Question 1

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Accepted Answer

A) The corporation is opening locations in neighboring cities. 
B) Funds are used to make a loan to a major shareholder. 
C) The corporation uses funds for the redemption of the stock of a disgruntled shareholder. 
D) Not making distributions helps to minimize the combined shareholder/corporation tax liabilities. 
E) All of the above. 
A) The corporation is opening locations in neighboring cities. 
B) Funds are used to make a loan to a major shareholder. 
C) The corporation uses funds for the redemption of the stock of a disgruntled shareholder. 
D) Not making distributions helps to minimize the combined shareholder/corporation tax liabilities. 
E) All of the above.

Question 2

The profits of a business owned by Taylor (60%)and Maggie (40%)for the current tax year are $100,000.If the business is a C corporation or an S corporation,there is no effect on Taylor's basis in her stock.If the business is a partnership or an LLC,Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

Accepted Answer

A) True 
 B)False

Question 3

Lime,Inc. ,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($234,000 ´ 39%)] or $116,900.

Accepted Answer

A) True 
 B)False

Question 4

Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest.The land is encumbered by a mortgage of $18,000 which the partnership assumes.Her basis for her ownership interest is $10,000 ($28,000 - $18,000).

Accepted Answer

A) True 
 B)False

Question 5

The § 469 passive activity loss rules do not apply to corporations other than S corporations.

Accepted Answer

A) True 
 B)False

Question 6

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

Accepted Answer

Yes.In calculating the at-risk

Question 7

Which of the following statements is correct?

Accepted Answer

A) The purchase of an unincorporated sole proprietorship is always treated as the purchase of the business. 
B) A taxpayer purchasing a corporation in which the assets are appreciated would prefer to purchase the assets of the corporation. 
C) The purchase of a corporation is always treated as the purchase of the corporate stock. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct. 
A) The purchase of an unincorporated sole proprietorship is always treated as the purchase of the business. 
B) A taxpayer purchasing a corporation in which the assets are appreciated would prefer to purchase the assets of the corporation. 
C) The purchase of a corporation is always treated as the purchase of the corporate stock. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct.

Question 8

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

Accepted Answer

A) True 
 B)False

Question 9

April is going to invest $200,000 in a business entity.She will manage the business entity.Her projected share of the loss for the first year is $50,000.April's marginal tax rate is 33%.Determine the cash flow benefit of the loss to April if the business form is:

Accepted Answer

The answer of April is going to invest $200,000 in...

Question 10

Factors that should be considered in making the S corporation election for the current tax year include the following:

Accepted Answer

A) Are greater than 50% of the shareholders willing to consent to the election? 
B) Can the requirements for qualification be satisfied by the 15th day of the third month of the tax year and also for the period of the tax year that precedes this date? 
C) Will the corporation have total capital not in excess of $1 million? 
D) Only b.and c. 
E) a. ,b. ,and c. 
A) Are greater than 50% of the shareholders willing to consent to the election? 
B) Can the requirements for qualification be satisfied by the 15th day of the third month of the tax year and also for the period of the tax year that precedes this date? 
C) Will the corporation have total capital not in excess of $1 million? 
D) Only b.and c. 
E) a. ,b. ,and c.

Question 11

Which of the following statements is correct?

Accepted Answer

A) The sale of an unincorporated sole proprietorship is always treated as the sale of the individual business assets. 
B) The sale of a partnership is treated as the sale of the individual assets only if the sales transaction is structured as the sale of the individual assets. 
C) The sale of a corporation is either treated as the sale of the corporate stock or as the sale of the individual assets. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct. 
A) The sale of an unincorporated sole proprietorship is always treated as the sale of the individual business assets. 
B) The sale of a partnership is treated as the sale of the individual assets only if the sales transaction is structured as the sale of the individual assets. 
C) The sale of a corporation is either treated as the sale of the corporate stock or as the sale of the individual assets. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct.

Question 12

Gerald has a 30% ownership interest in a business for which his basis is $300,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Gerald's basis if:

Accepted Answer

The answer of Gerald has a 30% ownership interest in...

Question 13

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351,the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

Accepted Answer

A) True 
 B)False

Question 14

Ralph wants to purchase either the stock or the assets of Red,Inc. ,a C corporation.

Accepted Answer

The answer of Ralph wants to purchase either the stock...

Question 15

Daisy,Inc. ,has taxable income of $850,000 during 2012,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e. ,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Accepted Answer

The answer of Daisy,Inc. ,has taxable income of $850,000 during...

Question 16

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

Accepted Answer

A) If Aaron contributes the building to the corporation,there will be no recognition under § 351 and a carryover basis of $500,000. 
B) If Aaron leases the building to the corporation,lease-rental payments of $30,000 per year to Aaron will result in a $30,000 deduction for the corporation. 
C) If Aaron leases the building to the corporation,lease-rental payments of $30,000 per year to Aaron will result in $30,000 of gross income for Aaron. 
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation. 
E) All of the above are correct. 
A) If Aaron contributes the building to the corporation,there will be no recognition under § 351 and a carryover basis of $500,000. 
B) If Aaron leases the building to the corporation,lease-rental payments of $30,000 per year to Aaron will result in a $30,000 deduction for the corporation. 
C) If Aaron leases the building to the corporation,lease-rental payments of $30,000 per year to Aaron will result in $30,000 of gross income for Aaron. 
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation. 
E) All of the above are correct.

Question 17

Barb and Chuck each own one-half of the stock of Wren,Inc. ,a C corporation.Each shareholder has a stock basis of $175,000.Wren has accumulated E & P of $300,000.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each shareholder.Barb's stock basis at the end of the year is:

Accepted Answer

A) $0. 
B) $100,000. 
C) $150,000. 
D) $175,000. 
E) None of the above. 
A) $0. 
B) $100,000. 
C) $150,000. 
D) $175,000. 
E) None of the above.

Question 18

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Accepted Answer

A) True 
 B)False

Question 19

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable,the taxable income of a C corporation decreases and the gross income of the shareholder remains the same.

Accepted Answer

A) True 
 B)False

Question 20

Of the corporate types of entities,all are subject to double taxation on current earnings.

Accepted Answer

A) True 
 B)False

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Lime,Inc. ,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($234,000 ´ 39%)] or $116,900.

Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest.The land is encumbered by a mortgage of $18,000 which the partnership assumes.Her basis for her ownership interest is $10,000 ($28,000 - $18,000).

The § 469 passive activity loss rules do not apply to corporations other than S corporations.

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

Which of the following statements is correct?

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

April is going to invest $200,000 in a business entity.She will manage the business entity.Her projected share of the loss for the first year is $50,000.April's marginal tax rate is 33%.Determine the cash flow benefit of the loss to April if the business form is:

Factors that should be considered in making the S corporation election for the current tax year include the following:

Which of the following statements is correct?

Gerald has a 30% ownership interest in a business for which his basis is $300,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Gerald's basis if:

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351,the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

Ralph wants to purchase either the stock or the assets of Red,Inc. ,a C corporation.

Daisy,Inc. ,has taxable income of $850,000 during 2012,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e. ,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable,the taxable income of a C corporation decreases and the gross income of the shareholder remains the same.

Of the corporate types of entities,all are subject to double taxation on current earnings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

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

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 13: Comparative Forms of Doing Business

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Lime,Inc. ,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($234,000 ´ 39%)] or $116,900.

Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest.The land is encumbered by a mortgage of $18,000 which the partnership assumes.Her basis for her ownership interest is $10,000 ($28,000 - $18,000).

The § 469 passive activity loss rules do not apply to corporations other than S corporations.

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

Which of the following statements is correct?

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

April is going to invest $200,000 in a business entity.She will manage the business entity.Her projected share of the loss for the first year is $50,000.April's marginal tax rate is 33%.Determine the cash flow benefit of the loss to April if the business form is:

Factors that should be considered in making the S corporation election for the current tax year include the following:

Which of the following statements is correct?

Gerald has a 30% ownership interest in a business for which his basis is $300,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Gerald's basis if:

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351,the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

Ralph wants to purchase either the stock or the assets of Red,Inc. ,a C corporation.

Daisy,Inc. ,has taxable income of $850,000 during 2012,its first year of operations.Daisy distributes dividends of $200,000 to its 10 shareholders (i.e. ,$20,000 each).Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable,the taxable income of a C corporation decreases and the gross income of the shareholder remains the same.

Of the corporate types of entities,all are subject to double taxation on current earnings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

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

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