Exam 2: Corporations: Introduction and Operating Rules

On December 20, 2011, the directors of Quail Corporation (an accrual basis, calendar year taxpayer) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity. The payment, which is made on March 15, 2012, may be claimed as a deduction for tax year 2011.

Jade Corporation, a C corporation, had $100,000 operating income and $40,000 operating expenses during the year. In addition, Jade had a $2,000 long-term capital gain and a $10,000 short-term capital loss. Compute Jade's taxable income for the year.

During 2011, Sparrow Corporation, a calendar year C corporation, had operating income of $510,000, operating expenses of $370,000, a short-term capital loss of $25,000, and a long-term capital gain of $80,000. How much is Sparrow's tax liability for 2011?

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $790,000 for 2008, 2009, and 2010, respectively. Almond's taxable income is $1.5 million for 2011. Compute the minimum estimated tax payments for 2011 for Almond Corporation.

Generally, corporations with no taxable income must file a Form 1120.

Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2011, Canary has accrued a $100,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations. Under § 267(a)(2), an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income. For purposes of this limitation, a more-than-50% shareholder of the corporation is a related party.

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 55% of the stock, and Oscar owns the remaining 45%. During 2011, Ivory paid a salary of $200,000 to each shareholder. On December 31, 2011, Ivory accrued a bonus of $50,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2012, compute Ivory Corporation's 2011 deduction for the above amounts.

Canary Corporation, which sustained a $5,000 net capital loss during the year, will enter $5,000 as a addition item on Schedule M-1.

Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2011. The following expenses were incurred during the first tax year (July 1 through December 31, 2011) of operations: Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2011?

In 2011, Bluebird Corporation had net income from operations of $75,000. Further, Bluebird recognized a long-term capital loss of $30,000, and a short-term capital gain of $10,000. Which of the following statements is correct?

Norma formed Hyacinth Enterprises, a proprietorship, in 2011. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2011?

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1:

During the current year, Violet, Inc., a closely held corporation (not a PSC), has $130,000 of passive loss, $90,000 of active business income, and $70,000 of portfolio income. How much is Violet's taxable income for the current year?

On December 31, 2011, Flamingo, Inc., a calendar year, accrual method C corporation, accrues a bonus of $50,000 to its president (a cash basis taxpayer), who owns 75% of the corporation's outstanding stock. The $50,000 bonus is paid to the president on February 1, 2012. For Flamingo's 2011 Form 1120, the $50,000 bonus will be a subtraction item on Schedule M-1.

Azul Corporation, a personal service corporation, had $300,000 of active income, $40,000 of portfolio income, and a $190,000 passive loss during the year. How much is Azul's taxable income?

For purposes of the estimated tax payment rules, a "large corporation" is defined as a corporation that had an average taxable income of $1 million or more over the preceding three-year period.

Hippo, Inc., a calendar year C corporation, manufactures golf gloves. For 2011, Hippo had taxable income (before DPAD) of $800,000, qualified domestic production activities income of $950,000, and W-2 wages related to qualified production activities income of $130,000. Hippo's domestic production activities deduction for 2011 is:

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 short-term capital loss on his individual tax return.

On December 30, 2011, the board of directors of Gull Corporation, a calendar year, accrual method C corporation, authorized a contribution of $50,000 to a qualified charitable organization. For purposes of the taxable income limitation applicable to charitable deductions, Gull has taxable income of $420,000 and $370,000 for 2011 and 2012, respectively. Describe the tax consequences to Gull Corporation under the following independent situations.

Katherine, the sole shareholder of Purple Corporation, a calendar year C corporation, has the corporation pay her a salary of $450,000 in the current year. The Tax Court has held that $150,000 represents unreasonable compensation. Purple Corporation's taxable income is unaffected by the Tax Court's determination.