Deck 20: Corporations and Partnerships

Question 1

For income tax purposes, excess capital losses of individuals and corporations are treated in the same manner.

Answer 1

False

Question 2

Like individuals, corporations can claim both deductions for and deductions from AGI.

Answer 2

False

Question 3

Both Emerald Corporation and Gold Corporation own 500 shares of IBM Corporation common stock and both receive the same amount of cash dividends on their stock investment.The dividends received deduction each corporation can claim will be the same.

Answer 3

False

Question 4

In forming a corporation in the current year, organizational expenditures are incurred and paid.These expenditures must be amortized over a period of 180 months.

Question 5

In determining whether an entity is to be recognized as a corporation for Federal income tax purposes, classification under state law is not conclusive.

Question 6

The qualified business income (QBI) deduction is calculated at the S corporation level and reported to each shareholder.

Question 7

Federal corporate income tax rates are progressive, but the lower brackets are phased out at higher taxable income levels.

Question 8

To obtain limited liability, a sole proprietor incorporates his business.Under the check-the-box Regulations, the entity can elect to be treated as a partnership.

Question 9

Only C corporations are eligible to carry back a charitable contribution that is unusable in the current year due to income limitations.

Question 10

Taxpayers who want both limited liability and the pass-through of losses should choose either an S corporation or the
LLC entity form of doing business.

Question 11

For corporations and individuals, net long-term capital gains are taxed at ordinary income rates.

Question 12

Under the check-the-box Regulations, a multiowner entity that makes no election is taxed as a partnership.

Question 13

The amount of the dividends received deduction is affected by the percentage of ownership held by the recipient corporation in the paying corporation.

Question 14

Organizational expenditures are deducted by a C corporation in the year the business begins.

Question 15

Both individuals and corporations can carry over excess charitable contributions indefinitely.

Question 16

A C corporation donates inventory (basis of $9,000, fair market value of $10,000) to charity.Under certain circumstances, it can claim a charitable contribution deduction of $9,500.

Question 17

All types of businesses or their owners potentially are entitled to a qualified business income deduction under §
199A.

Question 18

Like individuals, corporations can defer recognizing gain on like-kind exchanges.

Question 19

Under the check-the-box Regulations, an entity is allowed an annual election on how it will be treated (e.g., corporation, partnership) for Federal income tax purposes.

Question 20

In computing the NOL of a corporation, the dividends received deduction cannot be claimed.

Question 21

Property distributions to shareholders can result in the distributing corporation recognizing gains and losses.

Question 22

The Schedule M-1 to Form 1120 starts with taxable income and, after making various negative and positive adjustments, ends with net income per books.

Question 23

The S corporation qualifying rules no longer are relevant once the S election is initially made.

Question 24

In the formation of a corporation under § 351, the shareholder's basis in the stock received is decreased by loss recognized and boot received.

Question 25

Currently all C corporations must file a Schedule M-3 with Form 1120.

Question 26

When forming a corporation under § 351, recognized gain is the lesser of realized gain or the amount of boot received.

Question 27

A corporation with a fiscal year of July 1-June 30 has a due date for filing its Federal income tax return of October
15.

Question 28

A city donates land to a corporation in return for the corporation's construction of an assembly plant on the site.The fair market value of the land is taxed to the corporation as income.

Question 29

Schedule M-2 of Form 1120 reconciles unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at year-end.

Question 30

If a corporation does not choose to amortize its organizational expenditures, such expenses never can be deducted.

Question 31

Sarah, a sole shareholder, rents property to her corporation.The rent income she receives from the lease is a constructive dividend to Sarah.

Question 32

C corporations are not subject to the alternative minimum tax (AMT).

Question 33

Under certain circumstances, an S corporation can have more than 100 shareholders.

Question 34

In a § 351 transfer to a controlled corporation, the corporation's basis for the property it receives is the shareholder's basis increased by any boot given by the corporation.

Question 35

A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.

Question 36

A shareholder's basis in property received as a dividend is its fair market value on the date of the distribution.

Question 37

If a corporation has no E & P, its shareholders can not have constructive dividends.

Question 38

Unlike regular dividends, constructive dividends need not be distributed to a corporation's shareholders on a pro rata basis.

Question 39

The AMT tax rate applicable to corporations is the same as that applicable to individuals.

Question 40

Organizational expenditures include the costs of transferring assets to the new corporation.

Question 41

As a separately stated item, the long-term capital losses of an S corporation pass through to its shareholders as short-term capital losses.

Question 42

An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000.The distribution will result in a $1,000 negative basis in the stock.

Question 43

Changes in the liabilities (trade accounts payable, bank loans, etc.) of a partnership will not affect the basis of a partnership interest.

Question 44

The taxable income (or loss) of an S corporation is allocated to each shareholder on a per share and per day of stock ownership basis.

Question 45

Darlene, a 30% shareholder in a calendar year S corporation, sells her stock on June 6, 2020.If the corporation has an operating loss for 2020, none of this loss can be claimed by Darlene because she was not a shareholder as of December 31, 2020.

Question 46

Even though partnerships are not subject to income tax, they are required to file income tax returns.

Question 47

To voluntarily revoke an S election, all of the shareholders must consent.

Question 48

Examples of separately stated items of an S corporation include tax-exempt interest.

Question 49

If a partnership interest is received in exchange for services rendered, ordinary income must be recognized by the recipient of the capital interest.

Question 50

A partner's basis in the partnership interest is decreased by his or her share of the capital losses incurred by the partnership.

Question 51

The amortization of organizational expenditures and the dividends received deduction are allowed in determining the taxable income of an S corporation.

Question 52

In computing the taxable income (or loss) of an S corporation, a charitable contributions deduction is allowed.

Question 53

Like S corporations, partnerships serve as conduits for their owners.

Question 54

Jacob is a shareholder in Robin Corporation, an S corporation.His share of Robin's activities for the current year is a short-term capital gain of $80,000 and an operating loss of $50,000.As a result of these transactions, Jacob should increase his basis in the Robin stock by $30,000.

Question 55

In computing the taxable income (or loss) of an S corporation, an NOL carryover from a prior year is not allowed.

Question 56

If the shareholders of a calendar year C corporation elect S status on Friday, March 11, 2020, the election is effective for all of 2020.

Question 57

A shareholder in an S corporation who makes a loan to the corporation, increases the basis in his stock investment.

Question 58

Canary Corporation, a calendar year S corporation, issues some of its stock to a nonresident alien on March 4, 2020.
Canary becomes a C corporation as of March 5, 2020.

Question 59

In return for a 10% interest in Sapphire Partnership, Lily transfers cash of $50,000 and land (basis of $200,000; fair market value of $300,000).Lily's basis in her Sapphire interest is $250,000.

Question 60

Partnerships are not separate taxable entities and, consequently, are not taxed at the entity level.

Question 61

The qualified business income deduction is determined at the partnership level and then passed through to each individual partner based on his or her partnership interest.

Question 62

Which of the following statements, if any, correctly describe the status or nature of limited liability companies?

A)Can elect partnership tax status even if incorporated under state law.
B)One of the main reasons why the check-the-box Regulations were issued.
C)Cannot elect to be taxed as a corporation.
D)Statutes creating these entities have been adopted by only a minority of the states.

Question 63

Mega Corporation has been operating successfully for a number of years and needs additional capital to meets its expansion strategy.Warren Tuffett, a wealthy businessman, contributes $100 million of cash in exchange for shares in Mega.Mega recognizes gross income for the contribution.

Question 64

Jordan and his two brothers are equal owners in Taupe Partnership.If Jordan sells business property (basis of
$230,000; fair market value of $280,000) to Taupe for $280,000, he must recognize the $50,000 realized gain.

Question 65

The choice of entity decision is typically made many years after the business is formed.

Question 66

Only a corporation that qualifies under state law can be treated as a corporation for Federal income tax purposes.

Question 67

Partners can carry over partnership losses that exceed the basis in their partnership interests.

Question 68

The holding period to the partnership of property contributed by a partner includes the period during which the property was held by the contributing partner.

Question 69

Orange Corporation generates current E&P of $40,000 and has accumulated E&P of $35,000 at the beginning of the current year.During the year, Orange makes a $120,000 distribution to its shareholders.Orange's accumulated E&P at year-end is negative.

Question 70

Guaranteed payments are deductible by the partnership and are taxable to the partner receiving the payments.

Question 71

Jenny contributes land (adjusted basis of $300,000; fair market value of $280,000) and cash of $40,000 to the newly formed Green Partnership.Green will have a basis of $280,000 in the land.

Question 72

Tammy operates a small manufacturing business that is organized as an S corporation.The business has gross receipts of $8 million.Tammy may use the cash method of accounting for her business inventory.

Question 73

Which of the following statements, if any, incorrectly characterize the check-the-box Regulations?

A)A one-owner business is a sole proprietorship if default (no election is made) occurs.
B)A one-owner business can elect to be taxed as a corporation.
C)If default (no election is made) occurs, a limited liability company is taxed as a partnership.
D)The check-the-box Regulations can apply to entities that are already incorporated under state law.

Question 74

Bilbeaux Corporation is a calendar year corporation that starts business on January 1, 2019.Bibeaux files an election to be treated as a S corporation on April 2, 2020, when it files its tax return for 2019.Bilbeaux will be treated as an S corporation for 2019.

Question 75

After years of successful business, Mega Corporation recently stopped operating.The shareholders are going to pivot the business strategy into a new direction but are awaiting a new capital injection.As a result, the corporation sat idle for the entire tax year and generated no taxable income.Mega does not need to file a Federal income tax return.

Question 76

A partnership's ordinary income or loss is computed without considering any charitable contributions.This item is separately stated and passes through to the individual partners.

Question 77

The corporate form of business is never preferred from a tax perspective because of the inherent double taxation.

Question 78

If the basis of a partnership interest is exhausted, a partner can use loans made to the partnership to absorb excess losses.

Question 79

The dividends received deduction can be limited to the dividends received deduction percentage multiplied by the taxable income of the receiving corporation.

Question 80

A partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership.