EA Part 2-Passkey 13-14 Corporations

Question 1

IRS requires these businesses formed after 1996 to be treated as corporations:

Answer 1

• business that refers to itself as a corp.
• joint-stock company or joint-stock assocation
• insurance companies and certain banks
• business owned by state or local govnt.
• certain foreign businesses
• any business that elects to be corp. by filing Form 8832 Entity Classification Election

Question 2

All domestic corporations in existence for any part of a tax year __

Answer 2

must file an income tax return, including corps. in bankruptcy

Question 3

Form 1120-A

Answer 3

used by small corps. with gross receipts, total income and total asset each under $500,000

Question 4

Corporation filing deadline

Answer 4

15th day of 3rd month after end of its tax year

Question 5

EFTPS is mandatory for C corps. with $__ million or more in assets and at least ___ or more any type return (including W-2’s or 1099’s).

Answer 5

$10 million

250 returns

Question 6

A corp. files Form ___ to request a __month extension of time to file its income tax return.

Answer 6

• Form 7004 Automatic Extension of Time to File Certain Business Income Tax, information and Other Returns
• 6-month extension

Question 7

A penalty for late filing is assessed at __% of any unpaid tax for each month return is late, up to a maximum of __% of unpaid tax

Answer 7

5% penalty

25% maximum.

Question 8

The minimum penalty for any return that is over __ days late is the smaller of the tax due on the return or ___

Answer 8

60 days late

smaller of tax due or $135

Question 9

The penalty for late payment of corporate income tax is one half of 1% of the unpaid tax for each month that the tax is not paid,

Answer 9

up to a maximum of 25% of the unpaid tax.

Question 10

Corporations are required to make estimated tax payments if they expect their tax due to be __

Answer 10

$500 or more during the taxable year.

Question 11

Estimated payments are due __

Answer 11

4th, 6th, 9th and 12th month’s of corp.’s taxable year

Question 12

There is no penalty for underpayment of estimated tax if the tax is less than $__

Answer 12

$500, or if each quarterly estimated tax payment is at least 25% of the corp.’s current-year tax OR
if each est. tax installment is at least 25% of the income tax on the prior year return.

Question 13

To apply for a tax refund, a corporation may use __

Answer 13

Form 1139 Corporation Application for Tentative Refund or

Form 1120X Amended U.S. Corp. Income Tax Return

Question 14

If a corporation accidentally overpays its estimated tax, it may use Form __

Answer 14

Form 4466 Corporation Application for Quick Refund of Overpayment of Estimated Tax

*if overpayment at least 10% of anticipated tax liability and at least $500

Question 15

A corporation does not receive a tax deduction for the distribution of __

Answer 15

dividends to its shareholders.

Question 16

Accumulated Earnings Tax

Answer 16

If a corp. does not distribute enough of its profits to shareholders.
Levied at 15% of accumulated taxable income

Question 17

Accumulated earnings of $ ___ or less allowed for most businesses, or $___ for PSC’s.

Answer 17

$250,000

$150,000 for PSC’s

Question 18

Small corps. are exempt from corporate AMT; small if __

Answer 18

ave. annual gross receipts for prior 3 years (or portion therefore) do not exceed $7.5 million, or $5 million for its first 3-year period.

Question 19

Form 4626

Answer 19

Alternative Minimum Tax - Corporations

Question 20

Form 8827

Answer 20

Credit for Prior Year Minimum Tax - to figure min. tax credit carry forwards.

AMT may be carried forward indefinitely.

Question 21

A corporation with more than $5 million in ave. annual gross receipts is required to use __

Answer 21

the accrual accounting method.

Question 22

If corporation produces inventory, then the accrual method is generally required for sales and purchases of merchandise, unless __

Answer 22

ave. gross receipts are $1 million or less.

Question 23

A business may use Nonaccrual Experience Method for Bad Debts for amount earned for performing services.

Answer 23

It is not required to accrue service-related income it expects to be uncollectible.

Question 24

The difference in book and taxable income are reconciled in ___

Answer 24

Schedule M-1 of Form 1120 for small corps. (<$10 million in assets) or
Schedule M-3 for large corporations.

Question 25

A shareholder will not recognize gain when __

Answer 25

a cash contribution is made for stock. It becomes the shareholder’s basis in the stock.

Question 26

If a shareholder contributes property to a corp, he generally __

Answer 26

recognizes gain, and the basis of the contributed ppt to the corp. is the same as the basis shareholder had in ppt.

Question 27

The basis of ppt contributed to capital by anyone other than a shareholder is __

Answer 27

zero (to the corporation).

Question 28

Nontaxable Corporate Transfers: Section 351

Answer 28

If a taxpayer transfers ppt to a corp. in exchange for stock and immediately afterward the taxpayer controls the corp., the exchange may not be taxable.

Question 29

In order to be considered in control of a corp. immediately after the exchange, transferors must own at least __%

Answer 29

80% of total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock.

Question 30

Reporting requirement: Both the corp. and certain stockholders involved in a nontaxable exchange of ppt for stock must attach a statement/report if they own __

Answer 30

5% or more of a public company or

1% or more of a privately held company.

Question 31

In the case of a Section 351 exchange, a corp. may assume a shareholder’s liability without triggering any gain, __

Answer 31

so long as the liability is less than the shareholder’s adjusted basis.

Question 32

Capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred, and __

Answer 32

must be capitalized. The cost is then amortized or depreciated over the life of the asset.

Question 33

Capital gains of corporations are taxed at the same rate as ordinary income. In C corporations, capital losses are only deductible __

Answer 33

up to the amount of its capital gains. A C corp. cannot offset capital losses against its other income like individuals can (in limited way).

Question 34

If a corp. has an excess capital loss, it may carry the loss back or forward and deduct it from __

Answer 34

any net capital gains that occurred in those years.

Question 35

The default election is for corps. to carry back its capital losses to the earliest of __ preceding years in which it had net capital gain. Any remaining losses maybe carried forward a maximum of __ years.

Answer 35

3 years

5 years

Question 36

All capital loss carryforwads and carrybacks are treated as __

Answer 36

short-term losses.

A long-term loss does not retain its character as a long-term loss.

Question 37

A corporation figures and deducts NOL the same way an individual, estate or trust does. Carryback __ years and carryforward __.

Answer 37

2 year

up to 20 years

Question 38

A NOL carryover is entered on __

Answer 38

Form 1120, Schedule K.

Question 39

C corporation may deduct charitable contributions, up to __% of taxable income

Answer 39

10%.
Taxable income figured without regard to:
*deduction for charitable contributions
*dividends-received deduction
*domestic production activities deduction
*any NOL carryback

Question 40

If a corp. claims donation of ppt. that exceeds $5,000, must attach Form ___

Answer 40

Form 8283 Noncash Charitable Contributions

Question 41

A corp. using the accrual method of accounting can deduct unpaid contributions if __

Answer 41

BOD authorized the contributions, and they are paid within 2.5 months after close of year.

Question 42

A corp. can carry over charitable contributions that exceed the 10% limit __

Answer 42

5 years.
If not used, it’s lost.
No carryback allowed.

Question 43

Dividends-Received Deduction

Answer 43

for dividends received from other corps. in which it has an ownership stake.

Question 44

DRD for C corporations:

Answer 44

80% ownership, 100% DRD

Question 45

If 100% DRD bracket, no taxable income limitation. But if in 70 or 80% bracket, DRD can only be taken up to its__

Answer 45

taxable income without the regard to:

• DRD
• NOL deduction
• DPAD
• any capital loss carryback to the tax year
• any adjmt due to nontaxable part of dividend

Question 46

Corporations cannot take a deduction for dividends received from:

Answer 46

• a real estate investment trust (REIT)
• a tax-exempt corporation
• a corp. who stock was held <91 days

Question 47

If a Dividends-Received Deduction creates a NOL, the taxable income limit does not apply.

Answer 47

The corporation can take the full DRD.

Question 48

A closely held corporation generally has a small number of shareholders (usually family) and __

Answer 48

no public market for its corporate stock.

Question 49

A controlled group is a group of corporations that are related through common ownership,

Answer 49

typically as either parent-subsidiary or brother-sister.

Question 50

A brother-sister controlled group:

Answer 50

in which five or fewer individuals, estates or trust own 80% combined voting power, and have identical common ownership within individual corporations of at least 50%.

Question 51

A parent-subsidiary controlled group:

Answer 51

80% owned by parent

Question 52

A controlled group is allowed __

Answer 52

• a single set of graduated income tax brackets,
• a single AMT exemption amount,
• a single accumulated earnings credit of $250,000