Deck 16: Corporations

Question 1

Income of a C corporation is subject to an initial tax at the corporate level and the shareholders are subject to a second tax if the corporation pays dividends from its earnings and profits.

Answer 1

True

Question 2

Corporations may be taxed on less than 100% of dividends received due to the dividends-received deduction while individuals are taxed on all of their dividend income.

Answer 2

True

Question 3

C corporations can choose between the cash basis and accrual basis method of accounting.

Answer 3

False

Question 4

For corporations, both NLTCLs and NSTCLs are subject to a 3-year carryback and a 5-year carryover as an offset against capital gains for those years.

Question 5

For corporations, NSTCLs and NLTCLs are treated as STCLs for purposes of the carryback and carryover rules.

Question 6

Unused charitable contributions of a corporation are carried forward ten years.

Question 7

A publicly-held corporation is denied a deduction for compensation paid to its chief executive officer and its four highest-compensated officers if the compensation amount for any individual exceeds $1,000,000 per year.

Question 8

A corporation which makes a charitable contribution of property for the care of the needy gets a deduction equal to the adjusted basis of the property.

Question 9

In general, net operating losses of a corporation are carried back 3 years and forward for 20 years.

Question 10

If a corporation receives dividends from an 80% or more owned affiliated corporation, the dividends-received deduction is 100%.

Question 11

Corporations may deduct 80% of dividends received from a domestic corporation if the recipient corporation owns 20% or more and less than 80% of the voting power and value of the stock of the issuing corporation.

Question 12

Accrual-basis corporations may accrue a charitable contribution deduction in the year preceding payment if the payment is authorized by the board of directors prior to year end and the contribution is made within 2 1/2 months following year end.

Question 13

The corporate capital loss carryback and carryover rules are the same as for individual taxpayers.

Question 14

Partnerships, limited liability partnerships, limited liability companies, and C corporations are considered flow-through entities for tax purposes.

Question 15

In computing a corporation's NOL, the dividends-received deduction is allowed in full.

Question 16

Corporate charitable contributions are limited in any given year to 10% of taxable income.

Question 17

If a corporation owns less than 20% of the stock of the distributing corporation, the dividends-received deduction is not allowed for the recipient corporation.

Question 18

A corporation may make an election to forego the NOL carryback in order to carry the NOL forward only.

Question 19

Corporations must also divide their deductions between deductions for and deductions from AGI.

Question 20

If a corporation reports both a NLTCG and a NSTCG after netting all capital gains and losses, both the NLTCG and the NSTCG are subject to tax at rates applicable to ordinary income.

Question 21

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.

Question 22

A U.S.-based corporation produces cereal in Niagara Falls, NY and in Niagara Falls, Ontario. The corporation will be allowed the qualified production activities deduction based on all of its production.

Question 23

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

Question 24

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

Question 25

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

Question 26

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.

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

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

Question 31

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

Question 32

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

Question 33

Certain personal service corporations are subject to a 35% flat rate of tax.

Question 34

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

Question 35

The corporate AMT rate is 26% on the first $175,000 of tax base and 28% on the balance.

Question 36

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.

Question 37

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

Question 38

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

Question 39

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.

Question 40

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.

Question 41

If a corporation distributes appreciated property to its shareholders, the corporation is treated as if it sold the property to the shareholders for its FMV immediately before the distribution, and the corporation will recognize any realized gain.

Question 42

A closely held corporation will generally prefer to pay higher salary and lower dividends to shareholders who are employed in the business.

Question 43

Various members of Congress favor a reduction in the corporate tax rate to improve competitiveness and have proposed legislation to lower corporate income tax rates. Assume the legislation is enacted, and corporate tax rates are reduced. If a C corporation, which normally generates taxable income of $300,000 or higher and has expectations of higher profits in the future, generates an NOL in the current year, how would you recommend the corporation apply the loss?

A)The corporation should carry back the loss two years and claim a refund.
B)The corporation should elect to carryforward the loss to the next year.
C)The corporation is required to carryforward the loss to the next year.
D)The corporation cannot apply a loss to another year.

Question 44

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$10,000 NLTCG included in gross income and taxed at ordinary rates; $4,000 NSTCG included in gross income and taxed at reduced rates.
B)$14,000 included in gross income and taxed at reduced rates.
C)$14,000 included in gross income and taxed at ordinary rates.
D)$10,000 NLTCG is included in gross income and taxed at reduced rates; and $4,000 NSTCG included in gross income and taxed at ordinary rates.

Question 45

A shareholder receives a distribution from a corporation in complete liquidation. The distribution will be taxed as a dividend to the extent of current or accumulated E&P.

Question 46

For this tax year, Madison Corporation had taxable income of $80,000 before using any of the net operating loss from the previous year. Madison has never elected to forgo the carryback of its losses since incorporation five years ago. Madison's books and records reflect the following income (loss)since its incorporation. What amount of taxable income (loss)should Madison report on its current tax return?

A)$45,000
B)$65,000
C)$70,000
D)$80,000

Question 47

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.

Question 48

All of the following are accurate statements about corporations, except

A)a corporation does not compute adjusted gross income.
B)a corporation is not allowed a standard deduction.
C)dividends received from a domestic corporation do not receive any preferential treatment.
D)the limit on the charitable contribution deduction is 10% of taxable income (with certain adjustments).

Question 49

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

Question 50

With respect to charitable contributions by corporations, all of the following rules apply with the exception of

A)unused contributions are carried forward 5 years.
B)the amount of the contribution deduction is always adjusted basis of the property contributed.
C)contributions are limited to 10% of taxable income, computed without regard to the charitable contribution deduction, NOL and capital loss carrybacks, or the dividend-received deduction.
D)accrual-basis corporations may accrue a contribution deduction in the year preceding payment if the board of directors authorizes such payment prior to the end of the tax year, and the payment is actually made within two and one-half months following the end of the tax year.

Question 51

Summer Corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$6,000 NSTCG included in gross income.
B)$6,000 NLTCG included in gross income.
C)$10,000 NLTCG is included in gross income and $4,000 NSTCL is carried over to the next year.
D)$10,000 NLTCG receives long-term capital gain treatment and $4,000 NSTCL included as ordinary loss.

Question 52

June Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$ 80,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 53

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)deduct $3,000 of the STCL currently; carryover the remaining $2,000 STCL and $6,000 LTCL.
B)deduct $5,000 STCL and $6,000 LTCL.
C)deduct nothing currently; carryback the $5,000 STCL and $6,000 LTCL for three years and carryover for 5 years, if necessary.
D)deduct nothing currently; carryback the $11,000 STCL for three years and carryover for 5 years, if necessary.

Question 54

Musketeer Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$120,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 55

Jenkins Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$100,000.
B)$120,000.
C)$125,000.
D)$150,000.

Question 56

A corporation redeems 10 percent of the stock of each shareholder in a family-owned corporation. The shareholders will recognize capital gains on the sale of their stock back to the corporation.

Question 57

Identify which of the following statements is true.

A)A corporate capital loss can be carried back three years, and then can be carried forward five years.
B)Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C)At the election of a corporation, a net capital loss carryback can be forgone and carried forward only.
D)All are false.

Question 58

Montage Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$120,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 59

All of the following business forms offer limited liability except the

A)partnership.
B)corporation.
C)S corporation.
D)limited liability company.

Question 60

Dividends paid from E&P are taxable to shareholders and are, therefore, deductible by the corporation.

Question 61

Charades Corporation is a publicly held company listed on the New York Stock Exchange. During the current year, its chief executive officer, Samantha Chen, receives the following compensation from the corporation: salary, $1,500,000; commissions based on sales generated by Samantha, $200,000; payments to a qualified pension plan, $30,000; and tax-free fringe benefits, $20,000. What is the total amount taxable to Samantha?

A)$1,000,000
B)$1,200,000
C)$1,500,000
D)$1,700,000

Question 62

Chocolat Inc. is a U.S. chocolate manufacturer. Its domestic production income is $4,000,000. Taxable income before the domestic production deduction is $3,000,000. What is the amount of the production activities deduction?

A)$270,000
B)$360,000
C)$240,000
D)$180,000

Question 63

For purposes of the accumulated earnings tax, reasonable needs of the business include all of the following with the exception of

A)making loans to stockholders.
B)providing working capital for the business.
C)acquiring the assets or stock of another business.
D)reasonably anticipated expansion of the business and plant replacement.

Question 64

Mason Corporation is a personal service corporation in the legal field. Mason Corporation has taxable income of $100,000. Mason Corporation's tax is

A)$15,000.
B)$34,000.
C)$35,000.
D)$22,250.

Question 65

When computing a corporation's alternative minimum taxable income, its taxable income is

A)increased by tax preference items. No decreases are allowed for preferences.
B)increased by adjustments. No decreases are allowed for adjustments.
C)increased by the statutory exemption of $40,000.
D)increased by 75% of the excess of adjusted current earnings over taxable income.

Question 66

Corey Corporation reported the following results for the current year: What is the amount of the charitable contribution carryover to next year?

A)$0
B)$14,000
C)$16,000
D)$30,000

Question 67

If a corporation's charitable contributions exceed the deduction limitation in a particular year, the excess

A)is not deductible in any future year.
B)becomes a carryover to a maximum of five succeeding years.
C)may be carried back to the third preceding year.
D)is carried over indefinitely.

Question 68

The corporate tax return has been prepared for Go Corporation, which showed taxable income of $60,000. Prior to mailing the return, you learn that Go Corporation and Fish Corporation are owned by the same stockholders. Since Go Corp. and Fish Corp. are brother-sister corporations, it will be necessary for you to recompute the tax liability for Go Corporation, based on an equal apportionment of the lower tax rates. What will be the corrected tax liability for Go Corporation?

A)$9,000
B)$14,525
C)$15,025
D)$21,000

Question 69

A corporation has regular taxable income of $90,000 and its gross receipts have never exceeded $5,000,000. Tax preference items and positive adjustments total $70,000. Its regular tax liability is $15,450. The alternative minimum tax is

A)$0.
B)$9,050.
C)$24,000.
D)$24,500.

Question 70

Louisiana Land Corporation reported the following results for the current year: What is the amount of the taxable income for the current year?

A)$240,000
B)$268,000
C)$294,000
D)$300,000

Question 71

Chocolat Inc. is a U.S. chocolate manufacturer. Its domestic production income is $2,000,000. Taxable income before the domestic production deduction is $3,000,000. What is the amount of the production activities deduction?

A)$270,000
B)$180,000
C)$90,000
D)$60,000

Question 72

Identify which of the following statement is true.

A)The corporate alternative minimum tax rate is 35%.
B)AMT is a permanent increase to the corporate tax liability.
C)Small corporations whose average gross receipts for each of the three preceding years are $7.5 million or less are exempted from the AMT.
D)The excess of tax depreciation over book depreciation increases AMTI.

Question 73

Dozen Corporation is owned equally by twelve unrelated individuals. Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250. The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders. The corporation had accumulated earnings and profits of $900,000 at the end of the preceding year. The company has no reasonable needs of the business. The accumulated earnings tax is

A)$7,913.
B)$10,913.
C)$14,550.
D)$13,188.

Question 74

A corporation is classified as a personal holding company. Its taxable income is $300,000 and its regular federal income tax liability is $100,250. The company claims a $40,000 dividends-received deduction and pays $30,000 dividends to its shareholders. The personal holding company tax is

A)$41,950.
B)$29,963.
C)$31,463.
D)$65,053.

Question 75

Indicators of possible exposure of accumulated earning tax risk would include all of the following except

A)substantial marketable securities held by the corporation.
B)loans to shareholders.
C)limited dividend paying history.
D)All of the above factors could indicate retention of earnings beyond business needs.

Question 76

Manatee Corporation, a retailer, is owned equally by twelve unrelated individuals. Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250. The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders. The corporation had accumulated earnings and profits of $200,000 at the end of the preceding year. The company has reasonable needs of the business at year-end of $210,000. The accumulated earnings tax is

A)$413.
B)$3,413.
C)$4,550.
D)$7,735.

Question 77

Charades Corporation is a publicly held company listed on the New York Stock Exchange. During the current year, its chief executive officer, Samantha Chen, receives the following compensation from the corporation: salary, $1,500,000; commissions based on sales generated by Samantha $200,000; payments to a qualified pension plan, $30,000; and tax-free fringe benefits, $20,000. What is the total amount that Charades may deduct?

A)$1,000,000
B)$1,250,000
C)$1,500,000
D)$1,750,000

Question 78

Which of the statements is inaccurate regarding requirements for nonrecognition of gain or loss upon the transfer of assets to a corporation in exchange for stock?

A)Depreciation recapture applies to a transfer which falls under Sec. 351.
B)Property must be transferred to the corporation solely in exchange for stock of the corporation.
C)The transferor-shareholders must be in control (80%)of the corporation immediately after the exchange.
D)If property or money is received by the transferor, gain (but not loss)is recognized to the extent of the lesser of the boot received or the realized gain.

Question 79

Ohio Corporation's taxable income for the current year is $300,000. Its tax liability is

A)$78,000.
B)$100,250.
C)$102,000.
D)$117,000.

Question 80

Major Corporation's taxable income for the current year is $335,000. Its tax liability is

A)$84,250.
B)$102,150.
C)$113,900.
D)$117,250.