Exam 17: Corporations: Introduction and Operating Rules

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

On December 31,2017,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 2,2018.For Flamingo's 2017 Form 1120,the $50,000 bonus will be a subtraction item on Schedule M-1.

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 2017.Ostrich also has taxable income from other sources of $1 million.Prior years' transactions included the following: ​ a.How are the capital gains and losses treated on Ostrich's 2017 tax return? b.​Determine the amount of the 2017 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 2017 tax return?

Carol and Candace are equal partners in Peach Partnership.In the current year,Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income.Which of the following items is a subtraction on Schedule M-1?

During the current year,Violet,Inc.,a closely held corporation (not a PSC),has $55,000 of passive activity loss,$80,000 of net active income,and $20,000 of portfolio income.How much is Violet's taxable income for the current year?

Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $1.2 million for 2014,2015,and 2016,respectively.Almond's taxable income is $2 million for 2017.Compute the minimum estimated tax payments for 2017 for Almond Corporation.

Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the current year,Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition,the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year,Rhea Corporation distributed $50,000 to Lucinda.With respect to this information,which of the following statements is correct?

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

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

Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the 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)?

The corporate marginal income tax rates range from 15% to 39%,while the individual marginal income tax rates range from 10% to 39.6%.

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

Nancy Smith is the sole shareholder and employee of White Corporation,a C corporation that is engaged exclusively in accounting services.During the current year,White has operating income of $320,000 and operating expenses (excluding salary) of $150,000.Further,White Corporation pays Nancy a salary of $100,000.The salary is reasonable in amount and Nancy is in the 33% marginal tax bracket irrespective of any income from White.Assuming that White Corporation distributes all after-tax income as dividends,how much total combined income tax do White and Nancy pay in the current year? (Ignore any employment tax considerations.)

Bjorn owns a 60% interest in an S corporation that earned $150,000 in the current year.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in the current year.Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year.The corporation distributed $45,000 to Juanita,and the partnership distributed $45,000 to Carlos.With respect to this information,which of the following statements is incorrect?

A corporate net operating loss can be carried back 2 years and forward 20 years to offset taxable income for those years.

On December 31,2017,Lavender,Inc.,an accrual basis 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 14,2018.Lavender can deduct the bonus in 2018,the year in which it is included in Barry's gross income.

Peach Corporation had $210,000 of net active income,$45,000 of portfolio income,and a $230,000 passive loss during the current year.If Peach is a closely held C corporation that is not a PSC,it can deduct $210,000 of the passive loss in the year.

Quail Corporation is a C corporation with net income of $125,000 during the current year.If Quail paid dividends of $25,000 to its shareholders,the corporation must pay tax on $100,000 of net income.Shareholders must report the $25,000 of dividends as income.