Corporate Tax-2

Question 1

What are 4 different types of trusts?

Answer 1

1. Simple 2. Complex 3. Grantor 4. Revocable

Question 2

What are qualities of a Complex trust?

Answer 2

1. Can distribute or accumulate income 2. Make charitable contributions 3. Distribute trust principal or corpus

Question 3

Characteristics of Simple trust?

Answer 3

1. Must distribute all of its income yearly 2. Cannot make contributions 3. Cannot distribute principal

Question 4

What types of trust may a person retain powers over?

Answer 4

Grantor and Revocable

Question 5

When property is distributed with cash, how is the property’s basis calculated?

Answer 5

Cash amount subtracted from total distribution then remainder is property basis. Cannot go below partnership basis

Question 6

Which of the following 4 items is not tax deductible? 1. State corporate income tax 2. Interest earned on US obligation 3. Net long-term capital loss from the sale of marketable securities 4. Interest paid on loan to purchase United States obligations ?

Answer 6

Long-term capital losses from sales of market securities are not deductible on Federal return

Question 7

When a liquidating distribution contains both cash that is greater than the partners basis what happens?

Answer 7

Gain is realized between any amount of cash greater than partnership basis

Question 8

What items are adjustments for personal AMT?

Answer 8

SIMPLE 1. Standard deduction 2. Interest on home equity loans not used for building 3. Medical expenses under 10% of AGI 4. Personal and dependent exemptions 5. Local, state, personal and property taxes 6. Employee business expenses, tax prep and investment expenses subject to the 2% limit.

Question 9

For a trust, what are some items that would not be included in computing the trust’s book income?

Answer 9

Anything allocated to corpus, such as capital gains or trustee fees.

Question 10

Why can’t a partnership have a net operating loss carry over?

Answer 10

Because all losses pass through to the partners.

Question 11

A partner’s share of partnership losses is generally deductible by the partner to what extent?

Answer 11

To the extent of the partner’s at-risk basis for the partnership interest at the end of the partnership year

Question 12

How large of a standard deduction is allowed by a simple trust?

Answer 12

$0. It is allowed NO standard deduction, but is allowed a $300 exemption.

Question 13

When a partnership interest is purchased through services rendered, which value is used to determine partnership basis: FMV or basis?

Answer 13

FMV.

Question 14

Partnership has a $36,000 basis and a $42,000 loss with 2 partners what kind of loss can the deduct the same year, ordinary or capital? What is the amount?

Answer 14

$18,000 ordinary loss to each partner. $3,000 capital loss to be ROLLED OVER TO NEXT YEAR?

Question 15

How large must an estate be before they must file a federal tax return?

Answer 15

> $5.43 million

Question 16

Name the types of donations that get a gift tax exclusion.

Answer 16

First $14,000 donated to any individual. Unlimited amount donated to a university in behalf of the person attending. Unlimited for paying medical bills of another.

Question 17

With MACRS depreciation, how much is normally depreciated in the year of acquisition? What is the exception?

Answer 17

Normally mid-year convention is used in the year of acquisition, unless >40% of all personal property is placed in service during last quarter of year; then the mid-quarter convention is used.

Question 18

What are the tax preferences for Individual AMT?

Answer 18

PIE - Private activity bond interest Incentive stock options. Excess depreciation on 150% declining balance.

Question 19

• worldwide taxable income - $675,000
• tentative US tax - $229,500
• taxable income country A - $300,000
• foreign income taxes paid - $125,000

What is formula to arrive at foreign tax credit?

What is answer to this problem?

Answer 19

Foreign TI

Worldwide TI * (US tax)

or

Foreign TI/Worlwide TI x (US tax)

$300,000/$675,000 * ($229,500) = $102,000

The $125,000 of foreign taxes paid are allowed to the extent of $102,000

Question 20

Problem: Only property put into service during year are furnitures and fixtures worth $112,000. You know that normal MACRS is DDB. You also know that it must be depreciated using the mid-quarter convention. Solve this problem and show your work.

Answer 20

$112,000

x 2/7 (because it is 200% DDB instead of normal)

x 1/8 (this gives you one-half of a quarter’s worth depr

$4,000