Exam 3: Corporations: Introduction and Operating Rules

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2019. Ostrich also has taxable income from other sources of $1 million. Prior years' transactions included the following: 2015 net short-term capital gains \ 20,000 2016 net long-term capital gains 15,000 2017 net short-term capital gains 25,000 2018 net long-term capital gains 5,000 a. How are the capital gains and losses treated on Ostrich's 2019 tax return? b. Determine the amount of the 2019 net capital loss that is carried back to each of the previous years. c. Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried. d. If Ostrich were a proprietorship, how would Ellen, the owner, report these transactions on her 2019 tax return?

Orange Corporation, a calendar year C corporation, owns stock in White Corporation and has net operating income of $400,000 for the current year. White Corporation pays Orange a dividend of $60,000. What amount of dividends received deduction may Orange claim if it owns 45% of White stock assuming Orange's dividends received deduction is not limited by its taxable income)?

Plum Corporation a C corporation and a computer manufacturer) donated 100 laptop computers to a local university a qualified educational organization) this year. The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers ignoring the taxable income limitation)?

On December 31, 2019, Lavender, Inc., an accrual basis, calendar year C corporation), accrues a $50,000 bonus to Barry, its vice president and a 40% shareholder. Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 14, 2020. Lavender can deduct the bonus in 2020, the year in which it is included in Barry's gross income.

During the current year, Quartz Corporation a calendar year C corporation) has the following transactions: \begin{array} { l } \text {Income from operations }&\$350,000\\ \text {Expenses from operations }&370,000\\ \text {Dividends received from \mathrm{ABC} Corporation }&50,000\\\end{array} Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income loss) for the year?

Beige Corporation, a C corporation, purchases a warehouse on August 1, 2003, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 12, 2019, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

Copper Corporation, a C corporation, had gross receipts of $25 million in 2016, $26 million in 2017, and $23 million in 2018. Gold Corporation, a personal service corporation PSC), had gross receipts of $24 million in 2016, $27 million in 2017, and $25 million in 2018. Which of the corporations will be allowed to use the cash method of accounting in 2019?

Explain the rules regarding the accounting periods available to corporate taxpayers.

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for the current year and asks you to prepare Schedule M-1. Net income per books (after-tax) \ 258,050 Taxable income 195,000 Federal income tax liability 40,950 Interest income from tax-exempt bonds 5,000 Interest paid on loan incurred to purchase tax-exempt bonds 2,000 Life insurance proceeds received as a result of death of Heron's 100,000 president Premiums paid on policy on life of Heron's president 4,500 Excess of capital losses over capital gains 2,000 Retained earnings at beginning of year 375,000 Cash dividends paid 90,000 Tax depreciation in excess of book depreciation 7,500

For tax years beginning before 2018, the corporate marginal income tax rates ranged from 15% to 39%.

A corporate net operating loss arising in 2019 for a calendar year C corporation can be carried back 2 years and forward 20 years to offset taxable income for those years.

The accumulated earnings and personal holding company taxes both can be avoided by distributing sufficient dividends.

Copper Corporation, a calendar year C corporation, owns stock in Bronze Corporation and has net operating income of $900,000 for the current year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock and the two corporations are members of the same affiliated group)? Assume Copper's dividends received deduction is not limited by its taxable income.)

During the current year, Gray Corporation, a C corporation in the financial services business, made charitable contributions to qualified organizations as follows: ∙ Stock basis of $20,000, fair market value of $45,000) in Drab Corporation, held for six months as an investment, to the Salvation Army. Salvation Army plans on selling the stock.) ∙ Painting basis of $90,000, fair market value of $250,000), held for four years as an investment, to the Museum of Fine Arts. The Museum plans on including the painting in its collection.) Gray Corporation's taxable income before any charitable contribution deduction) is $1.8 million. a. Gray's total amount of charitable contributions is $270,000 [$20,000 stock) + $250,000 painting)], computed as follows: Stock: this is ordinary income property, because a sale of the stock would not result in a long-term capital gain or a § 1231 gain for Gray i.e., STCG). Thus, the amount of the contribution is the stock's basis, or $20,000. a. What is the total amount of Gray's charitable contributions for the year? b. What is the amount of Gray's charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

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

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return Form 1120) by timely filing a Form 7004 for the tax year.

In the current year, 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 $19,500.

Nancy is a 40% shareholder and president of Robin Corporation, a calendar year C corporation. The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the current year based on her outstanding performance. The directors want to pay the $75,000 as salary, but Nancy would prefer to have it paid as a dividend. If Nancy is in the 37% marginal tax bracket regardless of the treatment of the bonus, discuss which form of payment would be most beneficial for each party. Ignore any employment tax considerations.)

On December 20, 2019, the directors of Quail Corporation an accrual basis, calendar year C corporation) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity. The payment, which is made on April 6, 2020, may be claimed as a deduction for tax year 2019.