Deck 3: Corporations: Special Situations

Question 1

In the case of an individual,modified AGI is substituted for taxable income in the DPAD formula.

Answer 1

True

Question 2

The DPAD is limited by 50% of the total W-2 wages paid by a taxpayer.

Answer 2

False

Question 3

DPGR cannot include the cost of an embedded service that is part of in the sale of a manufactured product.

Answer 3

False

Question 4

Fewer corporations are subject to the AMT than to the domestic production activities deduction.

Question 5

DPAD for 2010 is 9% of the greater of QPAI or TI,but not to exceed the W-2 wages limitation.

Question 6

Maize Corporation,a Miami contractor,pays Crane Engineering a fee to design bridges for a highway Maize will build in the Dominican Republic.The fee Crane receives is DPGR.

Question 7

In connection with the construction of a housing project,a contractor pays an architect to design the homes being built.The architect's fee is an embedded service that does not qualify as DPGR.

Question 8

As taxable income is reduced by an NOL carryback,there is a corresponding increase in the DPAD.

Question 9

The overall effect of the domestic production activities deduction is similar to a deduction.

Question 10

A company with a NOL carryforward for a tax year is ineligible for the DPAD if the carryforward eliminates current income.

Question 11

If QPAI cannot be used in any one year due to the TI limitation,it can be carried over to future years.

Question 12

Arlene,an advertising executive,pays a contractor to build a lodge on property she owns in Colorado.If Arlene sells the lodge,the proceeds (less the cost of the land)will be DPGR.

Question 13

In the case of a sole proprietor,modified AGI is substituted for taxable income in the DPAD formula.

Question 14

The domestic production activities deduction is intended to preserve U.S.manufacturing jobs and discourage their outsourcing.

Question 15

Andrew,a process engineer for an oil company,inherited a beachfront lot from an uncle.In his spare time,he builds a beach cottage on the lot and later sells the property through a realtor.The sale proceeds Andrew receives are not DPGR.

Question 16

A taxpayer who prepares and sells Chinese food at several of its restaurant locations can qualify for DPAD as to the receipts only from take-out orders and home-delivery sales.

Question 17

Green Company,a U.S.corporation based in Arkansas,manufactures and sells a product which includes some components made in Mexico.All of Green's income from sales might constitute DPGR.

Question 18

Modified AGI means AGI without any DPAD allowance.

Question 19

The domestic production activities deduction is limited to corporations.

Question 20

In terms of the effect of DPAD,the maximum tax savings for a corporation with $10 million of taxable income is $306,000 in 2010.

Question 21

A corporation that passes the $5 million average gross receipts test will continue to be treated as a small business corporation (e.g. ,no AMT)for 3 years automatically.

Question 22

The regular foreign tax credit is available to reduce AMT liability.

Question 23

Netting refers to the process of AMT adjustments reversing themselves and then being deducted from taxable income to arrive at AMTI.

Question 24

The AMT NOL deduction is limited to 80%.

Question 25

Reasonable needs for purposes of the accumulated earnings tax include loans to shareholders.

Question 26

The ACE adjustment cannot be negative.

Question 27

Once a small corporation for AMT purposes,always a small corporation.

Question 28

A positive ACE adjustment is beneficial to a corporation.

Question 29

The starting point for computing ACE is AMTI,which is defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments)and after tax preferences.

Question 30

Under some circumstances,the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.

Question 31

The definition of an expanded affiliated group (EAG)for DPAD purposes is broader than that applicable to the filing of consolidated tax returns.

Question 32

The accumulated earnings credit for a personal service corporation is the greater of $150,000 or the current E & P for the year needed to meet the reasonable needs of the business.

Question 33

The AMT rate for corporations is lower than the rates for individuals.

Question 34

Passive activity losses of certain closely held corporations and personal service corporations are tax preferences.

Question 35

In the case of corporations that are members of an expanded affiliated group (EAG),the DPAD is determined by treating the group as a single taxpayer.

Question 36

A business with taxable income less than $1 million cannot be subject to the AMT.

Question 37

NOLs are negative adjustments.

Question 38

The AMT rate for corporations is the same as for individuals.

Question 39

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

Question 40

Passive activity losses of certain closely held corporations and personal service corporations may be an AMT adjustment.

Question 41

Julie's sole proprietorship consists of a bakery and retail food sales.The bakery's DPGR is $700,000,but after CGS,direct expenses,and a ratable portion of indirect expenses are deducted,QPAI is $100,000.W-2 wages related to DPGR are significant.The retail food sales have a loss of $1 million.If Julie files a joint return and her modified AGI is $119,500,what is her allowable DPAD,if any,for 2010?

A)None.
B)$6,000.
C)$9,000.
D)$10,755.
E)Some other amount.

Question 42

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

A)Since the deduction is determined at the owner level,each owner must make the computation separately.
B)The entity allocates to each owner his or her share of any QPAI.
C)In the case of partnerships,guaranteed payments are not regarded as W-2 wages.
D)A partner cannot be allocated any W-2 wages if the share of QPAI is zero.
E)None of the above.

Question 43

Silver Corporation has average gross receipts of $5.6 million,$4.6 million,and $4.7 million in 2008,2009,and 2010,respectively.Silver is:

A)Not subject to the corporate income tax.
B)A small corporation with respect to the AMT.
C)Subject to the AMT.
D)Not a small corporation with respect to the AMT.
E)None of the above.

Question 44

O'Neal,Inc. ,an S corporation,has taxable income of $14 million in 2010.Assume there are two shareholders,each in the top individual tax bracket.What is the maximum DPAD tax savings for this S corporation?

A)None.
B)$294,000.
C)$441,000.
D)$1,260,000.
E)None of the above.

Question 45

Lemon,Inc. ,has taxable income of $13 million in 2010.What is the maximum DPAD tax savings for this C corporation?

A)$132,600.
B)$265,200.
C)$273,000.
D)$409,500.
E)None of the above.

Question 46

Primeline,Inc. ,has the following items related to the AMT:

The corporation's AMT,if any,is:

A)$0.
B)$7,126,000.
C)$9,426,000.
D)$18,251,000.
E)None of the above.

Question 47

Boasso Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kershaw Corporation for $1,000 in 2010.Kershaw incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600.If Boasso and Kershaw corporations are members of an expanded affiliated group (EAG),their DPGR is:

A)$30.
B)$500.
C)$1,000.
D)$1,600.
E)None of the above.

Question 48

Long-term capital gains are taxed under the AET and PHC taxes.

Question 49

Yvonne Corporation manufactures and sells ceramic dinnerware.The company also sells dinnerware that is purchased from unrelated foreign producers.During tax year 2010,Yvonne had a U.S.profit of $1.2 million (QPAI)and a loss from the imported merchandise of $100,000.What is Yvonne's DPAD?

A)None.
B)$33,000.
C)$66,000.
D)$99,000.
E)None of the above.

Question 50

Which,if any,of the following is a characteristic of the DPAD?

A)Not applicable in situations involving S corporations.
B)Applicable only to manufactured goods that are exported from the U.S.
C)Can never apply when the rendition of personal services is involved.
D)Can sometimes apply when some of the components of a product are manufactured in foreign countries.
E)None of the above.

Question 51

Which statement is false?

A)The AMT is not limited to C corporations.
B)The DPAD is not limited to C corporations.
C)The penalty tax on PHCs is not dependent on the existence of a tax avoidance motive.
D)In the case of a sole proprietor,the DPAD is a deduction from adjusted gross income.
E)All are true.

Question 52

Staff,Inc. ,has taxable income of $10 million in 2010.What is the maximum DPAD tax savings for this C corporation?

A)None.
B)$204,000.
C)$210,000.
D)$306,000.
E)$900,000.

Question 53

Boat Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kite Corporation for $1,000 in 2010.Kite incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600.If Boat and Kite corporations are members of an expanded affiliated group (EAG),their DPAD is:

A)$30.
B)$45.
C)$72.
D)$500.
E)None of the above.

Question 54

Which reason is unlikely to cause a regular corporation to have to pay AMT?

A)A high level of investment in assets such as equipment and structures.
B)Low taxable income due to a cyclical downturn,strong international competition,a low-margin industry,or other factors.
C)Investment at low real interest rates,which increases the company's deductions for depreciation relative to those for interest payments.
D)A service-type of company with little inventory.
E)None of the above.

Question 55

Maria Corporation manufactures and sells ceramic dinnerware.The company also sells dinnerware that is purchased from unrelated foreign producers.During the tax year 2010,Maria had a U.S.profit of $1.2 million (QPAI)and a profit from the imported merchandise of $100,000.What is Maria's DPAD?

A)None.
B)$36,000.
C)$72,000.
D)$108,000.
E)None of the above.

Question 56

A corporation has the following items related to the AMT.

The corporation's AMT,if any,is:

A)$0.
B)$7,099,060.
C)$8,703,900.
D)$18,300,580.
E)None of the above.

Question 57

Which statement is false?

A)The stock ownership requirement for the EAG rules is 50%.
B)Members of an EAG are treated as a single taxpayer for purposes of the DPAD.
C)For an EAG,the DPAD is allocated among the members in proportion to each member's respective amount of QPAI.
D)The DPAD of a consolidated group must be allocated to the group's members in proportion to each member's QPAI.
E)None of the above is false.

Question 58

The penalty tax in 2010 for AET and PHC situations is the highest rate applicable to individual taxpayers.

Question 59

Tayshaun,Inc. ,manufactures and sells glassware.The company also sells dinnerware that is purchased from unrelated foreign producers.During tax year 2010,Tayshaun had a U.S.profit of $1.2 million (QPAI)and a loss from the imported dinnerware of $200,000.What is Tayshaun's DPAD?

A)None.
B)$33,000.
C)$66,000.
D)$99,000.
E)None of the above.

Question 60

Bacon Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kirby Corporation for $1,000 in 2010.Kirby incurs TV advertising expenses of $300 and sells the machine by phone order for $1,700.If Bacon and Kirby corporations are members of an expanded affiliated group (EAG),their QPAI is:

A)$30.
B)$600.
C)$1,000.
D)$1,600.
E)None of the above.

Question 61

In 2010,Jay Corporation (a calendar year taxpayer)had the following transactions:

For 2010,Jay Corporation's AMTI is:

A)$6,900,000.
B)$7,150,000.
C)$7,250,000.
D)$7,300,000.
E)None of the above.

Question 62

Which of the following items will be an addition to AMTI in arriving at ACE?

A)Tax-exempt income
B)Federal income tax.
C)Excess capital loss.
D)Excess charitable contributions.
E)None of the above.

Question 63

Which entity is subject to the ACE provisions?

A)S corporation.
B)Real estate investment trust (REITs).
C)Regulated investment companies.
D)Real estate mortgage investment conduits.
E)None of the above.

Question 64

Which statement is false?

A)The starting point for computing AMTI is taxable income.
B)A tax preference is added to taxable income.
C)The ACE adjustment can be a negative amount.
D)The starting point for computing ACE is taxable income.
E)None of the above.

Question 65

Which of the following items will be added to unadjusted AMTI in arriving at ACE?

A)Tax-exempt income.
B)80% dividends received deduction.
C)Federal income tax.
D)Penalties and fines.
E)None of the above.

Question 66

Azure Corporation incurred the following taxes for the year 2010:

Azure Corporation's total tax liability is:

A)$187,000.
B)$254,000.
C)$265,000.
D)$421,000.
E)Some other amount.

Question 67

Which statement,if any,is false?

A)An S corporation is subject to the corporate AMT.
B)A high level of investment in assets (e.g. ,equipment or structures)is a reason a company may be subject to the AMT.
C)Many of the adjustments that apply to individuals also apply to corporations.
D)The AMT is a separate tax system from the § 11 tax system.
E)None of the above.

Question 68

The exemption amount is phased out entirely when AMTI reaches:

A)$40,000.
B)$310,000.
C)$1,000,000.
D)$5,000,000.
E)Some other amount.

Question 69

Which AMT adjustment would only be negative?

A)Loss limitation.
B)AMT NOL deduction.
C)DPAD.
D)Completed contract method.
E)None of the above.

Question 70

During 2010,Brown Corporation (a calendar year taxpayer)has $4,000,000 of taxable income and the following transactions:

Brown Corporation's alternative minimum tax (AMT)for 2010 is:

A)$90,000.
B)$500,000.
C)$700,000.
D)$1,360,000.
E)None of the above.

Question 71

What amount of accumulated earnings of a manufacturing corporation is considered within the reasonable needs of a business without the corporation having to show a bona fide business reason for the accumulation?

A)$150,000 or less.
B)$200,000 or less.
C)$250,000 or less.
D)$300,000 or less.
E)None of the above.

Question 72

Which of the following items will have an effect (add or subtract)on unadjusted AMTI to arrive at ACE?

A)Federal income tax.
B)Dividends received deduction.
C)Excess capital losses.
D)Tax-exempt interest income.
E)None of the above.

Question 73

A small corporation with unused minimum tax credits may use what percentage of regular tax as a minimum credit in 2010?

A)0.
B)25%.
C)50%.
D)75%.
E)None of the above.

Question 74

Owl Corporation,a calendar year taxpayer,has a beginning balance in accumulated E & P of $3.5 million and current earnings of $1 million.If Owl can justify accumulations for the needs of the business of $3.7 million,its accumulated earnings credit for ATI purposes is:

A)$0.
B)$200,000.
C)$250,000.
D)$3.7 million.
E)None of the above.

Question 75

For purposes of the penalty tax on accumulated earnings under § 531,reasonable needs of the business does not include:

A)Loans to shareholders.
B)Self-insurance.
C)Loans to suppliers and customers.
D)Product liability losses.
E)Plant expansion.

Question 76

Which of the following items will be a deduction from unadjusted AMTI in arriving at ACE?

A)Federal income tax.
B)80% dividends received deduction.
C)Penalties and fines.
D)Premiums paid on key employee insurance.
E)None of the above.

Question 77

Which of the following would not be a positive tax preference item in 2009?

A)Accelerated depreciation on real property in excess of straight-line.
B)Intangible drilling costs.
C)Private activity bond interest income.
D)Percentage depletion in excess of adjusted basis.
E)None of the above.

Question 78

Chev Corporation,a calendar year corporation,has alternative minimum taxable income (before any exemption)of $1.28 million for 2010.The company is not a small corporation.If the regular corporate tax is $211,050,Chev's alternative minimum tax for 2010 is:

A)$44,950.
B)$209,000.
C)$256,000.
D)$1,280,000.
E)None of the above.

Question 79

Tanver Corporation,a calendar year corporation,has alternative minimum taxable income of $7 million in 2010 (before adjustment for adjusted current earnings).If Tanver's adjusted current earnings is $16 million,its tentative minimum tax for 2010 is:

A)$310,000.
B)$2,750,000.
C)$6,750,000.
D)$7,000,000.
E)Some other amount.

Question 80

Gem Corporation,a calendar year taxpayer,has AMTI (before adjustment for adjusted current earnings)of $6 million for 2010.If Gem Corporation's ACE is $15 million,its tentative minimum tax for 2010 is:

A)$4.2 million.
B)$3.45 million.
C)$2.55 million.
D)$2.02 million.
E)None of the above.