Question 1

A personal holding company cannot take a dividends-paid deduction for

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The answer of A personal holding company cannot take a...

Question 2

Identify which of the following statements is true.

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The answer of Identify which of the following statements is...

Question 3

Flower Corporation,a C corporation but not a personal service corporation,has taxable income of $200,000 plus $125,000 of positive adjustments plus $150,000 of tax preferences.Its regular tax liability is $68,000.Calculate Flower Corporation's minimum tax credit.

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The answer of Flower Corporation,a C corporation but not a...

Question 4

Foster Corporation has gross income for regular tax purposes of $100,000,which includes a net Sec.1231 gain of $10,000 and a net capital gain of $10,000.Ordinary gross income for personal holding company purposes is

Accepted Answer

To determine the ordinary gross income for personal holding company purposes, we need to subtract the following items from the gross income for regular tax purposes:

1. All items of gross income that are not included in personal holding company income calculation (e.g. tax-exempt interest, certain dividends received, etc.)
2. Deductions directly connected with such gross income.

Since we do not have any information about these items, we can only make an assumption that there are no items that are not included in personal holding company income calculation and that the deductions are equal to zero. Therefore, to calculate the ordinary gross income for personal holding company purpose, we need to subtract the net capital gain of $10,000 from the gross income for regular tax purposes:

$100,000 - $10,000 = $90,000.

However, a net Sec. 1231 gain is included in personal holding company income. Therefore, we need to add this amount back to the result:

$90,000 + $10,000 = $100,000

Finally, personal holding company income is reduced by the dividends paid deduction, which is equal to 20% of the personal holding company taxable income. Since we do not have any information about the dividends paid, we cannot determine the personal holding company taxable income or the dividends paid deduction. Therefore, the ordinary gross income for personal holding company purposes equals $100,000.

However, this assumes that there are no items of gross income that are not included in personal holding company income calculation and no deductions directly connected with such gross income. If there are such items or deductions, the result may be different.

Question 5

Explain the carryover provisions of the minimum tax credit.

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The answer of Explain the carryover provisions of the minimum...

Question 6

Which of the following is not an adjustment to taxable income when computing the personal holding company tax?

Accepted Answer

All of the options listed are adjustments to taxable income when computing the personal holding company (PHC) tax. The dividends-received deduction, dividends-paid deduction, and NOL carryover from the immediately preceding tax year are all considered when adjusting taxable income for PHC tax purposes.

Question 7

Dragon Corporation reports a distribution on its return from the third previous year as a stock redemption producing a capital gain.When the return is audited during the current year,the distribution of the third previous year is characterized by the IRS as a dividend.This change causes Dragon Corporation to be classified as a personal holding company for the third previous year.Which of the following statements is correct?

Accepted Answer

Even if Dragon Corporation is able to avoid the personal holding company tax by paying a deficiency dividend, it will still owe interest and/or underpayment penalty for the underpaid tax during the third previous year. The IRS characterizing the distribution as a dividend instead of a stock redemption does not excuse Dragon Corporation from paying the correct amount of tax owed during that year.

Question 8

Identify which of the following statements is true.

Accepted Answer

Choice A is incorrect because consent dividends are dividends paid to preferred stockholders at the discretion of the board of directors, not shareholders. Choice C is incorrect because throwback dividends are dividends paid by a personal holding company in a later tax year but attributed to a prior tax year. Choice D is incorrect because choice B is true.

Question 9

Identify which of the following statements is false.

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The answer of Identify which of the following statements is...

Question 10

Identify which of the following statements is true.

Accepted Answer

The personal holding company tax is levied to prevent closely held corporations from sheltering passive income, which is true. Option B and C contain instances of closely held corporations but they do not accurately reflect the definition or requirements for a personal holding company. Therefore, option A is the only true statement.

Question 11

Wind Corporation is a personal holding company.Its taxable income for this year is $100,000.The corporation's charitable contributions are $5,000 greater than its income tax charitable contribution deduction limitation.Wind's UPHCI is $95,000,assuming no other adjustments must be made.

Accepted Answer

The UPHCI (Unrelated Business Taxable Income (UBTI) plus excess personal holding company income (EPHCI)) is calculated as follows: 
UPHCI = Taxable income - (charitable contributions greater than income tax charitable contribution deduction limitation + dividends received deduction + net capital losses)

In this case, the charitable contributions exceed the deduction limitation by $5,000, which means that Wind Corporation can deduct only $50,000 of these contributions from its taxable income. Therefore, the UPHCI is calculated as follows:

UPHCI = $100,000 - ($50,000 + 0 + 0) = $50,000

However, the question states that "assuming no other adjustments must be made," which means that there are no other factors affecting the UPHCI. Therefore, the UPHCI is actually $95,000 (as stated in the question), and the answer is A.

Question 12

What are the four general rules that provide a framework for the ACE calculation?

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The answer of What are the four general rules that...

Question 13

Identify which of the following statements is true.

Accepted Answer

None of the statements accurately describe the tax treatment of deficiency dividends or the consequences of paying them. A deficiency dividend allows a personal holding company (PHC) to correct a prior year's undistributed personal holding company income by distributing it as a dividend in a later year, potentially reducing the PHC tax for the earlier year. However, the specifics of how and when these dividends affect shareholder income and the PHC's tax obligations are not correctly described in any of the provided statements.

Question 14

Identify which of the following statements is false.

Accepted Answer

This statement is false because having unrelated shareholders owning 10% each does not automatically make a corporation a personal holding company. The personal holding company test requires that at least 60% of a corporation's income be passive income, such as dividends, interest, and rents.

Question 15

Larry Corporation purchased a new precision casting machine for its manufacturing facility.The machine cost $2 million,and another $150,000 was spent on installation.The machine was placed in service in June 2009.The old machine,which was placed in service in 2003,was sold in 2009 to an unrelated party for a $250,000 financial accounting profit.What asset disposition and capital recovery issues do you need to address when removing the old machine from,and placing the new machine on,the financial accounting and tax books and in calculating the 2009 tax depreciation?

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The answer of Larry Corporation purchased a new precision casting...

Question 16

How is alternative minimum taxable income computed?

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The answer of How is alternative minimum taxable income computed?...

Question 17

In the current year,Sun Corporation's federal income taxes before credits are $220,000.Its TMT is $100,000.Their only available credit is a research credit (part of the general business credit)of $160,000.The general business credit is limited to what amount?

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The answer of In the current year,Sun Corporation's federal income...

Question 18

The personal holding company penalty tax rate is

Accepted Answer

The personal holding company penalty tax rate is 20%.

Question 19

The personal holding company tax might be imposed

Accepted Answer

The personal holding company tax is imposed under section 541 of the Internal Revenue Code on corporations that meet two tests: (1) more than 50% of the corporation's stock is owned, directly or indirectly, by or for not more than five individuals; and (2) at least 60% of the corporation's adjusted ordinary gross income for the tax year is "personal holding company income." "Personal holding company income" generally includes investment-related income such as rents, royalties, dividends, and interest.

Question 20

Rich Company sold equipment this year for $50,000.The equipment had been depreciated using 200% declining balance.Accumulated depreciation totals $60,000 for regular tax purposes and $70,000 for AMTI.The equipment originally cost $90,000.What AMT issues does this sale present?

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The answer of Rich Company sold equipment this year for...

Quiz 5: Other Corporate Tax Levies

A personal holding company cannot take a dividends-paid deduction for

Identify which of the following statements is true.

Flower Corporation,a C corporation but not a personal service corporation,has taxable income of $200,000 plus $125,000 of positive adjustments plus $150,000 of tax preferences.Its regular tax liability is $68,000.Calculate Flower Corporation's minimum tax credit.

Foster Corporation has gross income for regular tax purposes of $100,000,which includes a net Sec.1231 gain of $10,000 and a net capital gain of $10,000.Ordinary gross income for personal holding company purposes is

Explain the carryover provisions of the minimum tax credit.

Which of the following is not an adjustment to taxable income when computing the personal holding company tax?

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is true.

Wind Corporation is a personal holding company.Its taxable income for this year is $100,000.The corporation's charitable contributions are $5,000 greater than its income tax charitable contribution deduction limitation.Wind's UPHCI is $95,000,assuming no other adjustments must be made.

What are the four general rules that provide a framework for the ACE calculation?

Identify which of the following statements is true.

Identify which of the following statements is false.

How is alternative minimum taxable income computed?

In the current year,Sun Corporation's federal income taxes before credits are $220,000.Its TMT is $100,000.Their only available credit is a research credit (part of the general business credit)of $160,000.The general business credit is limited to what amount?

The personal holding company penalty tax rate is

The personal holding company tax might be imposed

Rich Company sold equipment this year for $50,000.The equipment had been depreciated using 200% declining balance.Accumulated depreciation totals $60,000 for regular tax purposes and $70,000 for AMTI.The equipment originally cost $90,000.What AMT issues does this sale present?