Deck 32: Corporations

Question 1

For corporations,both NLTCLs and NSTCLs are subject to a 3-year carryback and a 5-year carryover as an offset against capital gains for those years.

Answer 1

True

Question 2

A publicly-held corporation is denied a deduction for compensation paid to its chief executive officer and its four highest-compensated officers if the compensation amount for any individual exceeds $1,000,000 per year.

Answer 2

True

Question 3

In general,net operating losses of a corporation are carried back 3 years and forward for 20 years.

Answer 3

False

Question 4

Certain personal service corporations are subject to a 35% flat rate of tax.

Question 5

Partnerships,limited liability partnerships,limited liability companies,and C corporations are considered flow-through entities for tax purposes.

Question 6

Corporate charitable contributions are limited in any given year to 10% of taxable income.

Question 7

Corporations may be taxed on less than 100% of dividends received due to the dividends-received deduction while individuals are taxed on all of their dividend income.

Question 8

In computing a corporation's NOL,the dividends-received deduction is allowed in full.

Question 9

Accrual-basis corporations may accrue a charitable contribution deduction in the year preceding payment if the payment is authorized by the board of directors prior to year end and the contribution is made within 2 1/2 months following year end.

Question 10

Income of a C corporation is subject to an initial tax at the corporate level and the shareholders are subject to a second tax if the corporation pays dividends from its earnings and profits.

Question 11

If a corporation receives dividends from an 80% or more owned affiliated corporation,the dividends-received deduction is 100%.

Question 12

The computation of adjusted gross income (AGI)does not apply to corporations.

Question 13

Unused charitable contributions of a corporation are carried forward ten years.

Question 14

The corporate capital loss carryback and carryover rules are the same as for individual taxpayers.

Question 15

A corporation who makes a charitable contribution of property for the care of the needy gets a deduction equal to the adjusted basis of the property.

Question 16

For corporations,NSTCLs and NLTCLs are treated as STCLs for purposes of the carryback and carryover rules.

Question 17

If a corporation owns less than 20% of the stock of the distributing corporation,the dividends-received deduction is not allowed for the recipient corporation.

Question 18

A corporation may make an election to forego the NOL carryback in order to carry the NOL forward only.

Question 19

If a corporation reports both a NLTCG and a NSTCG after netting all capital gains and losses,both the NLTCG and the NSTCG are subject to tax at rates applicable to ordinary income.

Question 20

Corporations may deduct 80% of dividends received from a domestic corporation if the recipient corporation owns 20% or more and less than 80% of the voting power and value of the stock of the issuing corporation.

Question 21

The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.

Question 22

Depreciation recapture does not apply to a transfer coming under Sec.351 unless the transferor recognizes gain on depreciable property that is transferred.

Question 23

One requirement of a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.

Question 24

The accumulated earnings tax is imposed on all publicly-held corporations.

Question 25

In a Sec.351 transfer,the corporation takes the shareholder's adjusted basis in the contributed property,regardless of whether the property's FMV is greater than or less than its adjusted basis at the date of contribution.

Question 26

A controlled group of corporations must apportion the lower tax rates among the group members as if only one corporation existed.

Question 27

Corporations that are members of a parent-subsidiary affiliated group may file a consolidated return if the proper election is made.

Question 28

If a shareholder transfers liabilities to a corporation in a Sec.351 transfer,there is no effect on the corporation's stock basis due to the corporation's assumption of liabilities.

Question 29

A family-owned corporation with substantial investment income could be subject to both the accumulated earnings tax and the personal holding company tax.

Question 30

Corporations that are members of a brother-sister affiliated group may file a consolidated return if the proper election is made.

Question 31

The purpose of the accumulated earnings tax is to discourage corporations from retaining excessive amounts of earnings if the funds are invested in assets unrelated to the business needs.

Question 32

A corporation's E&P is equal to its taxable income for the year.

Question 33

If certain requirements are met,Sec.351 permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation.

Question 34

Peter transfers an office building into a new corporation in exchange for 100 percent of the stock.In addition,the corporation assumes the mortgage on the building.Peter will treat the debt relief as boot and have to recognize gain.

Question 35

By calculating its depreciation using the most accelerated method available,a corporation increases the likelihood that it will be subject to the alternative minimum tax.

Question 36

The corporate AMT is similar to that applicable to individuals.

Question 37

In order for the Sec.351 nonrecognition rules to apply,the transferor-shareholders in aggregate must control the transferee corporation by owning more than 50% of its stock immediately after the exchange.

Question 38

If a corporation has no E&P,a distribution is ordinary income to the extent of the shareholder's basis with any excess treated as capital gain.

Question 39

In a parent-subsidiary controlled group,the common parent corporation must own at least 80% of the stock of each subsidiary corporation.

Question 40

For purposes of the accumulated earnings tax,reasonable needs of the business include providing working capital for the business.

Question 41

If a corporation's charitable contributions exceed the deduction limitation in a particular year,the excess

A)is not deductible in any future year.
B)becomes a carryover to a maximum of five succeeding years.
C)may be carried back to the third preceding year.
D)is carried over indefinitely.

Question 42

Dividends paid from E&P are taxable to shareholders and are,therefore,deductible by the corporation.

Question 43

Summer Corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$6,000 NSTCG included in gross income.
B)$6,000 NLTCG included in gross income.
C)$10,000 NLTCG is included in gross income and $4,000 NSTCL is carried over to the next year.
D)$10,000 NLTCG receives long-term capital gain treatment and $4,000 NSTCL included as ordinary loss.

Question 44

Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000; commissions based on sales generated by Samantha $200,000; payments to a qualified pension plan,$30,000; and tax-free fringe benefits,$20,000.What is the total amount that Charades may deduct?

A)$1,000,000
B)$1,250,000
C)$1,500,000
D)$1,750,000

Question 45

A corporation redeems 10 percent of the stock of each shareholder in a family-owned corporation.The shareholders will recognize capital gains on the sale of their stock.

Question 46

If a corporation distributes appreciated property to its shareholders,the corporation is treated as if it sold the property to the shareholders for its FMV immediately before the distribution,and the corporation will recognize any realized gain.

Question 47

Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000; commissions based on sales generated by Samantha,$200,000; payments to a qualified pension plan,$30,000; and tax-free fringe benefits,$20,000.What is the total amount taxable to Samantha?

A)$1,000,000
B)$1,200,000
C)$1,500,000
D)$1,700,000

Question 48

For this tax year,Madison Corporation had taxable income of $80,000 before using any of the net operating loss from the previous year.Madison has never elected to forgo the carryback of its losses since incorporation five years ago.Madison's books and records reflect the following income (loss)since its incorporation. What amount of taxable income (loss)should Madison report on its current tax return?

A)$45,000
B)$65,000
C)$70,000
D)$80,000

Question 49

Louisiana Land Corporation reported the following results for the current year: What is the amount of the taxable income for the current year?

A)$240,000
B)$268,000
C)$294,000
D)$300,000

Question 50

June Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$ 80,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 51

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)deduct $3,000 of the STCL currently; carryover the remaining $2,000 STCL and $6,000 LTCL.
B)deduct $5,000 STCL and $6,000 LTCL.
C)deduct nothing currently; carryback the $5,000 STCL and $6,000 LTCL for three years and carryover for 5 years,if necessary.
D)deduct nothing currently; carryback the $11,000 STCL for three years and carryover for 5 years,if necessary.

Question 52

Corey Corporation reported the following results for the current year: What is the amount of the charitable contribution carryover to next year?

A)$0
B)$14,000
C)$16,000
D)$30,000

Question 53

Jenkins Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$100,000.
B)$120,000.
C)$125,000.
D)$150,000.

Question 54

All of the following are accurate statements about corporations,except

A)a corporation does not compute adjusted gross income.
B)a corporation is not allowed a standard deduction.
C)dividends received from a domestic corporation do not receive any preferential treatment.
D)the limit on the charitable contribution deduction is 10% of taxable income (with certain adjustments).

Question 55

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$10,000 NLTCG included in gross income and taxed at ordinary rates; $4,000 NSTCG included in gross income and taxed at reduced rates.
B)$14,000 included in gross income and taxed at reduced rates.
C)$14,000 included in gross income and taxed at ordinary rates.
D)$10,000 NLTCG is included in gross income and taxed at reduced rates; and $4,000 NSTCG included in gross income and taxed at ordinary rates.

Question 56

With respect to charitable contributions by corporations,all of the following rules apply with the exception of

A)unused contributions are carried forward 5 years.
B)the amount of the contribution deduction is always adjusted basis of the property contributed.
C)contributions are limited to 10% of taxable income,computed without regard to the charitable contribution deduction,NOL and capital loss carrybacks,or the dividend-received deduction.
D)accrual-basis corporations may accrue a contribution deduction in the year preceding payment if the board of directors authorizes such payment prior to the end of the tax year,and the payment is actually made within two and one-half months following the end of the tax year.

Question 57

All of the following business forms offer limited liability except

A)partnership.
B)corporation.
C)S corporation.
D)limited liability company.

Question 58

A shareholder receives a distribution from a corporation in complete liquidation.The distribution will be taxed as a dividend to the extent of current or accumulated E&P.

Question 59

Musketeer Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$ 120,000.
B)$ 168,000.
C)$192,000.
D)$240,000.

Question 60

Identify which of the following statements is true.

A)A corporate capital loss can be carried back three years,and then can be carried forward five years.
B)Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C)At the election of a corporation,a net capital loss carryback can be forgone and carried forward only.
D)All are false.

Question 61

Dozen Corporation is owned equally by twelve unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $900,000 at the end of the preceding year.The company has no reasonable needs of the business.The accumulated earnings tax is

A)$ 7,913.
B)$10,913.
C)$14,550.
D)$13,188.

Question 62

A corporation is classified as a personal holding company.Its taxable income is $300,000 and its regular federal income tax liability is $100,250.The company claims a $40,000 dividends-received deduction and pays $30,000 dividends to its shareholders.The personal holding company tax is

A)$41,950.
B)$29,963.
C)$31,463.
D)$65,053.

Question 63

Ohio Corporation's taxable income for the current year is $300,000.Its tax liability is

A)$ 78,000.
B)$100,250.
C)$102,000.
D)$117,000.

Question 64

Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $4,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?

A)$270,000
B)$360,000
C)$240,000
D)$180,000

Question 65

Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $2,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?

A)$270,000
B)$180,000
C)$90,000
D)$60,000

Question 66

Which of the statements is inaccurate regarding requirements for nonrecognition of gain or loss upon the transfer of assets to a corporation in exchange for stock?

A)Depreciation recapture applies to a transfer which falls under Sec.351.
B)Property must be transferred to the corporation solely in exchange for stock of the corporation.
C)The transferor-shareholders must be in control (80%)of the corporation immediately after the exchange.
D)If property or money is received by the transferor,gain (but not loss)is recognized to the extent of the lesser of the boot received or the realized gain.

Question 67

A corporation has regular taxable income of $90,000 and its gross receipts have never exceeded $5,000,000.Tax preference items and positive adjustments total $70,000.Its regular tax liability is $15,450.The alternative minimum tax is

A)$0.
B)$9,050.
C)$24,000.
D)$24,500.

Question 68

Baxter Corporation is a personal service corporation in the legal field.Baxter Corporation has taxable income of $10,000.Baxter Corporation's tax is

A)$1,500.
B)$3,400.
C)$3,500.
D)$3,900.

Question 69

Individuals Gayle and Marcus form GM Corporation.Gayle transfers land and a building with a $750,000 adjusted basis and a $830,000 FMV in exchange for 50% of the stock of the GM Corporation worth $800,000 and a $30,000 note.Marcus transfers cash of $830,000 for 50% of the stock worth $800,000 and a note of the GM Corporation valued at $30,000.The basis of the land and building to GM Corporation is

A)$750,000.
B)$780,000.
C)$830,000.
D)$860,000.

Question 70

Individuals Bert and Tariq form Shark Corporation.Bert transfers equipment with a $290,000 adjusted basis and a $335,000 FMV for 50% of the stock worth $310,000 and a note of Shark Corporation valued at $25,000.Tariq transfers cash of $335,000 in exchange for 50% of the stock of Shark Corporation worth $310,000 and a $25,000 note.Bert's recognized gain is

A)$0.
B)$20,000.
C)$25,000.
D)$45,000.

Question 71

The corporate tax return has been prepared for Go Corporation,which showed taxable income of $60,000.Prior to mailing the return,you learn that Go Corporation and Fish Corporation are owned by the same stockholders.Since Go Corp.and Fish Corp.are brother-sister corporations,it will be necessary for you to recompute the tax liability for Go Corporation,based on an equal apportionment of the lower tax rates.What will be the corrected tax liability for Go Corporation?

A)$9,000
B)$14,525
C)$15,025
D)$21,000

Question 72

Major Corporation's taxable income for the current year is $335,000.Its tax liability is

A)$84,250.
B)$102,150.
C)$113,900.
D)$117,250.

Question 73

Individuals Rhett and Scarlet form Lady Corporation.Rhett transfers land and a building with a $140,000 adjusted basis and a $230,000 FMV in exchange for 50% of the stock of Lady Corporation worth $210,000 and a $20,000 note.Scarlet contributes cash of $230,000 for 50% of the stock of Lady Corporation worth $210,000 and a note of the Lady Corporation valued at $20,000.Rhett's recognized gain on the transfer is

A)$0.
B)$20,000.
C)$70,000.
D)$90,000.

Question 74

Individuals Julie and Brandon form JB Corporation.Julie transfers cash of $425,000 in exchange for 50% of the stock of the JB Corporation worth $410,000 and a $15,000 note.Brandon transfers equipment with a $390,000 adjusted basis and a $425,000 FMV for 50% of the stock worth $410,000 and a note of the JB Corporation valued at $15,000.Brandon's basis in the stock received is

A)$350,000.
B)$390,000.
C)$410,000.
D)$425,000.

Question 75

When computing a corporation's alternative minimum taxable income,its taxable income is

A)increased by tax preference items.No decreases are allowed for preferences.
B)increased by adjustments.No decreases are allowed for adjustments.
C)increased by the statutory exemption of $40,000.
D)increased by 75% of the excess of adjusted current earnings over taxable income.

Question 76

Individuals Opal and Ben form OB Corporation.Opal transfers land and a building with a $550,000 adjusted basis and a $625,000 FMV in exchange for 50% of the stock of the OB Corporation worth $610,000 and a $15,000 note.Ben transfers cash of $625,000 for 50% of the stock worth $610,000 and a note of the OB Corporation valued at $15,000.Opal's basis in the stock received is

A)$550,000.
B)$560,000.
C)$610,000.
D)$625,000.

Question 77

Identify which of the following statement is true.

A)The corporate alternative minimum tax rate is 35%.
B)AMT is a permanent increase to the corporate tax liability.
C)Small corporations whose average gross receipts for each of the three preceding years are $7.5 million or less are exempted from the AMT.
D)The excess of tax depreciation over book depreciation increases AMTI.

Question 78

For purposes of the accumulated earnings tax,reasonable needs of the business include all of the following with the exception of

A)making loans to stockholders.
B)providing working capital for the business.
C)acquiring the assets or stock of another business.
D)reasonably anticipated expansion of the business and plant replacement.

Question 79

Indicators of possible exposure of accumulated earning tax risk would include all of the following except

A)substantial marketable securities held by the corporation.
B)loans to shareholders.
C)limited dividend paying history.
D)All of the above factors could indicate retention of earnings beyond business needs.

Question 80

Manatee Corporation,a retailer,is owned equally by twelve unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $200,000 at the end of the preceding year.The company has reasonable needs of the business at year-end of $210,000.The accumulated earnings tax is

A)$413.
B)$3,413.
C)$4,550.
D)$7,735.