Exam 1 Flashcards
The corporate dividends-received deduction
a. Must exceed the applicable percentage of the recipient shareholder’s taxable income
b. Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period
c. Is unaffected by the percentage of the investee’s stock owned by the investor corporation
d. May be claimed by S corporations
b. Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period
In a C corporation’s computation of the maximum allowable deduction for charitable contributions, what maximum percentage limitation might be applied to the applicable base amount in tax year 2024?
a. 10%
b. 25%
c. 30%
d. 100%
a. 10%
Quail, Inc., manufactures consumer products and sells them to distributors. Quail advertise its products to increase sales and enhance the value of its trade name. What is the appropriate tax treatment for the advertising costs
a. Amortize the costs over 15 years
b. Amortize the costs over 36 months
c. Amortize the costs over 60 months
d. Deduct the costs currently as ordinary and necessary business expenses
d. Deduct the costs currently as ordinary and necessary business expenses
In the case of a corporation that is not a financial institution, which of the following statements is true with regard to the deduction for bad debts?
a. Either the allowance method or the direct charge-off method may be used, if the election is made in the corporation’s first taxable year
b. On approval from the IRS, a corporation may change its method from direct charge-off to allowance
c. If the allowance method was consistently used in prior years, the corporation may take a deduction for a reasonable addition to the allowance for bad debts
d. A corporation is required to use the direct charge-off method rather than the allowance method
d. A corporation is required to use the direct charge-off method rather than the allowance method
Which of the following cannot be amortized for tax purposes?
a. Incorporation costs
b. Temporary directors’ fees
c. Stock issuance costs
d. Organizational meeting costs
c. Stock issuance costs
Norwood Corporation is an accrual-basis taxpayer. For the year ended December 31, Year 1, it had book income before tax of $150,000 after deducting a charitable contribution of $50,000. The contribution was authorized by the board of directors in December Year 1, but was not actually paid until March 1, Year 2. How should Norwood treat this charitable contribution for tax purposes to minimize its Year 1 taxable income
a. It cannot claim a deduction in Year 1 but must apply the payment against Year 2 income
b. Make an election claiming a deduction for Year 1 of $20,000 with no carryover
c. Make an election claiming a deduction for Year 1 of $37,500 with no carryover
d. Make an election carrying the deduction back 3 years
b. Make an election claiming a deduction for Year 1 of $20,000 with no carryover
Which of the following entities must include in gross income 100% of dividends received from unrelated taxable domestic corporations in computing regular taxable income?
Personal Personal
services holding
Corp Corp a. yes yes b. no no c. yes no d. no yes
a. yes yes
Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. During 2024, Lyle received unsolicited samples of nonprescription drugs from a manufacturer. Lyle donated these drugs in 2024 to a qualified exempt organization and deducted their fair market value as a charitable contribution. What should be included as gross income in Lyle’s 2024 return for receipt of these samples?
a. Fair market value
b. Net discounted wholesale price
c. $25 nominal value assigned to gifts
d. $0
a. Fair market value
John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in wholesaling operations. Ral’s retained earnings at January 1, 2024, amounted to $1 million. For the year ended December 31, 2024, Ral’s book income, before federal income tax, was $300,000. Included in the computation of this $300,000 were the following:
Loss on sale of investment in stock of unaffiliated corporation (stock held for 2 years). Ral had no other capital gains or losses.
$(5,000)
Contribution to a recognized, qualified charity. This contribution was authorized by Ral’s board of directors in December 2024, to be paid on January 31, 2025.
$75,000
With regard to Ral’s contribution to the recognized, qualified charity, Ral
a. Can elect to deduct in its 2024 return any portion of the $75,000 that does not exceed the deduction ceiling for 2024
b. Cannot deduct any portion of the $75,000 in 2024 because the contribution was not paid in 2024
c. Can deduct the entire $75,000 in its 2024 return because Ral reports on the accrual basis
d. Can elect to carry forward indefinitely any portion of the $75,000 not deducted in 2024 or 2025
a. Can elect to deduct in its 2024 return any portion of the $75,000 that does not exceed the deduction ceiling for 2024
Which of the following qualifies for the dividends-received deduction?
a. Dividends from a DISC paid out of accumulated DISC income
b. Dividends on deposits in a mutual savings bank
c. dividends from a real estate investment trust
d. Dividends from a taxable domestic corporation
d. Dividends from a taxable domestic corporation
Placebo Corp. is an accrual-basis, calendar-year corporation. On December 13, 2024, the board of directors declared a 2%-of-profits bonus to all employees for services rendered during 2024 and notified them in writing. None of the employees own stock in Placebo. The amount represents reasonable compensation for services rendered and was paid on March 13, 2025. Placebo’s bonus expense may
a. Not be deducted on Placebo’s 2024 tax return because the per-share employee amount cannot be determined with reasonable accuracy at the time of the declaration of the bonus
b. Be deducted on Placebo’s 2024 tax return
c. Be deducted on Placebo’s 2025 tax return
d. Not be deducted on Placebo’s tax return because payment is a disguised dividend
b. Be deducted on Placebo’s 2024 tax return
For 2024, a corporation had taxable income of $70,000 without regard to the charitable contribution deduction. Contributions made in 2024 totaled $5,000, and a $4,000 carryover of excess contributions from 2023 is available to apply to 2024. What is the amount of contribution carryover available for 2025, and what is its source?
a. $0
b. $2,000 from 2024
c. $2,000 from 2023
d. $3,000 from 2022
c. $2,000 from 2023
For the first taxable year in which a corporation has qualifying research and experimental (R&E) expenditures, the corporation
a. Has a choice of either deducting such expenditures as current business expenses or capitalizing these expenditures
b. Has to treat such expenditures in the same manner as they are accounted for in the corporation’s financial statements
c. Is required to deduct such expenditures currently as business expenses or lose the deductions
d. Is required to capitalize such expenditures and amortize them ratably over a period of not less than 60 months
d. Is required to capitalize such expenditures and amortize them ratably over a period of not less than 60 months
For a domestic corporation to deduct a percentage of the dividends it receives from a foreign corporation, certain tests must be met. Which of the following conditions need not be present?
a. The domestic corporation owns at least 10% of the foreign corporation
b. The foreign corporation has income effectively connected with a trade or business in the US
c. The corporation is not a foreign personal holding company
d. The foreign corporation has derived income effectively connected with its US business amounting to at least 50% of its gross income from all sources for a 36-month period
d. The foreign corporation has derived income effectively connected with its US business amounting to at least 50% of its gross income from all sources for a 36-month period
As the result of an IRS audit of a C corporation and its sole shareholder, the IRS agent proposes that a portion of the shareholder’s salary is unreasonable. Because the corporation has significant earnings and profits, the agent has determined that the unreasonable portion of the salary is a dividend. Which of the following is correct regarding the impact of the proposed adjustment to both the corporation and its shareholder?
a. Full disallowance of salary expense, a corresponding increase in nondeductible dividends to the corporation, and no effect on the shareholder since both salaries and dividends are taxable income
b. Partial disallowance of salary expense, a corresponding increase in nondeductible dividends to the corporation, and reclassification of the shareholder’s salary to dividend treatment
c. Allowance of the full amount as salary expense to the corporation and reclassification of the unreasonable portion of the shareholder’s salary to dividend treatment
d. Partial disallowance of salary expense, a corresponding increase in deductible dividends to the corporation, and no effect on the shareholder’s return since both salaries and dividends are taxable income
b. Partial disallowance of salary expense, a corresponding increase in nondeductible dividends to the corporation, and reclassification of the shareholder’s salary to dividend treatment
A personal services corporation may deduct payments made to owner-employees only in the year in which the
a. Corporation is formed
b. Expense is accrued on the books and records of the corporation
c. Corporation makes a valid S election
d. Owner-employee includes it in income
d. Owner-employee includes it in income
If a corporation’s charitable contributions exceed the limitation for deductibility in a particular year, the excess
a. Is not deductible in any future or prior year
b. May be carried back or forward for 1 year at the corporation’s election
c. May be carried forward to a maximum of 5 succeeding years
d. May be carried back to the preceding year
c. May be carried forward to a maximum of 5 succeeding years
- What is the corporate effective tax rate?
a. The rate they pay on their pre-tax profits.
b. The rate they pay on their deferred assets
c. The rate they pay on their profits
d. The rate they pay on their after-tax profits
a. The rate they pay on their pre-tax profits.
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year,
a. It is treated as a long-term capital loss whether or not it was long term when sustained
b. It retains its original identity as short term or long term
c. It is treated as a short-term capital loss whether or not it was short term when sustained
d. It can be used to offset ordinary income up to the amount of the carryback or carryover
c. It is treated as a short-term capital loss whether or not it was short term when sustained
With regard to the treatment of capital losses by a corporation, other than an S corporation, which of the following statements is false?
a. If a corporation has a net capital loss it cannot deduct the loss in the current year
b. A corporation may not carry a capital loss from, or to, a year during which it is an S corporation
c. When figuring a current-year net capital loss, you must include any capital loss carried from another year
d. When a corporation carries a long-term net capital loss to another year, it is treated as a short-term loss
c. When figuring a current-year net capital loss, you must include any capital loss carried from another year
The income tax treatment of individual and corporate taxpayers agrees in which of the following respects?
a. Excess capital losses retain their identity as either long-term or short-term losses in the year to which they are carried
b. Excess capital losses may be offset against income from other sources but only to a limited extent
c. Excess capital losses may be carried forward 5 years and losses may not be carried back
d. None of the answers are correct
d. None of the answers are correct
Foreign Tax Credit (FTC) limit
US income x (foreign TI / worldwide TI)
