M4-Tax Computations and Credits Flashcards
Personal holding companies, as specifically defined by the Code, are corporations that meet certain “closely-held” ownership criteria and have over 50% of their adjusted gross income consisting of net rent (less than 50% of ordinary gross income), taxable interest, most royalties, and dividends from an unrelated domestic corporation. (true or false)
false
while most of the info in this item is correct, it is when over 60% of the AGI of a closely held (more than 50% owned by 5 or fewer individuals either directly or indirectly at any time during the last half of the tax year) corporation consists of “NIRD” that is defined as a personal holding company, not over 50% (as in the selection.
There is no penalty if net earnings are distributed, as the penalty only applies to income that has not been distributed, with regard to personal holding companies.
Personal holding companies are not subject to the accumulated earnings tax.
The additional tax (penalty) is self assessed by a personal holding company.
The tax law criteria define Personal Holding Companies (PHC) as corporations more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of:
N Net rent (if less than 50% of ordinary income)
I Interest that is taxable (nontaxable is excluded)
R Royalties (but not mineral, oil, gas, or copyright royalties)
D Dividends from an unrelated domestic corporation
A gain from an illegal activity is includible in income. (true or false)
true
To determine the gain, a deduction is permitted for cost of merchandise. Business expenses for operating an illegal business, other than the cost of merchandise, are not permitted as deduction.
A personal holding company deducts federal income taxes in computing undistributed personal holding company income. A personal holding company deducts net long-term capital gain less related federal income taxes in computing undistributed personal holding company income. (true or false)
true
A corporation that can demonstrate that its reasonable business needs require it to accumulate earnings can escape the accumulated earnings tax on the portion reasonably accumulated. (true or false)
true
Dividends paid by the due date of the tax return reduce the accumulated earnings subject to the accumulated earnings tax as well.
Under certain conditions a taxpayer may take a credit against its US income tax for foreign taxes paid. (true or false)
true
other credits are
- research and development credit
- general business credit
A corporation is a personal holding company (PHC) if (1) at any time during the last half of the taxable year more than 50% of the value of the outstanding stock is owned by 5 or fewer individuals, and (2) at least 60% of its adjusted ordinary gross income for the year is investment-type income. (true or false)
true
A PHC is subject to the regular tax on corporate income as well as a 20% tax on its undistributed PHC income.
The general business credit combines several nonrefundable tax credits and provides rules for their absorption against the taxpayer’s liability. (true or false)
true
Generally, the accumulated earnings tax is imposed when a corporation has accumulated earnings in excess of $250,000. Thus the amount of earnings subject to the accumulated earnings tax must first be reduced by the $250,000. (true or false)
true
The accumulated earnings tax can be imposed on regular corporations not classified as personal holding companies.
The accumulated earnings tax can be imposed on regular corporations or on personal service corporations.
A personal service corporation (PSC) is primarily involved in the performance of one of the following fields:
accounting, law, consulting, engineering, architecture, health, and actuarial science
Both a personal service corporation and a personal holding company must include 100% of the dividends received from unrelated taxable domestic corporations in gross income in computing regular taxable income. (true or false)
true
No underpayment of estimated tax penalty will be imposed if the total underpayment of tax for the year is less than $1,000. (true or false)
true
The required annual estimated tax payment for a C corporation is the least of: 1) 100% of the tax liability of the prior year’s return, assuming a positive tax liability; 2) 100 % of the current year tax liability; or 3) 100% of estimated current year tax liability according to the annualized income method. (true or false)
true
