Question 1

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during the year. As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

Accepted Answer

The work opportunity tax credit (WOTC) is a tax credit provided to employers who hire individuals from certain targeted groups who have faced employment barriers. The credit is based on a percentage of qualified first-year wages, up to a maximum amount, for each eligible employee.

For employees certified as eligible members of a targeted group, including food stamp recipients, the maximum credit is 40% of the first $6,000 of qualified first-year wages paid to the employee, which amounts to $2,400 per employee.

In this case, Cardinal Corporation hired two eligible employees and paid them each $9,000 during the year. However, since the maximum WOTC credit is based on the first $6,000 of wages, the credit for each employee is $2,400, for a total credit of $4,800 (2 employees x $2,400 per employee).

Therefore, the correct answer is C, $4,800.

Question 2

Which of the following correctly describes the tax credit for rehabilitation expenditures?

Accepted Answer

The tax credit for rehabilitation expenditures applies only to commercial or income-producing property, and not to personal use property. Therefore, no credit is allowed for the rehabilitation of personal use property. Choices A and B are incorrect because only certain types of renovation expenses qualify for the credit, and expanding the building or adding facilities like a parking lot are not automatically qualifying expenses. Choice C is incorrect because recapture provisions do apply to the tax credit for rehabilitation expenditures, meaning that if the property is sold or disposed of within a certain number of years after the renovation, part of the credit must be paid back.

Question 3

Several years ago, Tom purchased a structure for $300,000 that was placed in service in 1929. Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000. In the current year, Tom sold the property in a taxable transaction. Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

Accepted Answer

The recapture of the tax credit for rehabilitation expenditures is 100% of the credit taken during the first five years after placing the property in service, or a fraction thereof (20% per year) for each year thereafter until year ten (IRS Form 3468). Since Tom sold the property in the current year (less than five years after incurring the rehabilitation expenditures), the recapture amount is equal to the full credit taken, which is 20% of the $600,000 ($120,000). However, since the maximum recapture amount is limited to the gain on the sale, in this case, $120,000 is reduced to $24,000 ($300,000 sales price - $276,000 adjusted basis). Therefore, the correct answer is B) $24,000.

Question 4

After 1993, the corporate AMT no longer applies for small C corporations.

Accepted Answer

The answer of After 1993, the corporate AMT no longer...

Question 5

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

Accepted Answer

The AMT exemption for a C corporation is no longer applicable since the Tax Cuts and Jobs Act of 2017 eliminated the corporate AMT.

Question 6

The ACE adjustment can be positive or negative.

Accepted Answer

The ACE adjustment can be either positive or negative depending on factors such as income level, tax credits, and deductions.

Question 7

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger's tax liability decline because of the investment?

Accepted Answer

The tax credit amount would be 40% of $6,000, which is $2,400. This means that Roger's tax liability would decrease by $2,400. Therefore, the correct answer is D.

Question 8

A negative ACE adjustment is beneficial to a corporation.

Accepted Answer

A negative ACE adjustment reflects a decrease in taxable income for the corporation, resulting in lower taxes owed. This can ultimately lead to increased profits and shareholder value.

Question 9

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Accepted Answer

The answer of AMTI may be defined as regular taxable...

Question 10

Cher sold undeveloped land that originally cost $150,000 for $225,000. There is a positive AMT adjustment of $75,000 associated with the sale of the land.

Accepted Answer

The answer of Cher sold undeveloped land that originally cost...

Question 11

Molly has generated general business credits over the years that have not been utilized. The amounts generated and not utilized follow:
​

In the current year, 2016, her business generates an additional $15,000 general business credit. In 2016, based on her tax liability before credits, she can utilize a general business credit of up to $20,000. After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2016 is available for future years?

Accepted Answer

Molly can use her carryforward credits and the current year credit to offset $20,000 of her tax liability. Since the carryforward credits total $17,000 ($7,000 + $3,000 + $4,000 + $3,000) and the current year credit is $15,000, she can only utilize $20,000 in credits for the current year. This leaves $9,000 of the current year credit unused. Since general business credits can be carried forward for 20 years, Molly can use the remaining $9,000 credit in future years. Therefore, the answer is (C) $14,000.

Question 12

C corporations are not required to make AMT adjustments for depreciation.

Accepted Answer

C corporations are required to make AMT adjustments for depreciation.

Question 13

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Accepted Answer

The AMT exemption for a corporation with $225,000 of AMTI is $0. The AMT exemption starts to phase out at $40,000, and is completely phased out at $310,000.

Question 14

Because passive losses are not deductible in computing either taxable income or AMTI, no AMT adjustment for passive losses is required.

Accepted Answer

Passive losses can be deductible under certain conditions for regular tax purposes but may be treated differently for Alternative Minimum Tax (AMT) calculations, potentially requiring adjustments.

Question 15

During the year, Green, Inc., incurs the following research expenditures:
​

Green's qualifying research expenditures for the year are:

Accepted Answer

To determine the qualifying research expenditures, we need to eliminate any costs that are not considered qualified research expenses. Advertising, salaries of general administrative employees, and wages of employees who do not directly engage in qualified research activities are all nonqualified expenses. Therefore, we can eliminate $10,000 + $28,500 + $12,000 = $50,500.

The remaining expenses are all qualified research expenditures, which total $79,500 (($50,000 + $7,000 + $5,000 + $1,500) x 1.5). Therefore, the correct answer is (C) $79,500.

Question 16

In March 2016, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits. Each employee was paid $11,000 during 2016. Only one of the individuals continued to work for Gray Corporation in 2017, earning $9,000 during the year. No additional workers were hired in 2017. Gray Corporation's work opportunity tax credit amounts for 2016 and 2017 are:

Accepted Answer

The answer of In March 2016, Gray Corporation hired two...

Question 17

Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules. Black Company's deduction for wages for the year is:

Accepted Answer

The deduction for wages under the work opportunity tax credit rules is calculated as follows:
Qualified wages x percentage of credit allowed = Deduction for wages

The percentage of credit allowed varies based on the targeted group of employees being hired. Assuming a 40% credit rate for the general group, the deduction for Black Company would be:

$40,000 (qualified wages) x 40% = $16,000

Therefore, Black Company's total deduction for wages would be:

$180,000 - $16,000 = $164,000 (Option B)

Question 18

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Accepted Answer

This statement is true. There are adjustments specifically tailored for each type of taxpayer (corporate vs. noncorporate) when calculating the alternative minimum tax.

Question 19

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Accepted Answer

This is true according to the IRS. All of a C corporation's AMT can be carried over as a minimum tax credit, regardless of the source of the adjustments and preferences.

Question 20

Several years ago, Sarah purchased a structure for $150,000 that was placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts.

Accepted Answer

The answer of Several years ago, Sarah purchased a structure...

Quiz 17: Business Tax Credits and Corporate Alternative Minimum Tax

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients) , each of whom is paid $9,000 during the year. As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

Which of the following correctly describes the tax credit for rehabilitation expenditures?

After 1993, the corporate AMT no longer applies for small C corporations.

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

The ACE adjustment can be positive or negative.

A negative ACE adjustment is beneficial to a corporation.

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Cher sold undeveloped land that originally cost $150,000 for $225,000. There is a positive AMT adjustment of $75,000 associated with the sale of the land.

C corporations are not required to make AMT adjustments for depreciation.

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Because passive losses are not deductible in computing either taxable income or AMTI, no AMT adjustment for passive losses is required.

During the year, Green, Inc., incurs the following research expenditures: Green's qualifying research expenditures for the year are:

Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules. Black Company's deduction for wages for the year is:

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Quiz 17: Business Tax Credits and Corporate Alternative Minimum Tax

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients) , each of whom is paid $9,000 during the year. As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

Which of the following correctly describes the tax credit for rehabilitation expenditures?

After 1993, the corporate AMT no longer applies for small C corporations.

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

The ACE adjustment can be positive or negative.

A negative ACE adjustment is beneficial to a corporation.

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Cher sold undeveloped land that originally cost $150,000 for $225,000. There is a positive AMT adjustment of $75,000 associated with the sale of the land.

C corporations are not required to make AMT adjustments for depreciation.

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Because passive losses are not deductible in computing either taxable income or AMTI, no AMT adjustment for passive losses is required.

During the year, Green, Inc., incurs the following research expenditures: ​ Green's qualifying research expenditures for the year are:

Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules. Black Company's deduction for wages for the year is:

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

During the year, Green, Inc., incurs the following research expenditures: Green's qualifying research expenditures for the year are: