R3 - C Corporations

Question 1

A C corporation’s net capital losses are:

Answer 1

Carried back 3 years and forward 5 years.

Question 2

A corporation’s capital loss carryback or carryover is:

Answer 2

Always treated as a short-term capital loss

Question 3

Accrual method accounting is required by:

Answer 3

Tax Shelters, Large C-corps, and manufacturers.

Question 4

When a corporation liquidates and distributes assets to shareholders, gain is recognized:

Answer 4

To the extent that the fair market value of assets distributed to a shareholder exceeds the shareholder’s basis in the corporation’s stock.

Question 5

Charitable contributions rules for C corps

Answer 5

A c corp can deduct charitable contributions up to 10% of its taxable income after adding back the dividends-received deduction.

Question 6

The sum of current and accumulated earnings and profits are:

Answer 6

Taxable as dividends to the recipients. Any excess reduces the shareholder’s basis in the company stock, and any amount beyond that required to reduce the shareholder’s basis to zero is treated as received on the sale or exchange of the stock and is capital gain.

Question 7

A shareholder’s basis in a corporation will be (for example):

Answer 7

Any cash contributed + The adjusted basis of the non-cash property.

Question 8

A corporation’s tax year can be reopened after all statutes of limitations have expired if:

Answer 8

The corporation prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year.

Question 9

Dividends Received Deduction

Answer 9

100% (owns 80% - 100%) (consolidate)
80% (owns 20% - under 80%) (large investment)
70% (owns under 20%) (small investment - “unrelated”)

Question 10

In a Type B reorganization, as defined by the Internal Revenue Code, the:

Answer 10

Stock of the target corp is acquired solely for the voting stock of either the acquiring corp or its parent AND acquiring corp must have control of the target corp immediately after the acquisition.

Question 11

Taxable dividend income is paid out of the:

Answer 11

Corporation’s current OR accumulated earnings and profits.

Question 12

When computing a corporation’s income tax expense for estimated income tax purposes, what are some items that should be taken into account?

Answer 12

Corporate tax credits, alternative minimum tax, etc.

Question 13

In a tax-free incorporation, the percentage for “control” is:

Answer 13

80%

Question 14

Where does a corporation generally deduct its liquidation expenses?

Answer 14

On its final tax return

Question 15

Book (GAAP) vs. Tax rules for organizational and start-up costs.

Answer 15

Tax Rule: $5,000 expense max in first year/180 months amortization of remainder.

GAAP rule: Expense

Question 16

Rent revenue under the accrual basis would include:

Answer 16

Cash received, plus the increase in the rent receivable. Also add in any nonrefundable rent deposits.

Question 17

Unused capital losses of a corporation that are carried back or forward are treated as:

Answer 17

Short-term capital losses whether or not they were short-term or long-term when sustained. Capital losses can only be used to offset capital gains up to the amount of the carryback or carryover, not ordinary income.

Question 18

What is a personal holding company (PHC) ?

Answer 18

A corporation is a 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.

Question 19

What is the usual result to the shareholders of a distribution in complete liquidation of a corporation?

Answer 19

Capital gain or loss

Question 20

If a corporation’s tentative minimum tax exceeds the regular tax, the excess amount is:

Answer 20

Payable in addition to the regular tax

Question 21

A Net Operating Loss (NOL) exists if there is a net loss on the following tax returns:

Answer 21

Form 1040, line 41 for Individuals
Form 1041, Line 22 for Estates and Trusts
Form 1120, Line 28 for Taxable C Corps

A net operating loss exists on tax returns of taxable entities.

Question 22

The accumulated earnings tax can be imposed on:

Answer 22

Regular corporations not classified as personal holding companies.

Question 23

For tax purposes, what amount of purchased intangible assets should be amortized over the specific statutory cost recovery periods?

Answer 23

Post-August 10, 1993, acquisitions of goodwill, covenants not-to-compete, franchises, trademarks, and trade names must be amortized on a straight-line basis over a fifteen-year period (180 months) beginning with the month of acquisition.

Question 24

Business gifts are deductible up to a maximum deduction of:

Answer 24

$25 per recipient per year.

Question 25

Special rule applies to “section 1244 small business stock.”

Answer 25

When a corporation’s stock is sold or becomes worthless, an original stockholder can be treated as having an ordinary loss (fully deductible), instead of a capital loss, up to $50,000 ($100,000 if married filing jointly) for the year. Any loss(es) in excess of this amount is (are) a capital loss.

Question 26

Under the LIFO method, for tax purposes:

Answer 26

The inventory on hand at the end of the year is treated as being composed of the earliest acquired goods.

Question 27

The maximum Section 1244 loss that can be deducted by a single taxpayer in any year:

Answer 27

is $50,000. All losses designated as Section 1244 losses are ordinary by definition.

Question 28

What is Section 1244 stock?

Answer 28

Worthless stock

Question 29

The selection of an accounting method for tax purposes by a newly incorporated C corporation:

Answer 29

is made on the initial tax return by using the chosen method.

Question 30

What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?

Answer 30

ZERO. Unlike individuals, corporations may not deduct any capital losses in excess of capital gains in a year.