Question 1

If a corporation is unable to deduct a capital loss against capital gains for a particular tax year, it loses the tax benefit since the loss may not be carried to other tax years.

Accepted Answer

This statement is false. A corporation can carry forward a capital loss to offset future capital gains for up to eight years and can also carry back the loss to offset prior years' capital gains.

Question 2

A regular corporation with excess charitable contributions may carry the excess forward to the 5 succeeding tax years.

Accepted Answer

A regular corporation can carry forward excess charitable contributions for up to 5 years. This helps companies with fluctuating profits to maximize their charitable giving and receive tax benefits over a longer period of time.

Question 3

If the shareholders of an S corporation voluntarily revoke the corporation's S corporation status in the sixth month of the tax year and the revocation does not specify a prospective revocation date, the corporation is a regular corporation for that tax year.

Accepted Answer

The corporation will be treated as an S corporation for the part of the tax year before the revocation and as a C corporation for the remainder of the year. The change does not retroactively apply to the entire tax year.

Question 4

Corporations pay a flat 30 percent federal income tax.

Accepted Answer

While the standard corporate tax rate in the US is 21%, there are various deductions, credits and exemptions available that can lower a corporation's effective tax rate. Therefore, the actual amount paid by individual corporations varies.

Question 5

A corporation owning 80 percent or more of the stock of another corporation has a dividends received deduction of 100 percent.

Accepted Answer

This is true according to the U.S. tax code. When a corporation owns 80 percent or more of the stock of another corporation, it is considered a "controlled group" and can benefit from a 100 percent dividends received deduction on qualifying dividends received from the subsidiary corporation.

Question 6

Brokers' fees incurred in the issuance of a corporation's stock are considered organizational expenditures.

Accepted Answer

Brokers' fees incurred in the issuance of a corporation's stock are not considered organizational expenditures; they are directly related to the financing or capital structure of the corporation and are typically capitalized as part of the costs of issuing the stock.

Question 7

Schedule M-1 on Form 1120 shows the reconciliation of a corporation's tax liability to the tax expense on the corporation's books.

Accepted Answer

Schedule M-1 on Form 1120 is used to reconcile the corporation's income per its books with its income per the tax return, not to reconcile the corporation's tax liability with the tax expense on its books.

Question 8

An S corporation files a Form 1120S.

Accepted Answer

S corporations are required to file Form 1120S, which reports the corporation's income and deductions, as well as each shareholder's share of the income, deductions, and credits.

Question 9

A corporation may elect to take a credit for dividends paid in lieu of claiming a dividends received deduction.

Accepted Answer

Corporations do not take a credit for dividends paid; instead, they may be eligible for a dividends-received deduction (DRD) which allows them to reduce their taxable income for certain dividends received from other corporations.

Question 10

A corporation must reconcile, to the IRS's satisfaction, the differences between net income as shown on the company's books and taxable income (before special deductions and net operating losses) as shown on the tax return.

Accepted Answer

This is true, as part of the corporate tax filing process, the company must prepare a reconciliation between its financial accounting records and the taxable income reported on the tax return. This is commonly referred to as the book-tax difference or temporary difference.

Question 11

A corporation may carry forward capital losses for an indefinite period.

Accepted Answer

The answer of A corporation may carry forward capital losses...

Question 12

To prevent triple taxation, a corporation is entitled to deduct 50 percent of the dividends received from other domestic corporations.

Accepted Answer

The answer of To prevent triple taxation, a corporation is...

Question 13

Corporations are not allowed to amortize the costs of organizing the corporation.

Accepted Answer

Corporations are allowed to amortize the costs of organizing the corporation over a period of time, typically 180 months, for tax purposes. This allows them to spread out the deduction of these expenses rather than taking them all at once.

Question 14

Capital losses of a corporation must be used to offset capital gains and net capital losses may not be deducted from the ordinary income of a corporation.

Accepted Answer

As per the tax laws, net capital losses can only be used to offset capital gains and cannot be deducted from ordinary income.

Question 15

The income of an S corporation is computed in much the same manner as that of a partnership.

Accepted Answer

The income of an S corporation is computed in much the same manner as that of a partnership, with income and deductions flowing through to the individual shareholders/members for tax purposes.

Question 16

Corporations are granted favorable tax treatment for short-term capital losses.

Accepted Answer

The answer of Corporations are granted favorable tax treatment for...

Question 17

The corporate tax rates favor large corporations.

Accepted Answer

The answer of The corporate tax rates favor large corporations....

Question 18

Corporations may deduct without limitation any amount of charitable contributions providing the amounts are paid to qualified organizations.

Accepted Answer

Corporations can deduct charitable contributions to qualified organizations, but there are limitations. Generally, the deduction is limited to 10% of the corporation's taxable income before the deduction and certain other adjustments.

Question 19

Corporations can elect to deduct up to $5,000 of organizational costs in the year they begin business, assuming their total organizational expenses do not exceed $50,000.

Accepted Answer

This is stated in the Internal Revenue Code Section 248.

Question 20

Charitable contributions made by an S corporation are not deductible by the corporation; therefore, the shareholders receive no tax benefit from the contributions as itemized deductions.

Accepted Answer

Charitable contributions made by an S corporation pass through to the shareholders and can be deducted on their individual tax returns, providing a tax benefit.

Quiz 11: The Corporate Income Tax