Question 1

Although recognized as partnerships under state law, certain partnerships are treated and taxed as corporations for Federal income tax purposes.

Accepted Answer

This is true. Certain partnerships, such as limited liability partnerships (LLPs) and limited liability companies (LLCs), can elect to be taxed as corporations for Federal income tax purposes.

Question 2

The proprietorship uses gross ordinary income as the basis for calculating any self-employment tax due.

Accepted Answer

False

Question 3

A corporation may be required to recapture (as ordinary income) a greater portion of its gain on the sale of depreciable real property than would an individual taxpayer.

Accepted Answer

This is because corporations are subject to different rules for calculating and recapturing depreciation when selling depreciable assets, including real property. The recapture amount is calculated based on the amount of depreciation taken on the property, which for corporations may be higher than for individual taxpayers.

Question 4

In computing a corporation's limitation on the dividends-received deduction, its taxable income is determined without the deductions for dividends received, net operating loss carryovers, and capital loss carrybacks.

Accepted Answer

This statement is true. When computing a corporation's limitation on the dividends-received deduction, certain deductions are not taken into account, including deductions for dividends received, net operating loss carryovers, and capital loss carrybacks.

Question 5

Section 11 of the Code imposes a tax on all corporations, including nonprofit organizations.

Accepted Answer

Section 11 of the Code does indeed impose a tax on all corporations, including nonprofit organizations.

Question 6

A corporation is an artificial "person" created by Federal law.

Accepted Answer

A corporation can be created under federal or state law, but most corporations are formed under state law. Each state has its own set of laws and regulations for the formation and operation of corporations.

Question 7

At its election, a corporation can either deduct all organizational costs paid during the current year or amortize the expenditures over a period not less than 180 months.

Accepted Answer

The answer of At its election, a corporation can either...

Question 8

All bad debts of a corporation are treated as business rather than nonbusiness bad debts.

Accepted Answer

This is because bad debts arise from the normal course of business activities and are therefore considered business expenses. Nonbusiness bad debts, on the other hand, arise from non-business transactions like loans made to friends or family members and are treated differently for tax purposes.

Question 9

Because organizational costs are assets with indefinite lives (i.e., they have value for the life of the corporation), they may not be expensed or amortized.

Accepted Answer

Organizational costs are expensed or amortized over their useful life because they are not considered to have an indefinite life; typically, they are amortized over a period of 5 years.

Question 10

A corporation is allowed a dividends-received deduction only if the corporation is a member of an affiliated group and the dividends are received from another member of the same group.

Accepted Answer

Corporations can receive a dividends-received deduction for dividends from both affiliated and non-affiliated companies, although the percentage of the deduction may vary depending on the ownership stake in the company paying the dividend.

Question 11

If an accrual basis corporation incurs an additional expense in setting up its accounting system after the close of its first tax year but before the due date of its initial return, the expense qualifies as an organizational expense and may be amortized.

Accepted Answer

An expense incurred after the close of the first tax year does not qualify as an organizational expense for amortization purposes. Organizational expenses must be incurred before the end of the first tax year.

Question 12

A corporation is not allowed a dividends-received deduction in computing its net operating loss for any given year.

Accepted Answer

Corporations are allowed a dividends-received deduction when computing their net operating loss, as it is a part of the tax code designed to prevent triple taxation of dividends.

Question 13

Unlike individuals, corporations with excess capital losses in the current year are allowed to carry these losses back five years and forward three years to offset capital gains in the carryback or carryforward years.

Accepted Answer

Corporations can carry back capital losses to the three preceding years and carry them forward to the five following years to offset capital gains in those years, not five years back and three years forward as stated.

Question 14

Organizational expenses incurred by an accrual basis corporation in its first year of existence but paid in a later year will not qualify for amortization.

Accepted Answer

Organizational expenses incurred by an accrual basis corporation in its first year of existence can be amortized over a period of 180 months starting with the month the corporation begins business, even if the expenses are paid in a later year.

Question 15

In planning for its annual charitable contributions, a corporation should take into account any net operating loss or capital loss carryforwards since such items reduce the corporation's taxable income base for purposes of the annual deduction limitation.

Accepted Answer

This is true because the amount of annual charitable contributions deductible by a corporation is subject to a limit based on the corporation's taxable income. If the corporation has net operating loss or capital loss carryforwards, these can reduce its taxable income base and therefore affect the annual deduction limitation.

Question 16

If an individual taxpayer creates a legal corporation under state law, the government (i.e., the IRS) cannot disregard the entity and tax the individual taxpayer on the income.

Accepted Answer

The IRS can disregard the entity and tax the individual if the corporation is found to be an alter ego of the taxpayer or if the formation and operation of the corporation do not comply with legal requirements, constituting a sham or lacking a legitimate business purpose. This is often referred to as "piercing the corporate veil."

Question 17

Where a dividends-received deduction adds to or creates a net operating loss, the taxable income limitation decreases from 70 percent to 34 percent.

Accepted Answer

The dividends-received deduction does not directly affect the taxable income limitation percentage; it allows corporations to deduct a portion of the dividends received from other taxable domestic corporations. The percentage deduction (e.g., 50%, 65%, or 100%) depends on the ownership stake in the distributing corporation, not on the creation or addition to a net operating loss.

Question 18

A corporation's annual charitable contribution deduction is limited to 10 percent of its taxable income without reduction for charitable contributions, the dividends-received deduction, net operating loss carrybacks, and capital loss carrybacks.

Accepted Answer

This is true according to the current tax laws in the United States, as outlined in Section 170(b)(2)(A) of the Internal Revenue Code. However, there may be some exceptions and additional rules that corporations need to follow when it comes to charitable contributions and deductions.

Question 19

In contrast to a regular corporation, an S corporation's pass-through of income and deductions to its shareholders allows it to avoid double taxation of the same source of income.

Accepted Answer

This is a true statement. S corporations are able to avoid the double taxation that is common in regular corporations by passing through their income and deductions to their shareholders. This means that profits of the corporation are only taxed at the individual shareholder level, rather than being subject to corporate-level taxation and then individual-level taxation.

Question 20

In transactions between the partners and the partnership, the parties are generally treated like unrelated parties.

Accepted Answer

In transactions between the partners and the partnership, the parties are generally treated as if they are unrelated to ensure fairness and transparency in the dealings, adhering to arm's length principles.

Quiz 1: Income Taxation of Corporations