CH4_03_Penalty Tax (Extra Tax)

Question 1

1. Personal holding company tax may be imposed

A. As an alternative tax in place of the corporation’s regularly computed tax.
B. If more than 50% of the corporation’s stock is owned, directly or indirectly, by more than ten shareholders.
C. If at least 60% of the corporation’s adjusted ordinary gross income for the taxable year is personal holding company income, and the stock ownership test is satisfied.
D. In conjunction with the accumulated earnings tax.

Answer 1

C. If at least 60% of the corporation’s adjusted ordinary gross income for the taxable year is personal holding company income, and the stock ownership test is satisfied.

Question 2

2. Tan Corp. calculated the following taxes for the current year:

Regular tax liability $210,000
Tentative minimum tax 240,000
Personal holding company tax 65,000

What is Tan’s total tax liability for the year?

A. $210,000 B. $240,000 C. $275,000 D. $305,000

Answer 2

30,000+65,000+210,000

(305,000)

D. $305,000

Question 3

3. The following information pertains to Hull, Inc., a personal holding company, for the year ended December 31, 20X7:

Undistributed personal holding company income $100,000
Dividends paid during 20X7 20,000
Consent dividends reported in the 2017 individual income tax returns of
the holders of Hull’s common stock, but not paid by Hull to its shareholders 10,000

In computing its 20X7 personal holding company tax, what amount should Hull deduct for dividends paid?

A. $0
B. $10,000 C. $20,000 D. $30,000

Answer 3

D. $30,000

Question 4

4. The accumulated earnings tax is not imposed on corporations that

A. Are personal holding companies.
B. Are subsidiary corporations.
C. Have assets with an aggregate book value of less than $1 million.
D. Have more than 100 shareholders.

Answer 4

A. Are personal holding companies.

Question 5

5. Which of the following would not be considered reasonable needs of a business in determining the accumulated earnings tax?

A. Specific plans to update factory machinery.
B. A definite long-range commitment to purchase raw materials.
C. A feasible long-range plan to expand factory production.
D. A specific and feasible plan to declare a stock dividend to all shareholders.

Answer 5

D. A specific and feasible plan to declare a stock dividend to all shareholders.

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Question 6

6. An item not subtracted in determining accumulated taxable income for the accumulated earnings tax is

A. Dividends paid within 2 1/2 months after the end of the corporate tax year.
B. Net capital losses.
C. Net long-term capital gains reduced by the attributable taxes.
D. A net operating loss deduction from a prior year.

Answer 6

D. A net operating loss deduction from a prior year.