C Corporation

Question 1

C Corporation

Answer 1

a tax-paying entity, taxed separately from its owners, created formally in accordance with the laws of the state in which it is considered domiciled, with shareholders as holders who have LIMITED LIABILITY.

Question 2

Section 351 Tax free exchange

Answer 2

exchanges of property or cash for equity are nontaxable, provided that stock is received and the party transferring the property and cash has control consisting of at least 80 percent ownership when the exchange is complete.

Question 3

Are services allowed in a section 351 exchange

Answer 3

No, services are excluded and are considered taxable exchanges.

Question 4

Accrual basis

Answer 4

requires a corporation to recognize revenues when earned, except for rents and interest received in advance, and expenses when incurred, provided they are paid within 2.5 months of the corporations YE.

Question 5

Dividends received deduction (DRD)

Answer 5

a corporate deduction equal to a percentage of dividends received based on the level of ownership:

70 percent deduction if less than 20% of the voting stock (Unaffiliated)

80% deduction if a company owns 20% or more, but less than 80% of the voting stock of another company

100% if a company owns 80% or more of the voting stock of another company (Control)

Question 6

Are federal treasury bonds taxable

Answer 6

Yes

Question 7

Are federal treasury bonds taxable

Answer 7

Yes

Question 8

Under tax, bad debt expense is:

Answer 8

Direct write off method

Question 9

Holding Period

Answer 9

is generally just the period of time that an entity or individual has owned the asset in question.

Question 10

Charitable contributions

Answer 10

donations made by a corporation to a charitable organization, deductible to the extent of 10% of adjusted taxable income (ATI), with any excess carried forward up to 5 years. Pledges may be accrued if paid within 3.5 months of year-end.

Question 11

Adjusted Taxable income

Answer 11

A corporations taxable income before any deduction for charitable contributions, a dividends-received deduction, any net operating loss carry backs or any capital loss carrybacks.

Question 12

nondeductible expenses

Answer 12

expenses incurred by a corporation that are not considered ordinary and necessary for tax purposes and are, therefore, not deductible, including fines and penalties imposed by a government, costs of issuing stock, lobbying costs, compensation of executive officers in excess of $1,000,000 per year, and club dues.

Question 13

Accrual differences

Answer 13

items that are reported differently by an accrual basis corporate taxpayer than they will be handled for financial reporting purposes, including bad debts, warranties, contingencies, unrealized gains and losses on marketable securities

Question 14

Accumulated Earnings Tax

Answer 14

20 percent penalty tax is imposed on a corporation for accumulating excessive retained earnings to encourage the distribution of dividends. Excessive is considered to be $250,000 for a manufacturing company and $150,000 for a personal service company

Question 15

Personal holding company

Answer 15

a tax on the undistributed income of a corporation that has 5 or fewer stockholders and earns 60% or more of its income from passive sources, such as interest, dividends, rents and royalties. The tax on the undistributed amount is 20%.

Question 16

Schedule M-1 Reconciliation

Answer 16

a corporations reconciliation of book (financial statement) income before special deductions - DRD and NOL Deduction) to taxable income.

Question 17

Temporary differences

Answer 17

are bad debt expense, warranty expense, and depreciation.

Question 18

Permanent differences

Answer 18

municipal bond interest, 50% meals and entertainment, fines, penalties, premiums paid on key person life insurance).

Question 19

Section 1244 Stock

Answer 19

stock acquired bu a shareholder directly from a corporation with initial capital of $1,000,000 or less, losses on which are deductible as ordinary to the extent of $50,000 for a single taxpayer ($100,000 for MFJ) with the excess carried forward indefinitely and deductible as capital losses subject to the $3,000 per year limitation.

Question 20

AMT for corporations

Answer 20

Taxes a corporate taxpayer may be required to pay, in addition to the regular income tax, when taxable income includes certain items that qualify for preferential tax treatment, or when it has been reduced by certain deductions. It is the excess of TMT over the regular tax.

Question 21

AMT Adjustments and Tax preferences

Answer 21

Amounts added back to regular taxable income to compute AMTI, consisting of PILE, the tax exempt interest earned on PRIVATE ACTIVITY BONDS, the difference between accrual income and INSTALLMENT INCOME when the installment method was used for tax purposes for the sale of inventory, income on LONG-TERM CONSTRUCTION CONTRACTS that would have been reported under percentage of completion, and EXCESS DEPRECIATION ON PERSONAL PROPERTY over 150% declining balance when double decline was used for regular tax purpose.

Question 22

Adjusted current earnings adjustment (ACE)

Answer 22

Additional items added to taxable income in computing AMTI, consisting of (SLIM): SEVENTY-PERCENT dividends received deduction on dividends from unrelated corporations, proceeds from LIFE INSURANCE upon the death of a key employee, and tax exempt interest on all Municipal bonds, other than private activity bonds.