Question 1

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Accepted Answer

Similar to the corporate entity form, a

Question 2

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Accepted Answer

Estimated tax payments are required if t

Question 3

Pink, Inc., a calendar year C corporation, manufactures golf gloves. For the current year, Pink had taxable income (before DPAD) of $900,000, qualified domestic production activities income of $750,000, and W-2 wages related to qualified production activities income of $140,000. Pink's domestic production activities deduction for the current year is:

Accepted Answer

A)  $0. 
B)  $12,600. 
C)  $67,500. 
D)  $70,000. 
E)  None of the above. 
A)  $0. 
B)  $12,600. 
C)  $67,500. 
D)  $70,000. 
E)  None of the above.

Question 4

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?

Accepted Answer

A)  Dividends received deduction. 
B)  Proceeds of life insurance paid on death of key employee. 
C)  Excess of capital losses over capital gains. 
D)  Tax-exempt interest. 
E)  None of the above. 
A)  Dividends received deduction. 
B)  Proceeds of life insurance paid on death of key employee. 
C)  Excess of capital losses over capital gains. 
D)  Tax-exempt interest. 
E)  None of the above.

Question 5

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short­term capital loss on his individual tax return.

Accepted Answer

A) True 
 B)False

Question 6

Amber Company has $100,000 in net income in the current year before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 33% marginal tax bracket. Discuss the tax aspects of each of the following independent arrangements. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.)
a. Alfredo operates Amber Company as a proprietorship.
b. Alfredo incorporates Amber Company and pays himself no salary and no dividend.
c. Alfredo incorporates Amber Company and pays himself a $50,000 salary and a dividend of $42,500 ($50,000 - $7,500 corporate income tax).

Accepted Answer

a. Alfredo's tax on @#LAT-DLM& at @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM& @#LAT-DLM&@#LAT-DLM&

b. Amber's

Question 7

Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $28,000. Which of the following statements is correct?

Accepted Answer

A)  Red owns 80% of Blue Corporation. 
B)  Red owns 20% or more, but less than 80% of Blue Corporation. 
C)  Red owns 80% or more of Blue Corporation. 
D)  Red owns less than 20% of Blue Corporation. 
E)  None of the above. 
A)  Red owns 80% of Blue Corporation. 
B)  Red owns 20% or more, but less than 80% of Blue Corporation. 
C)  Red owns 80% or more of Blue Corporation. 
D)  Red owns less than 20% of Blue Corporation. 
E)  None of the above.

Question 8

Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.

Accepted Answer

A) True 
 B)False

Question 9

During the current year, Violet, Inc., a closely held corporation (not a PSC), has $55,000 of passive activity loss, $80,000 of net active income, and $20,000 of portfolio income. How much is Violet's taxable income for the current year?

Accepted Answer

A)  $20,000. 
B)  $45,000. 
C)  $80,000. 
D)  $100,000. 
E)  None of the above. 
A)  $20,000. 
B)  $45,000. 
C)  $80,000. 
D)  $100,000. 
E)  None of the above.

Question 10

Peach Corporation had $210,000 of active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.

Accepted Answer

A) True 
 B)False

Question 11

Briefly discuss the requirements for the dividends received deduction.

Accepted Answer

The dividends received deduction (DRD) i

Question 12

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Accepted Answer

A) True 
 B)False

Question 13

Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income tax return for the year.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Accepted Answer

A)  If a limited liability company with more than one owner does not make an election, the entity is taxed as a corporation. 
B)  All 50 states have passed laws that allow LLCs. 
C)  An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D)  If a limited liability company with one owner does not make an election, the entity is taxed as a sole proprietorship. 
E)  A limited liability company with one owner can elect to be taxed as a corporation. 
A)  If a limited liability company with more than one owner does not make an election, the entity is taxed as a corporation. 
B)  All 50 states have passed laws that allow LLCs. 
C)  An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D)  If a limited liability company with one owner does not make an election, the entity is taxed as a sole proprietorship. 
E)  A limited liability company with one owner can elect to be taxed as a corporation.

Question 15

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

Accepted Answer

A) True 
 B)False

Question 16

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's tax liability for the year?

Accepted Answer

A)  $42,650. 
B)  $42,800. 
C)  $45,650. 
D)  $62,400. 
E)  None of the above. 
A)  $42,650. 
B)  $42,800. 
C)  $45,650. 
D)  $62,400. 
E)  None of the above.

Question 17

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

Accepted Answer

A) True 
 B)False

Question 18

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Accepted Answer

A) True 
 B)False

Question 19

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

Accepted Answer

A) True 
 B)False

Question 20

Grebe Corporation, a closely held corporation that is not a PSC, had $75,000 of net active income, $60,000 of portfolio income, and a $105,000 passive activity loss during the year. How much of the passive activity loss can Grebe deduct in the current year?

Accepted Answer

A)  $0. 
B)  $60,000. 
C)  $105,000. 
D)  $135,000. 
E)  None of the above. 
A)  $0. 
B)  $60,000. 
C)  $105,000. 
D)  $135,000. 
E)  None of the above.

Exam 17: Corporations: Introduction and Operating Rules

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short­term capital loss on his individual tax return.

Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $28,000. Which of the following statements is correct?

Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.

During the current year, Violet, Inc., a closely held corporation (not a PSC), has $55,000 of passive activity loss, $80,000 of net active income, and $20,000 of portfolio income. How much is Violet's taxable income for the current year?

Peach Corporation had $210,000 of active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.

Briefly discuss the requirements for the dividends received deduction.

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's tax liability for the year?

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

Grebe Corporation, a closely held corporation that is not a PSC, had $75,000 of net active income, $60,000 of portfolio income, and a $105,000 passive activity loss during the year. How much of the passive activity loss can Grebe deduct in the current year?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's shortterm capital loss on his individual tax return.