Exam 3 Quiz Review Questions Flashcards
Losses from which of the following business entities are carried forward at the entity level?
A. C corporation
B. LLC (taxed as a partnership)
C. None of the choices are correct.
D. S corporation
A. C corporation
The qualified business income (QBI) deduction for individuals is subject to a wage-based limitation and a taxable income limitation.
True or False
True
Shareholders of C corporations are allowed to deduct their share of corporate losses on their own tax returns.
True or False
False
The amount of the qualified business income (QBI) deduction is subject to which of the following limitations/requirements?
A. Wage-based limitation
B. Specified service requirement.
C. Taxable income limitation.
D. All of the choices are correct.
D. All of the choices are correct.
Which tax classification(s) can potentially apply to legal corporations?
A. S corporation
B. Partnership
C. C corporation
D. S corporation and Partnership
E. S corporation and C corporation
F. Partnership and C corporation
G. All of the choices are correct.
E. S corporation and C corporation
A citizen of Mexico will only be subject to U.S. taxation if she spends 183 days or more in the United States during the current year.
True or False
False
All-Star Corporation has a net operating loss in 2023. It can carry the loss back to the previous two years, starting with 2021.
True or False
False
Similar to individuals, corporations are not subject to any limitations relating to the carryforward of unused net capital losses.
True or False
False
Michigan Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from sale of the inventory was $500,000. Title to the inventory passed FOB: Destination. How much of the gross profit is treated as foreign source income for purposes of computing Michigan Corporation’s foreign tax credit in the current year?
The answer cannot be determined with the information provided.
$250,000
$500,000
$0
$0
Lansing Incorporated incurred a net operating loss of $10,000,000 in 2024. Lansing Incorporated. reports $10,000,000 of taxable income before the NOL deduction in 2025. Lansing Incorporated can offset all of its 2025 taxable income with the 2024 NOL carryover.
True or False
False
A partnership can elect to amortize organization, startup costs and syndication costs.
True or False
false
Stock received in exchange for services provided to the corporation in the formation of the corporation can never be counted in determining if the control test is met for §351 purposes.
True or False
false
Nonrecourse debt is generally allocated according to the capital-sharing ratios of the partnership.
True or False
False
To receive tax deferral in a §351 transaction, an individual shareholder must own 80 percent or more of the corporation after the transaction.
True or False
false
Martin defers $500 of gain realized in a §351 transaction. The stock he receives in the exchange has a fair market value of $900. Martin’s tax basis in the stock will be $500.
True or False
False
Gain realized in a sales transaction is calculated by subtracting the adjusted basis of the property from the amount realized.
True or False
true
Which of the following statements regarding capital and profit interests received for services contributed to a partnership is true?
A. Partners receiving only profits interest generally recognize ordinary income when the profits interest is received.
B. The holding period of a capital or profits interest begins on the date the interest is received.
C. Partners receiving only profits interest generally recognize capital gain when the profits interest is received.
D. Partners receiving capital interests must recognize the liquidation value of their capital interests as capital gain.
B. The holding period of a capital or profits interest begins on the date the interest is received.
Amelia transfers property with a tax basis of $500 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $800 in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $100 on the property transferred. What is the corporation’s tax basis in the property received in the exchange?
A. $500
B. $700
C. $900
D. $800
A. $500
A liquidated corporation always recognizes losses realized in a complete liquidation.
True or False
False
Dana and Mike decide to form their new motorcycle business as a LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members’ contributions, their LLC will obtain a $75,000 nonrecourse loan from First Bank at the time it is formed. Mike contributes cash of $10,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $65,000, an adjusted basis of $35,000, and is secured by a $40,000 nonrecourse mortgage that the business LLC will assume. What is Mike’s outside tax basis in his LLC interest?
A. $105,000
B. $60,000
C. $47,500
D. $65,000
D. $65,000
Assume Carin sells her 30-percent interest in Blue S Corporation, Incorporated to Cami on January 16, 2023. Using the daily allocation method, how much income does Carin report if Blue earned $20,000 from January 1 to January 15 and a total of $500,000 from January 1 through December 31, 2023?
Note: Assume 365 days in a year.
A. $6,000
B. $6,164
C. $20,000
D. None of the choices are correct.
B. $6,164
Which of the following cannot be an S corporation shareholder?
A. Fantine, Babette’s roommate, a naturalized citizen of the United States
B. Feast, Incorporated, a corporation created by siblings, Babette and Fantine
C. 51 unrelated individuals
D. Babette, a citizen of France who resides in Vermont
B. Feast, Incorporated, a corporation created by siblings, Babette and Fantine
An S corporation is generally restricted to the calendar year end to mitigate tax deferral.
True or False
True
Sharon owns 79 percent of ABC, Incorporated (an S corporation) and would like to terminate its S corporation status. Jason, who is a 5-percent owner, does not want to terminate the S corporation status. Sharon cannot terminate the election without Jason’s permission.
True or False
false
