Section 5 C - C Corp

Question 1

Any time a corporation is formed and “property” (not services rendered) is transferred to the corporation “solely in exchange for stock” of that corporation and immediately after the transfer, the transferors are in “control,” no ____is recognized.

“Property” includes cash, intangible personal property and tangible property. T/F

“Control” is defined as ___% of the voting power.

Answer 1

gain or loss

True

80

Question 2

Tax-free contributions to form a new corporation (

Property must be contributed by \_\_\_to the corporation Control by the investors must exist \_\_after the  The investors must receive only\_\_\_in the corporation for their investment.exchange.
If the stockholder receives cash or other property in the exchange, then gain is recognized up to the smaller of the \_\_\_received or the gain realized.

Answer 2

investors
immediately
stock
boot

Question 3

In a type B reorganization, as defined by the Internal Revenue Code:

the stock of the target corporation is acquired solely for the ___stock of either the acquiring corporation or its __
the acquiring corporation must have __of the target corporation immediately after the acquisition.

B Organizations are tax free T/F

Answer 3

voting , parent.

control

True

Question 4

IRC Section 368(a)(1) lists seven types of corporate reorganizations. They are identified by the following capital letters:

Statutory Merger/Consolidation
Acquiring a corporation using stock (voting stock for stock exchange)
Stock for assets
Recapitalization
Change in identity
Transfer of all/part of assets to another corporation in a bankruptcy

Answer 4

memorize

Question 5

Tax Cuts and Jobs Act of 2017 (TCJA), the corporate rate is a flat __%.
The tax rate for qualified personal service corporations is a flat __% on all taxable income.

Answer 5

21

Question 6

Contributions in excess of the 10% limit may be carried forward ___

Dividend Received Deduction:::: Days when the corporation is protected from loss on the stock by put options do not count toward the holding period requirement.

Answer 6

five years.

True

Question 7

Which of the following is true regarding dividends that qualify for the dividends-received deduction?

Days when the corporation is protected from loss on the stock by a put option do count toward the 45-day holding period requirement.
Dividends qualify for the dividends-received deduction if the stock has been owned for at least 30 days.
Dividends qualify for the dividends-received deduction only if the holding period is met for each dividend received.

Answer 7

Dividends qualify for the dividends-received deduction only if the holding period is met for each dividend received.

Question 8

Dividend Received Deduction::::::

The holding period must be met within the 91-day period beginning 45 days before the __date of the stock.

If the stock is cumulative preferred stock with an arrearage of dividends, it must be held at least 91 days during the 181-day period beginning 90 days before the ex-dividend date.

Answer 8

ex-dividend

Question 9

For Year 2, Quest Corp., an accrual-basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from Year 1. Quest’s Year 2 taxable income before the deduction for charitable contributions was $200,000. On December 12, Year 2, Quest’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 6, Year 3. What is the maximum allowable deduction that Quest may take as a charitable contribution on its Year 2 income tax return?

Answer 9

$20k

for an accrual-basis corporation, any charitable contribution authorized by the board of directors prior to year-end and paid within 2-1/2 months from year-end may be deducted on the prior-year tax return.

The maximum allowable deduction that Quest Corp. may take as a charitable contribution is 10% of $200,000 (its taxable income), which is $20,000.

Question 10

Zero Corp. is an investment company authorized to issue only common stock. During the last half of the year, Edwards and four other individuals owned 450 of the 1,000 outstanding shares of stock in Zero. Another 350 shares of stock outstanding were owned, 10 shares each, by 35 shareholders who are neither related to each other nor to Edwards. Zero could be a personal holding company if the remaining 200 shares of common stock were owned by:

Answer 10

Correct
Edwards would own the following:

  450  shares outright
  200  shares as an estate beneficiary
  650  total shares
  ===
  650 / 1000 = 65%

To be classified as a personal holding company (PHC), one of the requirements is that “at any time during the last half of the year more than 50% in value of the corporation’s outstanding stock must be owned, directly or indirectly, by or for not more than five individuals.”

Question 11

To be classified as a___(PHC), one of the requirements is that “at any time during the last half of the year more than 50% in value of the corporation’s outstanding stock must be owned, directly or indirectly, by or for not more than five individuals.”

Answer 11

personal holding company

Question 12

Two tests must be satisfied to be considered a PHC:
Stock ownership test: More than __% of the value of the outstanding stock must be owned by five or fewer individuals

Gross income test: \_\_\_% or more of the gross income must consist of personal holding company income 
The personal holding company tax can be avoided by paying enough in \_\_(  Both the actual dividends paid and the consent dividends are considered dividends paid. T/F If both penalty taxes apply to one corporation, then the \_\_\_tax will be the only one imposed.

Answer 12

50%

60%

dividends

True

PHC

Question 13

In the filing of a consolidated tax return for a corporation and its wholly owned subsidiaries, intercompany dividends between the parent and subsidiary corporations are:

not taxable.
included in taxable income to the extent of 20%.
included in taxable income to the extent of 80%.
fully taxable.

Answer 13

Not taxable

ne of the advantages of filing a consolidated return is that all (100%) of the intercompany dividends are tax-free. (100% dividends-received deducton)

Question 14

As the result of an IRS audit of a C corporation and its sole shareholder, the IRS agent proposes that a portion of the shareholder’s salary is unreasonable. Because the corporation has significant earnings and profits, the agent has determined that the unreasonable portion of the salary is a dividend. Which of the following is correct regarding the impact of the proposed adjustment to both the corporation and its shareholder?

Partial disallowance of salary expense, a corresponding increase in nondeductible dividends to the corporation, and reclassification of the shareholder’s salary to dividend treatment….WHY

Answer 14

Salaries are deductible as a business expense, thus lowering taxable income, while dividends do not impact taxes.

The impact of the proposed adjustment would therefore be a partial disallowance of salary expense and a corresponding increase in nondeductible dividends to the corporation with a reclassification of the shareholder’s salary to dividend treatment.

Question 15

In Year 4, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 5, after filing its Year 4 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is correct?

No further inclusion of income is required as the difference is less than 25% of the original amount reported and the estimate had been made in good faith.
The $1,000 difference is includible in Stewart’s Year 5 income tax return.
Stewart is required to notify the IRS within 30 days of the determination of the exact amount of the item.
Stewart is required to file an amended return to report the additional $1,000 of income.

Answer 15

The $1,000 difference is includible in Stewart’s Year 5 income tax return.

When an accrual-basis taxpayer estimates its income, if the income is underestimated, the difference is added to the income of the following year.

Question 16

____ is recognized on the sale or acquisition of the corporation’s own capital stock.
A corporation distributing appreciated property to its shareholders will be taxed on the appreciation. T/F

Answer 16

No gain or loss

True

Question 17

In April, A and B formed X Corp. A contributed $50,000 cash and B contributed land worth $70,000 (with an adjusted basis of $40,000). B also received $20,000 cash from the corporation. A and B each received 50% of the corporation’s stock. What is the tax basis of the land to X Corp.?

Answer 17

$60k

X Corp. received land with an adjusted basis of $40,000 from shareholder B. X Corp. paid B an additional $20,000 in cash. The tax basis of the land for X Corp. is $60,000, made up of the $40,000 in basis from B and the $20,000 paid to B.

The new corporation takes an adjusted basis in the property received equal to the adjusted basis in the hands of the contributing shareholder plus any cash paid to the shareholder.

Question 18

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:

              Adjusted   Fair Market     Percentage of
   Property    Basis       Value       Ace Stock Acquired Lind   Building    $40,000     $82,000            60% Post   Land          5,000      48,000            40% The building was subject to a $10,000 mortgage that was assumed by Ace.

What was Ace’s basis in the building?

Answer 18

This transaction qualifies as a Section 351 tax-free transaction. No gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange the persons are in control of the corporation. Control means 80% or more of the corporation. Since Lind and Post own 100% of the corporation, no gain is to be recognized.

Question 19

The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and a basis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder must recognize?

Answer 19

The same contribution rules apply to shareholders in a C corporation and shareholders in an S corporation. If a shareholder contributes property with a liability in excess of basis, the excess is considered a gain. It will be ordinary gain if ordinary income property was contributed, or capital gain if capital gain property was contributed.

Adjusted basis of property contributed to S corporation $ 6,000
Less: Liability transferred to S corporation (12,000)
——–
Recognized gain $ 6,000
========

Question 20

If a shareholder contributes property with a liability in excess of basis, the excess is considered a ___. It will be ordinary gain if ordinary income property was contributed, or capital gain if capital gain property was contributed.

Nonqualified preferred stock is treated as boot T/F

Answer 20

gain

True

Question 21

Sky Corp. was a wholly owned subsidiary of Jet Corp. Both corporations were domestic C corporations. Jet received a liquidating distribution of property in cancellation of its Sky stock when Jet’s tax basis in Sky stock was $100,000. The distributed property had an adjusted basis of $135,000 and a fair market value of $250,000. What amount of taxable gain did Jet, the parent corporation, recognize on the receipt of the property?

Answer 21

Under IRC Section 332, an 80% or greater parent does not generally recognize a gain or loss on the liquidation of a subsidiary corporation.

When the parent already owns 100% of the stock, then liquidating the subsidiary and passing the assets of the subsidiary to the parent does not change the economic position of the parent.

Question 22

Corporation concerns:
Liquidating corporations are required to recognize a gain or loss on both liquidating ___and liquidating _

No gain or loss will be recognized by a liquidating subsidiary on the distribution of any property in a complete liquidation to an 80% corporate parent. T/F

Answer 22

sales, distributions.

True

Question 23

On December 31, a C corporation made a nonliquidating distribution of the following assets to its sole shareholder:

Land Fair market value $100,000
Adjusted basis 50,000
Patent Fair market value 25,000
Adjusted basis 0
Building Fair market value 50,000
Adjusted basis 150,000
What gain or loss should the corporation recognize as a result of the distribution?

Answer 23

$75,000 gain

A $75,000 gain should be recognized as a result of the distribution. Nonliquidating distributions of appreciated property generate gain to the corporation; losses are nondeductible. the loss is not allowed and therefore the corporation should recognize a total gain of $75,000

Question 24

Nonliquidating distributions:
SHAREHOLDER
To the extent of earnings and profits, the distribution is a dividend. T/F
Any excess is a return of capital and then a capital gain. T/F
CORPORATION
Nonliquidating distributions of appreciated property generate ___to the corporation.
Losses are __.

Answer 24

True
True

gain
nondeductible

Question 25

Portal Corp. received $100,000 in dividends from Sal Corp., its 80%-owned subsidiary. What net amount of dividend income should Portal include in its consolidated tax return?

Answer 25

$0 Less than 20% ownership: 50% deduction 20% - less than 80% ownership: 65% deduction 80% or more ownership: 100% deductio

Question 26

Rona Corp.’s alternative minimum taxable income was $200,000. What tax is owed?

Answer 26

$0 The Tax Cuts and Jobs Act of 2017 (TCJA) repealed the alternative minimum tax (AMT) for corporation

Question 27

___ are not subject to the alternative minimum tax (AMT) under the Tax Cuts and Jobs Act of 2017 (TCJA).

Answer 27

C corporations

Question 28

Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year-end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash? Brisk's taxable income: No change; Shareholder's taxable income: No change Brisk's taxable income: Increase; Shareholder's taxable income: No change Brisk's taxable income: No change; Shareholder's taxable income: Decrease Brisk's taxable income: Increase; Shareholder's taxable income: Decrease

Answer 28

Brisk's taxable income: Increase; Shareholder's taxable income: No change f the shareholder receives property with a fair market value (FMV) of $200,000, the taxable income to the shareholder is the same as a cash distribution of $200,000. For Brisk Corp., the basis in the land was only $75,000. Brisk will have to report income/gain of $125,000 on the transaction to account for the FMV of the distributed property.

Question 29

The following information pertains to Hull, Inc., a personal holding company, for the year ended Decem­ber 31, Year 0: Undistributed personal holding company income: $100,000 Dividends paid during Year 0: $20,000 Consent dividends reported in the Year 0 individual income tax returns of the holders of Hull’s common stock, but not paid by Hull to its stockholders: $10,000 In computing its Year 0 personal holding company tax, what amount should Hull deduct for dividends paid?

Answer 29

$30k A personal holding company is allowed a deduction for both actual paid dividends and consent dividends. Therefore, Hull, Inc., is allowed a deduction for $30,000, which is the sum of the actual dividends paid in Year 0 of $20,000 and the consent dividends reported in Year 0 of $10,000.

Question 30

Which of the following groups may elect to file a consolidated corporate return? A brother/sister–controlled group A parent corporation and all more-than-10%-controlled partnerships A parent corporation and all more-than-50%-controlled subsidiaries Members of an affiliated group

Answer 30

A consolidated corporate income tax return may be filed by the members of an affiliated group. An affiliated group exists where: a parent company owns at least 80% of the stock in at least one other corporation in the group or at least 80% of the stock of other companies in the group is owned directly by one or more companies in the affiliated group.

Question 31

T-TOP Corp. has a fiscal year beginning September 1 and ending August 31. T-TOP's estimated tax for the fiscal year beginning September 1, year 5, is $10,000. The first installment would be due by:

Answer 31

December 15, year 5. The first estimated tax payment is due by the 15th day of the 4th month following the close of the tax year. Other payments are due on the 15th day of the 6th, 9th, and 12th months of the fiscal year.

Question 32

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year-end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox's tax basis in the land?

Answer 32

$38k Since Fox is the sole stockholder in the C corporation Fall, his basis in the land distributed to him will be equal to the fair market value of the asset ($38,000). The liability Fox assumes reduces the amount of taxable dividend. The amount of taxable dividend Fox received is $35,000 ($38,000 - $3,000)

Question 33

. The property is treated “as if” it were sold at its ___

Answer 33

fair market value

Question 34

Garland Corp. contributed $40,000 to a qualified charitable organization. Garland's taxable income before the deduction for charitable contributions was $410,000. Included in that amount is a $20,000 dividends-received deduction. Garland also had carryover contributions of $5,000 from the prior year. What amount can Garland deduct as charitable contributions?

Answer 34

$43k Taxable income before charitable contribution $410,000 Add back dividends-received deduction + 20,000 430,000 Multiplied by 10% x .10 Maximum charitable contribution allowed $ 43,000 *

Question 35

In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income? Services are provided by an Irish company in England under a contract entered into by its U.S. parent. Property is produced in Ireland by the Irish company and sold outside its country of incorporation. Services are performed in Ireland by the Irish company under a contract entered into by its U.S. parent. Property is bought from the controlled foreign corporation's U.S. parent and is sold by an Irish company for use in an Irish manufacturing plant.

Answer 35

Services are provided by an Irish company in England under a contract entered into by its U.S. parent.

Question 36

If a CFC is deemed to have Subpart F income, that income may need to be currently included in the U.S. parent’s taxable income if there are not enough exceptions or deductions to reduce the Subpart F income to zero. Basically, if a foreign company works in a different foreign company, that is owned by a US company, it is subpart F . The U.S. government taxes citizens and permanent residents on their worldwide income. T/F

Answer 36

duh True

Question 37

Jans, an individual, owns 80% and 100% of the total value and voting power of A and B Corps., respectively, which in turn own the following (both value and voting power): ``` Ownership Property A Corp. B Corp. C Corp. 80% - D Corp. - 100% All companies are C corporations except B Corp., which had elected S status since inception. Which of the following statements is correct with respect to the companies' ability to file a consolidated return? ``` A and C may file as a group, and B and D may file as a group. A and C may file as a group, but B and D may not file as a group.

Answer 37

A and C may file as a group, but B and D may not file as a group. A Corp. and C Corp. are members of an affiliated group since A Corp owns at least 80% of C Corp. (parent/subsidiary relationship). As such, A Corp. and C Corp. may file a consolidated return. S corporations are prohibited from being members of an affiliated group, although they are now permitted to have C corporation subsidiaries. As such, B Corp. (an S corporation) is prohibited from filing a consolidated return with D Corp

Question 38

S corporations are prohibited from being members of an affiliated group T/F

Answer 38

True

Question 39

hat is the rule on net operating losses (NOLs)? Carry back 2 years and carry forward 20 years No carryback and carry forward indefinitely Carry back 2 years and carry forward indefinitely Carry back 3 years and carry forward 20 years

Answer 39

No CB and carry forward indef . An exception is provided to allow a 2-year carryback for farming and casualty insurance businesses.

Question 40

A corporation's NOL is the excess of deductions over __

Answer 40

gross income

Question 41

A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?

Answer 41

A corporation’s underpayment of estimated tax is generally the difference between the estimated taxes paid and the lowest of: the current-year tax, the prior-year tax, or the tax on an annualized income computation.

Question 42

Sam's Year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. For Year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of Year 3 estimated tax payments that Sam can make? $30,000 $33,000

Answer 42

$33k General Safe Harbor Rule: To avoid any penalty for underpayment of estimated taxes, the taxpayer must pay in 100% of the prior-year tax paid or 90% of the current-year tax due. Special Safe Harbor Rule: If the taxpayer had taxable income in the previous year in excess of $150,000, then the safe harbor for avoiding underpayment penalties is 110% of the prior-year tax.

Question 43

When computing a corporation's income tax expense for estimating income taxes, every item that affects the calculation should be taken into account. This means __tax credits and the ___tax should be considered.

Answer 43

corporate , alternative minimum

Question 44

Robin, a C corporation, had revenues of $200,000 and operating expenses of $75,000. Robin also received a $20,000 dividend from a domestic corporation and is entitled to a $14,000 dividends-received deduction. Robin donated $15,000 to a qualified charitable organization in the current year. What is Robin's contribution deduction?

Answer 44

$14,500 The corporate limit for charitable contributions is 10% of taxable income (TI) computed before the deductions for contributions, dividends-received deduction, NOL carryback, and capital loss carryback. The charitable contribution deduction is $14,500 as calculated below: Revenues $200,000 Dividend income 20,000 Less: Operating expenses 75,000) --------- TI applicable to the charitable contribution limit $145,000 Multiplied by 10% x .10 --------- Charitable contribution deduction $ 14,500

Question 45

Beta, a C corporation, reported the following items of income and expenses for the year: Gross income $600,000 Dividend income from a 30%-owned domestic corporation 100,000 Operating expenses 400,000 What is Beta's taxable income for the year?

Answer 45

$235,000 Deduction Ownership Percentage Less than 20% 50% 20% or more, but less than 80% 65% Gross income $600,000 Operating expenses (400,000) Dividend income 100,000 Dividends-received deductions (0.65 x $100,000) (65,000) Taxable income $235,000

Question 46

Which corporations cannot be members of a consolidated group? ``` A tax-exempt corporation An insurance company An S corporation Foreign Corp Investment Company thats regulated Domestic international sales corp ```

Answer 46

All above

Question 47

Mintee Corp., an accrual-basis calendar-year C corporation, had no corporate shareholders when it liquidated. Mintee Corporation distributed land held as an investment to its shareholders. At the time of the distribution, the land had an adjusted basis to the corporation of $300,000 and a fair market value of $400,000. The land was subject to a liability of $425,000. What is Mintee's gain or loss on the distribution of the land?

Answer 47

The general rule for a liquidating distribution by a corporation is that a corporation recognizes a gain or loss on the distribution of property in a complete liquidation. The property is treated as if it were sold at its fair market value. When a liability is held on the property, the amount realized (deemed fair market value) from the “as if” sale cannot be less than the amount of the liability. Deemed FMV $425,000 Adjusted basis of land (300,000) Realized gain $125,000

Question 48

Lilac Corp., a C corporation with earnings and profits, redeemed shares of stock from an individual shareholder. The distribution in redemption of stock will likely result in dividend income treatment to the redeeming shareholder if:

Answer 48

the redemption is proportionate with respect to the shareholder.

Question 49

a stock redemption payment received by a C corporation shareholder is generally treated as a taxable dividend from the corporation’s earnings and profits, unless one of the following occur: It is not essentially ___to a dividend. It is substantially __. It completely __the shareholder’s interest in the corporation.

Answer 49

equivalent disproportionate terminates

Question 50

A corporation had $10,000 of earnings and profits (E&P) for the current year and accumulated negative E&P of $100,000. It paid a cash distribution of $30,000. What amount represents the taxable dividend to the shareholder for that year?

Answer 50

$10k to the extent of earnings and profits, a corporate distribution is considered to be a taxable dividend (i.e., $10,000) even if there is a deficit in accumulated E&P. Any distributions in excess of current E&P come from accumulated E&P. Distributions in excess of both current E&P and accumulated E&P are considered to be a return of capital.

Question 51

With regards to withholding tax on a domestic corporation's cash distribution made on the domestic corporation’s stock in the ordinary course of business to foreign shareholders, which of the following statements is correct? Withholding tax may be required unless the foreign shareholder requests exemption from the rule. Withholding tax may be required only in the case of property. Withholding tax may be required in the case of a foreign shareholder.

Answer 51

U.S. source income (cash or property) is taxed on foreign shareholders. If a tax treaty has been formed by the foreign country and the United States, a reduced tax rate may apply. if not, a tax of 30% is applied. No more than 30% is allowed to be applied.

Question 52

U.S. source income (cash or property) is taxed on foreign shareholders. If a ___has been formed by the foreign country and the United States, a reduced tax rate may apply. if not, a tax of __% is applied. No more than __% is allowed to be applied.

Answer 52

tax treaty , 30

Question 53

With regard to the treatment of capital losses by corporations, other than S corporations, which of the following statements is correct? When a corporation carries a long-term net capital loss to another tax year, the character is automatically changed to a short-term capital loss. Assuming no capital gains to offset the corporation's capital losses, the maximum deduction is $3,000.

Answer 53

When a corporation carries a long-term net capital loss to another tax year, the character is automatically changed to a short-term capital loss.

Question 54

Corporate income tax: When a capital loss is carried to another year, it is treated as a short-term loss. It does not retain its original identity. A corporation can carry a capital loss back ___years, but the carryforward period is only __years. Capital losses can only offset capital gains.

Answer 54

three , five

Question 55

A corporation transferred fully depreciated machinery to an individual shareholder in a liquidating distribution. The original cost of the machinery was $6,000, and the fair market value at the date of the transfer was $5,000. If the shareholder's basis in the corporation's stock was $2,000, then the shareholder reports:

Answer 55

$3k cap gain Cash or property received by shareholders in excess of the basis in their capital stock will result in a capital gain to the shareholder. The FMV was given as $5,000; the shareholder’s basis in capital stock is $2,000, resulting in a capital gain of $3,000.

Question 56

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows: Adjusted Fair Market Percentage of Property Basis Value Ace Stock Acquired Lind Building $40,000 $82,000 60% Post Land 5,000 48,000 40% The building was subject to a $10,000 mortgage that was assumed by Ace. What was Lind’s basis in Ace stock?

Answer 56

$30k The basis of the stock received by Lind will be $30,000, which is the adjusted basis of the building transferred to Ace Corp, minus the $10,000 liability Ace Corp assumed. Adjusted basis of building $40,000 - Liability assumed by Ace Corp. (10,000) = Adjusted basis of stock received by Lind $30,000

Question 57

The connection necessary for a state to tax a nonresident is called ___. This is also called a sufficient physical presence.. It has a necessary ___ It is a federal law issue T/F

Answer 57

“nexus.” Connection False - state law issued

Question 58

rter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows: Porter’s Transfer Corley’s Transfer Basis $50,000 $250,000 Fair market value 200,000 500,000

Answer 58

$550k When property is transferred to a corporation, the basis of any property received is the fair market value (FMV) at the time of the transfer, unless the contribution qualifies for IRC Section 351 treatment, where the investor(s) receive control of the corporation under the 80% rule, as did Porter. In that case, the basis to the corporation is the same as the basis to the shareholder, or $50,000. Corley only had a 10% interest after his contribution, so the basis of the property would be the FMV at the time of transfer of $500,000. The corporation’s total basis in property contributed would be $550,000.

Question 59

Cable Corp., a calendar-year C corporation, contributed $80,000 to a qualified charitable organization. Cable's taxable income before the deduction for charitable contributions was $820,000 after a $40,000 dividends-received deduction. Cable also had carryover contributions of $10,000 from the prior year. What amount can Cable deduct as charitable contributions?

Answer 59

$86k. Add back the deduction and take 10%.

Question 60

Hook Corp., a calendar-year C corporation, reported the following year 2 financial information: Net income per books $210,000 Federal income taxes per books 114,000 Tax depreciation in excess of book depreciation 66,000 Charitable contributions per books 46,000 What is Hook's taxable income?

Answer 60

Net income per books $210,000 Less excess tax depreciation 66,000 Plus charitable contributions per book 46,000 Plus federal income tax per books 114,000 Taxable income before charitable contribution limit $304,000 10% limit 30,400 Taxable income after deduction for charitable contributions $273,600

Question 61

Which of the following is not considered personal property for purposes of local taxes? Land Jewelry Boats Shed

Answer 61

Land

Question 62

Aztec, a C corporation, distributed an asset to Burn, a shareholder. The asset had a fair market value of $30,000 and was subject to a $40,000 liability, assumed by Burn. The asset had an adjusted basis of $25,000. What amount of gain must Aztec recognize?

Answer 62

$15k Aztec is treated as if it sold the asset for $40,000 and recognizes gain on the difference between that and its basis of $25,000. Aztec recognizes gain of $15,000, computed as follows: The general rule is that when a corporation distributes an appreciated asset to a shareholder, the corporation is treated as though it had sold the asset to the shareholder for the asset's fair market value. However, if the asset is subject to a liability that exceeds the asset's fair market value, the corporation is treated as though it sold the asset for the amount of the liability.

Question 63

The general rule is that when a corporation distributes an appreciated asset to a shareholder, the corporation is treated as though it had sold the asset to the shareholder for the asset's fair market value. However, if the asset is subject to a liability that exceeds the asset's fair market value, the corporation is treated as though it sold the asset for the amount of the __

Answer 63

liability.

Question 64

An entity who wishes to elect out of its default classification must use what IRS Form? Which of the following is recognized as “boot” and is thus taxable? Stock for services rendered Relief from liability Nonqualified preferred stock, including redeemable stock All of the answer choices are correct.

Answer 64

Form 8832 All above

Question 65

ntangibles and organizational costs can be amortized. Advertising is considered an ordinary and necessary business expense and is amortized T/F

Answer 65

False - deducted currently on the C corporation tax return.

Question 66

Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. Lyle received unsolicited samples of nonprescription drugs from a manufacturer. Lyle donated these drugs to a qualified exempt organization and deducted their fair market value as a charitable contribution. What should be included as gross income in Lyle’s return for receipt of these samples? Fair market value Net discounted wholesale price $25 nominal value assigned to gifts $0

Answer 66

FMV

Question 67

Jaxson Corp. has 200,000 shares of voting common stock issued and outstanding. King Corp. has decided to acquire 90% of Jaxson's voting common stock solely in exchange for 50% of its voting common stock and retain Jaxson as a subsidiary after the transaction. Which of the following statements is true? King must acquire 100% of Jaxson stock for the transaction to be a tax-free reorganization. The transaction will qualify as a tax-free reorganization.

Answer 67

The transaction will qualify as a tax-free reorganization. The transaction will qualify as a tax-free reorganization under IRC Section 368 (“Definitions relating to corporate reorganizations”). This is commonly called a “B Reorganization.” Qualifications of a “B Reorganization”: The acquisition by one corporation, in exchange solely for all or a part of its own or its parent's voting stock, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of the other (whether or not it had control before the acquisition). The term “control” means the ownership of stock possessing at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.

Question 68

Qualifications of a “B Reorganization”: The acquisition by one corporation, in exchange solely for all or a part of its own or its parent's voting stock, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of the other (whether or not it had control before the acquisition). The term “control” means the ownership of stock possessing at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.

Answer 68

Yep

Question 69

PHC (Personal Holding Company) | PHCI is passive types of income such as dividends, interest, rents, and royalties. T/F

Answer 69

True

Question 70

A corporation (which is not a financial institution) is required to use the ___method rather than the reserve method to calculate the bad debts deduction regardless of whether the corporation is a cash-basis or accrual-basis corporation.

Answer 70

direct charge-off

Question 71

What is the general carryback and carryforward period for corporations for an NOL? Carry back 0 years and forward indefinitely Carry back 0 years and forward indefinitely subject to an annual limitation of 80% of taxable income

Answer 71

Second one

Question 72

During the year, a corporation declares a dividend and subsequently distributes to a stockholder $15,000 in cash and a bond with a basis of $25,000 and a fair market value of $26,000 on the date of distribution. The bond had a fair market value of $26,500 on the date that the corporation declared the dividend. The corporation has current earnings and profits in excess of the total amounts distributed during the year. Which of the following identifies the tax consequences of the distribution to the stockholder?

Answer 72

$41k Nonmonetary dividends (also called property dividends) are recognized by the shareholder at the fair market value (FMV) of the assets distributed. Cash dividends are recognized as income at face amount. The total amount of dividend income for this shareholder is therefore $41,000 ($15,000 cash + $26,000 FMV of the bond).

Question 73

A treaty in multinational tax matters is defined as: an informal contract or agreement between states under U.S. law. a formal contract or agreement between states under U.S. law. a formal contract or agreement between countries under international law. an informal contract or agreement between countries under international law.

Answer 73

formal contract or agreement between countries under international law.

Question 74

How are contributions of cash or property to a corporation taxed if property is contributed to the corporation, the investors receive control of the corporation, and have control immediately after contribution?

Answer 74

No tax to investor or corp

Question 75

A ____of a corporation is not equivalent to a dividend and therefore is treated as an exchange of stock for cash. The exchange should be considered a capital gain and should be treated as a capital gain for tax purposes.

Answer 75

partial liquidation

Question 76

If the property distributed to a shareholder has a ___in excess of the adjusted basis on the corporate books, a gain is recognized by the corporation.

Answer 76

fair market value

Question 77

A corporation distributed land with a basis of $20,000 and a fair market value of $60,000 but was subject to a nonrecourse liability of $70,000 to its sole shareholder. What amount represents the corporation’s recognized gain?

Answer 77

$50k Mortgage payable 70,000 Land 20,000 Gain 50,000

Question 78

Often a taxpayer will encounter some type of ___VAT) in the foreign jurisdiction. A value-added tax is a tax passed on to the consumer and an estimated market value added onto a product or material at each stage of the manufacturing process. T/F VAT is a form of ___tax

Answer 78

value-added tax ( True consumption

Question 79

Two unrelated individuals, John and Tom, own all the stock of Regal Corporation, which has earnings and profits of $400,000. Because of the inactivity of the business for the last several years, Tom has decided to retire from the business and move to Alaska. Accordingly, Regal Corporation will redeem all the stock owned by Tom and, in return, Tom will receive a distribution of $500,000. Tom's adjusted basis in the stock is $250,000. What will be the tax effect to Tom?

Answer 79

$250k The distribution qualifies as a capital gain since the distribution is disproportionate related to the other shareholders. Since the redemption is a complete redemption of all of Tom's stock ownership, the redemption proceeds of $500,000 qualify for exchange treatment. Thus, Tom will report a capital gain of $250,000. Redemption proceeds $500,000 Less: Tom's adjusted basis in the stock (250,000) Capital gain $250,000

Question 80

Prin Corp., the parent corporation, and Strel Corp., both accrual-basis, calendar-year C corporations, file a consolidated return. During the current year, Strel made dividend distributions to Prin as follows: Adjusted Tax Basis Fair Market Value ------------------ ----------------- Cash $4,000 $4,000 Land 2,000 9,000 What amount of dividend income should be reported on Prin and Strel's consolidated income tax return for the current year?

Answer 80

$0 Since Prin Corp. and Strel Corp. filed a consolidated tax return, dividend income received by one member from other members of the consolidated group is eliminated. This is one of the advantages of filing a consolidated return.

Question 81

Ace Corp. and Bate Corp. combine in a qualifying reorganization and form Carr Corp., the only surviving corporation. This reorganization is tax-free to: both the shareholders and the corporation. neither the shareholders nor the corporation.

Answer 81

both the shareholders and the corporation. No gain or loss is recognized if exchanged solely for stock or securities in that corporation, or in another corporation which is “a party to a reorganization.”

Question 82

lark and Hunt organized Jet Corp. with authorized voting common stock of $400,000. Clark contributed $60,000 cash. Both Clark and Hunt transferred other property in exchange for Jet stock as follows: Other Property: Fair Percentage Adjusted Market of Jet Stock Basis Value Acquired Clark $ 50,000 $100,000 40% Hunt 120,000 240,000 60% What was Clark's basis on Jet stock?

Answer 82

No gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange the persons are in control of the corporation. Control means 80% or more of the corporation. Since Clark and Hunt own 100% of the corporation, no gain is to be recognized.

Question 83

Job, Inc., had taxable income in year 15 of $8,000. Due to a downturn in its core business operations, Job isn't sure if he is expected to make estimated tax payments for year 16. Which of the following statements is correct concerning Job making estimated tax payments for year 16? Job must make installment payments of estimated tax if the company expects estimated tax to be $500 or more for year 16. Job must make installment payments of estimated tax because the company had taxable income in the prior year. Job must make installment payments of estimated tax if the company expects income or taxable income to be $500 or more for year 16. Job must make installment payments of estimated tax if the company expects income to be $500 or more for year 16.

Answer 83

Job must make installment payments of estimated tax if the company expects estimated tax to be $500 or more for year 16. A corporation is required to make installment payments if the estimated tax (not estimated income) is $500 or more. If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty.

Question 84

In S corporations, FICA taxes do not apply only to designated salaries, and the corporation is responsible for paying the taxes. T/F IRC Section 545(b)(1) allows a deduction for ____(FIT) in computing undistributed personal holding company income (PHC) income.

Answer 84

False - yes they do federal income tax

Question 85

Kane Corp. is a calendar-year domestic personal holding company. Which deduction must Kane make from taxable income to determine undistributed personal holding company income prior to the dividends-paid deduction? Federal income taxes Net long-term capital gain less related federal income taxes

Answer 85

Both Since Kane Corp. is a domestic personal holding company, it must deduct federal income taxes and net long-term capital gain (less related federal income taxes) from taxable income to determine undistributed personal holding company income prior to the dividends-paid deduction.

Question 86

Dole, the sole owner of Enson Corp., transferred a building to Enson. The building had an adjusted tax basis of $35,000 and a fair market value of $100,000. In exchange for the building, Dole received $40,000 cash and Enson common stock with a fair market value of $60,000. What amount of gain did Dole recognize?

Answer 86

$40K Under IRC Section 351, transfers of appreciated property to a controlled corporation (80%) are tax free to the extent they are exchanged solely in exchange for stock in the corporation. If cash or other property is received, gain is recognized equal to the cash and fair market value of other property received, limited by the amount of appreciation in the property transferred to the corporation. The amount taxable is the lesser of the amount of cash received ($40,000) or the appreciation ($65,000), so Dole is taxed on $40,000.

Question 87

Is there an alternative minimum tax for C corporations?

Answer 87

No | C corporations are not subject to the alternative minimum tax (AMT) under the Tax Cuts and Jobs Act of 2017 (TCJA)

Question 88

Edge Corp. met the stock ownership requirements of a personal holding company. What sources of income must Edge consider to determine if the income requirements for a personal holding company have been met? Interest earned on tax-exempt obligations Dividends received from an unrelated domestic corporation

Answer 88

II only A corporation must meet both the stock ownership test and the gross income test to be a personal holding company (PHC). These tests are: at any time during the last half of the year more than 50% in value of its outstanding stock is owned, directly or indirectly, by five or fewer individuals, and at least 60% of its adjusted ordinary gross income is PHC income. A sample of some of the personal holding company income includes: DIVIDENDS, taxable interest, royalties (except copyright or software royalties), and annuities. rents, unless they constitute 50% or more of the adjusted ordinary gross income. mineral, oil, and gas royalties, unless they constitute 50% or more of the adjusted ordinary gross income.

Question 89

Acorn, Inc., had the following items of income and expense: Sales $500,000 Cost of sales 250,000 Dividends received 25,000 The dividends were received from a corporation of which Acorn owns 30%. In Acorn's corporate income tax return, what amount should be reported as income before special deductions?

Answer 89

$275K ``` ales $500,000 - Cost of Sales (250,000) --------- $250,000 + Dividends Received + 25,000 --------- Total Income before Special Deductions $275,000 ========= The question asks for income before special deductions (dividends-received deduction), not after special deductions. ```

Question 90

The “executive pay over $1 million cap” applies to: all C corporations. all S corporations. only publicly held C corporations. all corporations.

Answer 90

Public C Corps A deduction for compensation paid or accrued with respect to a "covered employee" of a publicly held c corporation is limited to no more than $1 million per year.

Question 91

Acme Corp. has two common stockholders. Acme derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its stockholders. Acme is a:

Answer 91

A “personal holding company (PHC)” is any corporation that: derives at least 60% of its adjusted ordinary gross income for the tax year from income called “PHC income” and more than 50% is owned directly or indirectly by not more than five individuals at any time during the last half of a tax year.

Question 92

ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year: ParentCo $50,000 SubOne (60,000) SubTwo (40,000) No member reported a capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?

Answer 92

$50k The consolidated net operating loss is the excess of deductions over gross income for all the corporations included in the consolidated group. For this consolidated group, the consolidated net operating loss is $50,000, computed as follows: ``` ParentCo $ 50,000 SubOne (60,000) SubTwo (40,000) --------- Consolidated NOL $(50,000) ========= ```

Question 93

For year 1, a taxpayer reported its taxable income using the accrual method of accounting. For year 2, the taxpayer will change its accounting method from the accrual method to the cash method of accounting. At December 31, year 1, the taxpayer had $1,100,000 of accounts receivable and $750,000 of accounts payable and accrued expenses. What is the amount of the adjustment required to effect the change in accounting method and over what period will the change be recognized? The adjustment results in an increase to taxable income of $350,000, and it will be recognized over four years, beginning in the year of change. The adjustment results in a reduction to taxable income of $350,000, and it will be recognized over four years, beginning in the year of change. The adjustment results in a reduction to taxable income of $350,000, and all of it will be recognized in the year of change. The adjustment results in an increase to taxable income of $350,000, and all of it will be recognized in the year of change

Answer 93

The adjustment results in a reduction to taxable income of $350,000, and all of it will be recognized in the year of change. Assuming that the IRS gives permission to change accounting methods, the net difference between recognized income in year 1 and year 2 would be $350,000 ($1,100,000 more income and $750,000 more in expenses nets to $350,000 more income recognized under the accrual method in year 1). The adjustment of $350,000 is fully recognized in the year of change.

Question 94

Economic performance occurs when the services or receipt of property that give rise to the taxpayer's liability are ___by the taxpayer. The connection necessary for a state to tax a nonresident is called ___ ___is required when an entity does business in more than one state

Answer 94

actually received “nexus.” Apportionment

Question 95

What is a use tax? Atax used to finance public services A tax on gasoline and diesel fuel collected by the distributor A tax imposed on the transfer of property after the owner's death A tax imposed for the storage, use, or purchase of personal property not covered under sales tax

Answer 95

A use tax is a tax imposed for the storage, use, or purchase of personal property. It is similar to the sales tax, but is imposed on items not covered by sales tax.

Question 96

Which of the following is the typical property on which a local personal property tax is imposed? Automobiles Stock and bonds Inventory, machinery, and equipment

Answer 96

All Most states allow local jurisdictions to impose a local tax on personal property. These personal property taxes vary significantly from state to state as to the rate of taxation as well as to the type of personal property subject to the tax. Typical types of property that may be subject to a personal property tax include (1) automobiles, (2) stocks and bonds, and (3) tangible business property such as inventory, machinery, or equipmen

Question 97

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows: Adjusted Fair Market Percentage of Property Basis Value Ace Stock Acquired Lind Building $40,000 $82,000 60% Post Land 5,000 48,000 40% The building was subject to a $10,000 mortgage that was assumed by Ace. What amount of gain did Lind recognize on the exchange?

Answer 97

$0 This transaction qualifies as a Section 351 tax-free transfer. No gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange the persons are in control of the corporation. Control means 80% or more of the corporation. Since Lind and Post own 100% of the corporation, no gain is to be recognized.

Question 98

With regard to consolidated tax returns, which of the following statements is correct? Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return. Only corporations that issue their audited financial statements on a consolidated basis may file consolidated returns.

Answer 98

Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return. Audited financial statements have nothing to do with filing consolidated returns. Intercompany dividends are 100% excludable from taxable income on the consolidated return.

Question 99

Feld, the sole stockholder of Maki Corp., paid $50,000 for Maki’s stock in Year 1. In Year 2, Feld contri­buted a parcel of land to Maki but was not given any additional stock for this contribution. Feld’s basis for the land was $10,000, and its fair market value was $18,000 on the date of the transfer of title. What is Feld’s adjusted basis for the Maki stock?

Answer 99

Because Feld is the only shareholder, his basis in the stock of Maki Corp. will include any future contributions of property to the corporation. Therefore, Feld’s basis in the Maki Corp. stock will become $60,000, computed as follows: Adjusted basis of initial investment in Year 1 $50,000 + Adjusted basis of land contribution 10,000 ------- = Adjusted basis of Maki Corp. stock to Feld $60,000

Question 100

When corporations sell assets, a capital loss may result. Corporate tax has different rules than individual tax. Which of the following statements about corporate tax are incorrect? Corporate capital gains are taxed the same as ordinary income. Corporate capital losses can be deducted from ordinary income.

Answer 100

Corporate capital losses can be deducted from ordinary income. Corporate capital losses can never be deducted from ordinary corporate income.

Question 101

Ames and Roth formed Homerun, a C corporation. Ames contributed several autographed baseballs to Homerun. Ames purchased the baseballs for $500, and they have a total fair market value of $1,000. Roth contributed several autographed baseball bats to Homerun. Roth purchased the bats for $5,000, and they have a fair market value of $7,000. What is Homerun's basis in the contributed bats and balls?

Answer 101

$5500 Because Ames and Roth formed the C corporation called Homerun, the new corporation should report the same basis for assets contributed by the owners ($500 + $5,000). There is no reason for a step up in basis above the cost of acquisition. No gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange the persons are in control (80% or more) of the corporation.

Question 102

A distribution from a C corporation to a shareholder cannot be treated by the shareholder as which of the following classifications? Ordinary income Nontaxable return of capital Capital gain Capital loss

Answer 102

Capital Loss A distribution from a C corporation to a shareholder cannot be treated by the shareholder as a capital loss. Nonliquidating distributions to a shareholder are recorded at the fair market value on the date of distribution. To the extent of earnings and profit, the distribution is a taxable dividend (i.e., ordinary income). Any excess is a nontaxable return of capital and then a capital gain. Treating the distribution as a capital loss is not an option.

Question 103

Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?

Answer 103

Quigley $25,000, Roberk $90,000, and Storm $0 Quigley contributed services, and services are not considered part of the 80% control group; therefore, he would have to include in income $25,000. Roberk and Storm are the only ones left to be included in the 80% control group; they do not add up to 80% either, so Roberk would include $90,000 in income ($100,000 - $10,000). Storm would include nothing in income as he contributed cash for the stock.

Question 104

What is the usual result to the corporation of a distribution in complete liquidation of the corporation? No taxable effect Ordinary gain to the extent of cash paid Losses are recognized on certain liquidating distributions to related party shareholders. The corporation recognizes a gain or loss as if the property were sold at its fair market value.

Answer 104

When a corporation completely liquidates, the law assumes that the assets are sold at their fair market value (FMV) and corporate gain or loss is recognized at the time of liquidation. In addition, losses may not be recognized on certain liquidating distributions to related party shareholders. There are no ordinary gains to the extent of cash paid by the liquidating corporation.

Question 105

LIQUIDATION Liquidating corporations are required to recognize a ____on both liquidating sales and liquidating distributions. No gain or loss will be recognized by a liquidating subsidiary on the distribution of any property in a complete liquidation to an 80% corporate parent T/F The property is treated “as if” it were sold at its fair market value. When a liability is held on the property, the amount realized (deemed fair market value) from the “as if” sale cannot be less than the amount of the liability.

Answer 105

gain or loss True