Question 1

A controlled group of corporations must apportion the lower tax rates among the group members as if only one corporation existed.

Accepted Answer

This statement is true. When a group of corporations is considered a controlled group, they must apportion the lower tax rates among the group members as if they were a single corporation. This is done to prevent corporations from dividing themselves for tax purposes and taking advantage of lower tax rates.

Question 2

The accumulated earnings tax is imposed on all publicly-held corporations.

Accepted Answer

The accumulated earnings tax is not imposed on all publicly-held corporations, but only on closely-held corporations that accumulate earnings beyond a reasonable business need.

Question 3

In a parent-subsidiary controlled group,the common parent corporation must own at least 80% of the stock of each subsidiary corporation.

Accepted Answer

The answer of In a parent-subsidiary controlled group,the common parent...

Question 4

In a Sec.351 transfer,the corporation takes the shareholder's adjusted basis in the contributed property,regardless of whether the property's FMV is greater than or less than its adjusted basis at the date of contribution.

Accepted Answer

The answer of In a Sec.351 transfer,the corporation takes the...

Question 5

The corporate AMT is similar to that applicable to individuals.

Accepted Answer

The corporate Alternative Minimum Tax (AMT) operates similarly to the AMT for individuals, by ensuring that a minimum amount of tax is paid by corporations even if they have deductions and credits that reduce their regular tax liability.

Question 6

One requirement of a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.

Accepted Answer

This is a true statement. According to the IRS, one of the requirements for a corporation to be classified as a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.

Question 7

The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.

Accepted Answer

Thin capitalization refers to a situation where a corporation is financed predominantly with debt rather than equity capital.

Question 8

Corporations that are members of a brother-sister affiliated group may file a consolidated return if the proper election is made.

Accepted Answer

The answer of Corporations that are members of a brother-sister...

Question 9

A family-owned corporation with substantial investment income could be subject to both the accumulated earnings tax and the personal holding company tax.

Accepted Answer

The answer of A family-owned corporation with substantial investment income...

Question 10

Peter transfers an office building into a new corporation in exchange for 100 percent of the stock.In addition,the corporation assumes the mortgage on the building.Peter will treat the debt relief as boot and have to recognize gain.

Accepted Answer

The answer of Peter transfers an office building into a...

Question 11

The purpose of the accumulated earnings tax is to discourage corporations from retaining excessive amounts of earnings if the funds are invested in assets unrelated to the business needs.

Accepted Answer

The accumulated earnings tax is a tax penalty imposed on corporations that retain earnings beyond a certain limit that is considered reasonable for the business needs, and invest those funds in assets unrelated to the business. The purpose of the tax is to encourage corporations to distribute the excess earnings to shareholders as dividends or to reinvest in the business, rather than retaining them for non-business purposes.

Question 12

If a shareholder transfers liabilities to a corporation in a Sec.351 transfer,there is no effect on the corporation's stock basis due to the corporation's assumption of liabilities.

Accepted Answer

The answer of If a shareholder transfers liabilities to a...

Question 13

If a corporation has no E&P,a distribution is ordinary income to the extent of the shareholder's basis with any excess treated as capital gain.

Accepted Answer

The answer of If a corporation has no E&P,a distribution...

Question 14

Depreciation recapture does not apply to a transfer coming under Sec.351 unless the transferor recognizes gain on depreciable property that is transferred.

Accepted Answer

Depreciation recapture only applies when the transferor recognizes gain on depreciable property that is transferred. However, if the transfer qualifies under Sec. 351, the transferor does not recognize gain and therefore depreciation recapture does not apply.

Question 15

For purposes of the accumulated earnings tax,reasonable needs of the business include providing working capital for the business.

Accepted Answer

The reasonable needs of the business for purposes of the accumulated earnings tax include providing working capital for the business.

Question 16

If certain requirements are met,Sec.351 permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation.

Accepted Answer

Sec.351 indeed permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation if certain requirements are met.

Question 17

In order for the Sec.351 nonrecognition rules to apply,the transferor-shareholders in aggregate must control the transferee corporation by owning more than 50% of its stock immediately after the exchange.

Accepted Answer

The answer of In order for the Sec.351 nonrecognition rules...

Question 18

A corporation's E&P is equal to its taxable income for the year.

Accepted Answer

A corporation's E&P (earnings and profits) is a calculation used to determine how much of its income has not been distributed as dividends and is therefore available for distribution to shareholders in the future. It is not always equal to its taxable income for the year, as there are certain items that may affect the E&P calculation but not the taxable income calculation, such as tax-exempt income and non-deductible expenses.

Question 19

By calculating its depreciation using the most accelerated method available,a corporation increases the likelihood that it will be subject to the alternative minimum tax.

Accepted Answer

The alternative minimum tax (AMT) disallows many tax deductions and credits, including accelerated depreciation. Therefore, by using the most accelerated depreciation method, a corporation may have a higher taxable income for AMT purposes and be more likely to be subject to the AMT.

Question 20

Corporations that are members of a parent-subsidiary affiliated group may file a consolidated return if the proper election is made.

Accepted Answer

This is true. According to IRS rules, a parent company and its subsidiaries may choose to file a consolidated tax return, in which the taxable income of all the affiliated companies is combined and reported on a single return. This can result in certain tax benefits and simplification of the filing process.

Quiz 16: Corporations