Question 1

In connection with the deduction of organizational expenditures under § 248, comment on the following:

Accepted Answer

The answer of In connection with the deduction of organizational...

Question 2

Sage, Inc., a closely held corporation that is not a PSC, has a $110,000 passive loss, $90,000 of active income, and $25,000 of portfolio income during the year. How much of the passive loss can Sage deduct in the current year?

Accepted Answer

A)  $0. 
B)  $25,000. 
C)  $90,000. 
D)  $110,000. 
E)  None of the above. 
A)  $0. 
B)  $25,000. 
C)  $90,000. 
D)  $110,000. 
E)  None of the above. C

Question 3

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

Accepted Answer

In general, a corporate taxpayer may select a calendar year or a fiscal year for tax return reporting purposes. A newly formed corporation generally can select it's initial reporting period without having to obtain IRS consent. However, certain types of corporate taxpayers are subject to restrictions on their reporting period. In general, personal service corporations (PSCs) and S corporations are required to use the calendar year for tax reporting. Exceptions to this rule apply, and a fiscal year can be elected by a PSC (or S corporation), under any of the following conditions:

Question 4

Jessica, a cash basis individual, is a 60% shareholder of Crow Corporation, a regular corporation. On January 1, 2011, Jessica loaned Crow $300,000, with the principal due in 5 years and 6% interest due each January 1. Crow, an accrual method, calendar year taxpayer, accrued $18,000 of interest expense on the loan on December 31, 2011, and paid the $18,000 to Jessica on January 1, 2012. How much is Crow's deduction for interest on this loan for 2011? Would your answer change if Jessica was a 25% shareholder of Crow?

Accepted Answer

Crow Corporation and Jessica are related

Question 5

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Accepted Answer

A) True 
 B)False

Question 6

Describe the Federal tax treatment of entities formed as limited liability companies.

Accepted Answer

When the IRS issued the check-the-box Re

Question 7

During the current year, Waterthrush Company had operating income of $510,000 and operating expenses of $400,000. In addition, Waterthrush had a long-term capital gain of $30,000. How does Lucinda, the sole owner of Waterthrush Company, report this information on her individual income tax return under following assumptions?

Accepted Answer

The answer of During the current year, Waterthrush Company had...

Question 8

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is incorrect regarding the dividends received deduction?

Accepted Answer

A)  A corporation must hold stock for more than 90 days in order to qualify for a deduction with respect to dividends on such stock. 
B)  The taxable income limitation does not apply with respect to the 100% deduction available to members of an affiliated group. 
C)  If a stock purchase is financed 75% by debt, the deduction for dividends on such stock is reduced by 75%. 
D)  The taxable income limitation does not apply if the normal deduction (i.e., 70% or 80% of dividends) results in a net operating loss for the corporation. 
E)  None of the above. 
A)  A corporation must hold stock for more than 90 days in order to qualify for a deduction with respect to dividends on such stock. 
B)  The taxable income limitation does not apply with respect to the 100% deduction available to members of an affiliated group. 
C)  If a stock purchase is financed 75% by debt, the deduction for dividends on such stock is reduced by 75%. 
D)  The taxable income limitation does not apply if the normal deduction (i.e., 70% or 80% of dividends) results in a net operating loss for the corporation. 
E)  None of the above.

Question 10

In the current year, Amber, Inc., a calendar C corporation, has income from operations of $200,000 and operating deductions of $225,000. Amber also had $30,000 of dividends from a 25% stock ownership in a domestic corporation. Which of the following statements is incorrect with respect to Amber's net operating loss deduction?

Accepted Answer

A)  The NOL is carried back 3 years and forward 10 years by Amber. 
B)  Amber's NOL is $19,000. 
C)  A dividends received deduction is allowed in computing Amber's NOL. 
D)  Amber can elect to forgo the carryback period and only carry forward the NOL. 
E)  None of the above. 
A)  The NOL is carried back 3 years and forward 10 years by Amber. 
B)  Amber's NOL is $19,000. 
C)  A dividends received deduction is allowed in computing Amber's NOL. 
D)  Amber can elect to forgo the carryback period and only carry forward the NOL. 
E)  None of the above.

Question 11

Donald owns a 60% interest in a partnership that earned $230,000 in the current year. He also owns 60% of the stock in a C corporation that earned $230,000 during the year. Donald received $50,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $188,000 of income on his individual income tax return for the year.

Accepted Answer

A) True 
 B)False

Question 12

A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 13

Patrick, an attorney, is the sole shareholder of Gander Corporation. Gander is a personal service corporation with a fiscal year ending September 30. The corporation paid Patrick a salary of $294,000 during its fiscal year ending September 30, 2011. How much salary must Gander pay Patrick during the period October 1 through December 31, 2011, to permit the corporation to continue to use its fiscal year without negative tax effects?

Accepted Answer

A)  $0. 
B)  $73,500. 
C)  $220,500. 
D)  $294,000. 
E)  None of the above. 
A)  $0. 
B)  $73,500. 
C)  $220,500. 
D)  $294,000. 
E)  None of the above.

Question 14

Owl Corporation, a C corporation, recognizes a gain on the sale of a § 1250 asset in the current year. Owl had used the straight-line method for depreciating the realty. Some of Owl's gain on the sale of the realty will be treated as depreciation recapture (ordinary income).

Accepted Answer

A) True 
 B)False

Question 15

Discuss the purpose of Schedule M-1. Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

Accepted Answer

Schedule M-1 is used to reconcile the di

Question 16

A corporation with $10 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Accepted Answer

A) True 
 B)False

Question 17

Unlike individual taxpayers, corporate taxpayers do not receive a preferential tax rate with respect to long-term capital gains.

Accepted Answer

A) True 
 B)False

Question 18

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local school district (a qualified educational organization). The computers were constructed by Plum earlier this year, and the school district allocated the computers among its various schools where they will be used for educational purposes. Plum's basis in the computers is $50,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation)?

Accepted Answer

A)  $0. 
B)  $50,000. 
C)  $85,000. 
D)  $100,000. 
E)  $120,000. 
A)  $0. 
B)  $50,000. 
C)  $85,000. 
D)  $100,000. 
E)  $120,000.

Question 19

Olga's proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return (Form 1040).

Accepted Answer

A) True 
 B)False

Question 20

Quail Corporation is a C corporation with net income of $300,000 during 2011. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must report the $50,000 of dividends as income.

Accepted Answer

A) True 
 B)False

In connection with the deduction of organizational expenditures under § 248, comment on the following:

Sage, Inc., a closely held corporation that is not a PSC, has a $110,000 passive loss, $90,000 of active income, and $25,000 of portfolio income during the year. How much of the passive loss can Sage deduct in the current year?

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

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Describe the Federal tax treatment of entities formed as limited liability companies.

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Which of the following statements is incorrect regarding the dividends received deduction?

A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.

Owl Corporation, a C corporation, recognizes a gain on the sale of a § 1250 asset in the current year. Owl had used the straight-line method for depreciating the realty. Some of Owl's gain on the sale of the realty will be treated as depreciation recapture (ordinary income).

Discuss the purpose of Schedule M-1. Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

A corporation with $10 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Unlike individual taxpayers, corporate taxpayers do not receive a preferential tax rate with respect to long-term capital gains.

Olga's proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return (Form 1040).

Quail Corporation is a C corporation with net income of $300,000 during 2011. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must report the $50,000 of dividends as income.

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 2: Corporations: Introduction and Operating Rules

In connection with the deduction of organizational expenditures under § 248, comment on the following:

Sage, Inc., a closely held corporation that is not a PSC, has a $110,000 passive loss, $90,000 of active income, and $25,000 of portfolio income during the year. How much of the passive loss can Sage deduct in the current year?

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

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Describe the Federal tax treatment of entities formed as limited liability companies.

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Which of the following statements is incorrect regarding the dividends received deduction?

A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.

Owl Corporation, a C corporation, recognizes a gain on the sale of a § 1250 asset in the current year. Owl had used the straight-line method for depreciating the realty. Some of Owl's gain on the sale of the realty will be treated as depreciation recapture (ordinary income).

Discuss the purpose of Schedule M-1. Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

A corporation with $10 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Unlike individual taxpayers, corporate taxpayers do not receive a preferential tax rate with respect to long-term capital gains.

Olga's proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return (Form 1040).

Quail Corporation is a C corporation with net income of $300,000 during 2011. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must report the $50,000 of dividends as income.

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters