,2012.

Question 52

The individual shareholder of a corporation being liquidated will not have to recognize any gain if the corporation has no E & P (either current or accumulated).

Question 53

Because both are taxed at rates applicable to net long-term capital gain,it does not matter whether a stock redemption is treated as a sale or exchange or as a dividend.

Question 54

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

Question 55

Under the general rule,a parent corporation's basis in the assets received from a liquidated subsidiary is the basis the parent has in the stock of the subsidiary.

Question 56

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

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

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

Question 59

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

Question 60

Robin Corporation,a calendar year S corporation,issues some of its stock to a nonresident alien on March 5,2012.Robin becomes a C corporation as of March 5,2012.

Question 61

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

Question 62

Which of the following,if any,correctly 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 cannot elect to be taxed as a corporation.
C) If default (no election is made) occurs, a limited liability company is taxed as a corporation.
D) The check-the-box Regulations can apply to entities that are already incorporated under state law.
E) None of the above.

Question 63

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

Question 64

Changes in the liabilities (trade accounts payable,bank loans,etc.)of a partnership will affect the basis of a partnership interest.

Question 65

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.

Question 66

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

Question 67

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

Question 68

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 69

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

Question 70

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

Question 71

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 72

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 73

If the basis of a partnership interest is exhausted,a partner cannot use loans made to the partnership to absorb excess losses.

Question 74

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

Question 75

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 76

Partners cannot carry over partnership losses that exceed the basis in their partnership interests.

Question 77

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

Question 78

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

Question 79

Jordan and his two brothers are equal owners in Taupe Partnership.If Jordan sells business property (basis of $230,000; fair market value of $180,000)to Taupe for $180,000,he can recognize the $50,000 realized loss.

Question 80

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.