Question 1

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?

Accepted Answer

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

Question 2

Identify which of the following statements is true.

Accepted Answer

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

Question 3

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

Accepted Answer

A personal holding company cannot take a dividends-paid deduction for preferential dividends. Preferential dividends are those paid on preferred stock that are larger than the proportionate share of earnings given to common stockholders. Such dividends are considered discriminatory and therefore not deductible for personal holding companies.

Question 4

How is alternative minimum taxable income computed?

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

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

Identify which of the following statements is true.

Accepted Answer

Consent dividends (A) do not require an authorizing vote of the shareholders; instead, they are requested by the board of directors and paid to shareholders who have given their consent to receive them. Throwback dividends (C) refer to certain dividends paid by personal holding companies in prior years that are subject to additional tax in the current year. So, statement B is true in that dividends paid in prior years can be used as a dividend carryover to reduce the current year's personal holding company tax liability.

Question 7

Identify which of the following statements is true.

Accepted Answer

The personal holding company tax is imposed to prevent closely held corporations from benefiting from sheltering passive income. Statement B is false because a personal holding company must receive at least 60% of its adjusted ordinary gross income from passive sources. Statement C is false because professional fees earned by a corporation that provides personal services are not considered passive income.

Question 8

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 a deficiency dividend is paid to avoid the PHC tax, Dragon Corporation will still owe interest and/or underpayment penalty on the original tax liability.

Question 9

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

Accepted Answer

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

Question 10

Identify which of the following statements is false.

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

Question 11

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 12

Which of the following actions cannot be used to eliminate a possible personal holding company tax liability involving a corporation owned by a mother and a father?

Accepted Answer

Selling additional stock to other family members does not necessarily eliminate personal holding company tax liability, as it may not change the concentration of ownership or the nature of the income. The other options directly address reducing or eliminating the potential tax liability by distributing income or liquidating the corporation.

Question 13

The personal holding company tax might be imposed

Accepted Answer

The personal holding company tax is imposed if more than 50% of the company is owned by five or fewer individuals for the entire year.

Question 14

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 15

The personal holding company penalty tax rate is

Accepted Answer

The personal holding company penalty tax rate is 20%.

Question 16

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 17

Identify which of the following statements is false.

Accepted Answer

The statement that Askew Corporation is a personal holding company is false. A personal holding company must have at least 50% of its outstanding stock owned by five or fewer individuals, and at least 60% of its income must come from passive sources such as dividends, interest, and rents. Having ten unrelated shareholders each owning 10% of the stock would not meet these requirements.

Question 18

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?

Accepted Answer

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

Question 19

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?

Accepted Answer

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

Question 20

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

Since the corporation's charitable contributions are greater than its income tax charitable contribution deduction limitation, the excess can be carried forward to future years. Therefore, it does not affect the computation of the UPHCI for this year.

Quiz 5: Other Corporate Tax Levies

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?

Identify which of the following statements is true.

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

How is alternative minimum taxable income computed?

Explain the carryover provisions of the minimum tax credit.

Identify which of the following statements is true.

Identify which of the following statements is true.

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

Identify which of the following statements is false.

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

Which of the following actions cannot be used to eliminate a possible personal holding company tax liability involving a corporation owned by a mother and a father?

The personal holding company tax might be imposed

Identify which of the following statements is true.

The personal holding company penalty tax rate is

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

Identify which of the following statements is false.

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?

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.