Corp. Income Taxes: Other Tax Areas

Question 1

like-kind exchange

Answer 1

An item is exchanged for the same or a similar item.

Question 2

new basis and G/L associated w/like-kind exchange

Answer 2

Each party to the exchange will retain the basis of the items received and no G/L recognized.
Ex) Andrew’s new basis is the basis in the item he gave up.

Question 3

like-kind exchange and boot

Answer 3

When there is a like-kind exchange and boot, the taxable gain is the lesser of the boor received or the gain.

Question 4

Schedule M-1

Answer 4

1. found on Corp. Tax Return (Form 1120).

2. Used for book-tax rec.

Question 5

items adjusted in Schedule M-1

Answer 5

Non-taxable or non-deductible items reported for F/R but not IT purposes, such as life insurance proceeds, state and local bond interest, and penalties/fines.

Question 6

Schedule M-3

Answer 6

for corps. w/ more than $10 million in assets.

Question 7

Can federal income taxes be deducted in arriving a taxable income?

Answer 7

No.

Question 8

Can net losses be deducted in arriving a taxable income?

Answer 8

Yes.

Question 9

Can capital losses be deducted in arriving a taxable income?

Answer 9

No.

Question 10

Is equipment a capital asset for tax purposes?

Answer 10

No, Equipment is a Section 1245 asset and is not a capital asset.

Question 11

When one company holds 80 percent or more of the stock of another company, how are gains on transfers reported for tax purposes?

Answer 11

They are deferred until eventually realized in a sale to an outside party.

Question 12

NOL carryback/carryforward

Answer 12

carryback: 2 yrs.
carryforward: 20 yrs.

Question 13

In determining AMT, how are tax benefits and preferences handled?

Answer 13

They are removed as adjustments, preference items, or part of ACE adjustment.

Question 14

adjustments

Answer 14

items fully moved into TI

Includes installment sales method.

Question 15

ACE adjustment

Answer 15

items only partially moved into TI

Includes municipal bond interest.

Question 16

purpose of PHC tax

Answer 16

The personal holding company tax is designed to encourage adequate dividend payments to be made by companies, with only a few owners, that generate a significant amount of passive income (such as dividends and interest).

Question 17

authoritative guidelines for PHC tax (both must apply):

Answer 17

1. Five or fewer individuals owning 50 percent or more of the stock during the last half of the year.
2. Passive income making us 60+% of total ordinary income.

Question 18

Are the rules on charitable contributions for the PHC tax more or less restrictive than or normal companies?

Answer 18

Less restrictive.

Question 19

For Year Two, what should estimated tax payments be?

Answer 19

100% of the current yr’s tax liability.

Question 20

Under uniform capitalization rules, what costs should be included in inventory?

Answer 20

1. All costs incurred in acquiring inventory for resale.

2. Includes costs such as labeling, storage, and handling. Shipping is a selling cost.

Question 21

When one party owns over 50 percent of a corporation…

Answer 21

1. they are viewed as related parties and losses on sales between them cannot be deducted until the property is eventually sold to an outside party.
2. In contrast, gains continue to be taxable until the ownership level hits 80 percent.

Question 22

How is income generated from both a U.S. company and a wholly owned foreign subsidiary handled?

Answer 22

1. The U.S. company is taxed in the U.S. on the income it makes from both the U.S. company and subsidiary.
2. The company will receive a tax credit equal to the amount paid to the foreign subsidiary (foreign sub NI * foreign tax rate).
3. Tax liability = 1. - 2.

Question 23

For financial accounting, a consolidated F/S is done when one company owns…

Answer 23

Over 50% of another company.

Question 24

For tax accounting, a consolidated tax return is done when one company owns…

Answer 24

80% of another company.

Question 25

Schedule M-2

Answer 25

Analyzes the changes in unappropriated retained earnings from the first day of the year to the last.