Exam 2: Corporations: Introduction and Operating Rules

Azul Corporation, a calendar year C corporation, received a dividend of $50,000 from Naranja Corporation. Azul owns 10% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $35,000.

Generally, corporate net operating loss can be carried back 3 years and forward 5 years to offset taxable income for those years.

During the current year, Thrasher, Inc., a closely held personal service corporation, has $67,500 of active business income, $52,500 of portfolio income, and $120,000 of passive loss. How much of the passive loss can Thrasher deduct in the current year?

For a corporation in 2011, the domestic production activities deduction is equal to 9% of the higher of (1) qualified production activities income or (2) taxable income. However, the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

Which of the following statements is correct regarding the taxation of C corporations?

On December 31, 2011, Peregrine Corporation, an accrual method, calendar year taxpayer, accrued a performance bonus of $100,000 to Charles, a cash basis, calendar year taxpayer. Charles is president and sole shareholder of the corporation. When can Peregrine deduct the bonus?

George Judson is the sole shareholder and employee of Black Corporation, a C corporation that is engaged exclusively in engineering services. During the year, Black has gross revenues of $420,000 and operating expenses (excluding salary) of $200,000. Further, Black Corporation pays George a salary of $190,000. The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black. Assuming that Black Corporation distributes all after-tax income as dividends, how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations.)

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 65% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income)?

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

Falcon Corporation, a C corporation, had gross receipts of $3 million in 2008, $7 million in 2009, and $6 million in 2010. Hawk Corporation, a personal service corporation (PSC), had gross receipts of $3 million in 2008, $5 million in 2009, and $4 million in 2010. Which of the corporations will be allowed to use the cash method of accounting in 2011?

Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2011. Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year. The corporation distributed $20,000 to Juanita, and the partnership distributed $20,000 to Carlos. Which of the following statements relating to 2011 is incorrect?

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

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.

Compare the taxation of C corporations with that of individual taxpayers. Provide several examples of similarities and differences in your discussion.

Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?

During the current year, Kingbird Corporation (a calendar year C corporation) had the following income and expenses: On October 1, Kingbird Corporation made a contribution to a qualified charitable organization of $6,300 in cash (not included in any of the above items). Determine Kingbird's charitable contribution deduction for the current year.

Osprey Company had a net loss of $200,000 from merchandising operations in 2011, its first year of operations. Mary, the sole owner of Osprey, works full time in the business. She has a large amount of income from other sources and is in the 35% marginal tax bracket irrespective of Osprey. Considering this information, compare the affect of Osprey's loss to Mary under the various types of entity forms discussed in the chapter.

Heron Corporation, a calendar year C corporation, had an excess charitable contribution for 2010 of $5,000. In 2011, Heron made a further charitable contribution of $20,000. Heron's 2011 deduction is limited to $15,000 (10% of taxable income). The current year's contribution must be applied first against the $15,000 limitation.

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.

Black Corporation, an accrual basis taxpayer, was formed and began operations on February 1, 2011. During its first year of operations (February 1 - December 31, 2011), Black incurred the following expenses: fee paid to state of incorporation of $2,000, accounting and legal services incident to organization of $9,000, and expenses related to the printing and sale of stock certificates of $10,000. Black has $11,000 of qualified organizational expenditures that it may elect to amortize.