Deck 20: Corporations and Partnerships

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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 18

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

Question 19

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 20

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

Question 21

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

Question 22

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 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

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

Question 25

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 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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 31

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 32

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

Question 33

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 34

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 35

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

Question 36

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 37

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

Question 38

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 39

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

Question 40

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

Question 41

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 42

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

Question 43

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

Question 44

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 45

An S corporation cannot be a partner in a partnership.

Question 46

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 47

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

Question 48

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

Question 49

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

Question 50

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 51

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 52

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

Question 53

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 54

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 55

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 56

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

Question 57

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

Question 58

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 59

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 60

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

Question 61

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 62

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

Question 63

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

Question 64

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

Question 65

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 66

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

Question 67

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

Question 68

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

Question 69

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 70

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

Question 71

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 72

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 73

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

Question 74

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

Question 75

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

Question 76

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 77

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 78

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 79

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 80

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