R3 - C Corporations

Question 1

What is the only type of entity whose earnings are subject to double taxation?

Answer 1

C corporations

Question 2

What is the general rule when the corporation issues stock in exchange for property in the formation stage?

Answer 2

No gain or loss recognized

Question 3

What is the general rule when the corporation purchases treasury stock?

Answer 3

No gain or loss recognized

Question 4

What is the general rule when the corporation sells treasury stock?

Answer 4

No gain or loss recognized

Question 5

The general rule is that the basis of the property received from the shareholder by the corporation is the greater of what two things?

Answer 5

1) Adjusted basis (NBV) of the shareholder (plus any gain recognized by shareholder)
2) Debt assumed by corporation (transferor may recognize gain to prevent a negative basis)

Question 6

The S/H contributing property (not services) in exchange for corporation CS has no gain or loss if what two conditions have been met?

Answer 6

1) 80% control

2) Boot not involved (received)

Question 7

Is boot taxable?

Answer 7

YES

Question 8

What two items represent boot and will trigger gain recognition for the shareholder?

Answer 8

1) Cash withdrawn

2) Receipt of debt securities (e.g. bonds)

Question 9

If a shareholder receives CS for services rendered, should the FMV be recognized as ordinary income?

Answer 9

YES

Question 10

What is the basis of the common stock to shareholders who contribute property?

Answer 10

Adjusted basis (NBV)

Question 11

Would you add federal income taxes back to book income?

Answer 11

YES

Question 12

Do special capital gains rates apply to corporate capital gains?

Answer 12

NO

EXPLANATION: capital gains are taxed at the same rate as ordinary corporate income.

Question 13

True or false.

Corporations are entitled to the same NOL rules as individuals.

Answer 13

True

Question 14

What is the carryback and carryforward period for corporate NOLs?

Answer 14

• Back 2

- Forward 20

Question 15

True or false.

Deferred taxes are only established for permanent differences.

Answer 15

False

EXPLANATION: deferred taxes are only established for TEMPORARY differences.

Question 16

List three entities for which DRD does not apply.

Answer 16

1) Personal service corporations
2) Personal holding corporations
3) (Personally taxed) S corporations

Question 17

What is the DRD for 0% to

Answer 17

70%

Question 18

What is the DRD for 20% to

Answer 18

80%

Question 19

What is the DRD for 80% or more ownership?

Answer 19

100%

Question 20

What is the filing due date for a corporation with a 12/31 year end?

Answer 20

March 15th

Question 21

What qualifies as a large corporation?

Answer 21

TI was $1 million or more in any of its three preceding tax years

Question 22

Up to 3 taxes may be levied on a C-corporation. What are they?

Answer 22

1) Regular tax
2) Minimum tax
3) Accumulated earnings tax OR personal holding companies tax

Question 23

Define affiliated group.

Answer 23

Means that a common parent directly owns:

a) 80% or more of the voting power of all o/s stock AND
b) 80% or more of the value of all o/s stock of each corporation

Question 24

Is there a 100% DRD on a consolidated tax return?

Answer 24

YES

Question 25

What do you call corporations where an individual owns 80% or more of the stock of two or more corporations?

Answer 25

Brother-sister corporation

Question 26

May brother-sister corporations file consolidated returns?

Answer 26

NO

Question 27

What is the difference b/w consolidation under GAAP vs. Tax?

Answer 27

``` GAAP = over 50% Tax = 80-100% ```

Question 28

True or false. One of the advantages of filing a consolidated return is that income from certain intercompany sales may be deferred.

Answer 28

True

Question 29

What does ACE stand for?

Answer 29

Adjusted Current Earnings

Question 30

Why is the ACE adjustment included?

Answer 30

To ensure that corporations do not report a profit for F/S purposes but pay little or no income taxes

Question 31

What is the additional tax rate for accumulated earnings?

Answer 31

Flat 20%

Question 32

If a corporation's tentative minimum tax exceeds the regular tax, what happens to the excess amount?

Answer 32

Payable in addition to regular tax

Question 33

What effect would a "state tax refund from prior year received in current year" have on E&P?

Answer 33

No effect

Question 34

How does the IRC define a dividend?

Answer 34

A distribution of property by a corporation out of its earnings and profits (E&P)

Question 35

Is current E&P (by year-end) a taxable dividend?

Answer 35

Yes

Question 36

Is accumulated E&P (distribution date) a taxable dividend?

Answer 36

Yes

Question 37

Is return of capital (no E&P) a taxable dividend?

Answer 37

No EXPLANATION: tax free and reduces basis of common stock

Question 38

Is capital gain distribution (no E&P/no basis) a taxable dividend?

Answer 38

No EXPLANATION: Taxable income as capital gain

Question 39

Is a stock dividend generally taxable?

Answer 39

NO

Question 40

When is a stock dividend taxable?

Answer 40

When shareholder has a choice of receiving cash or other property

Question 41

On January 1, Year 1, Kee Corp., a C corporation, had a $50,000 deficit in earnings and profits. For Year 1, Kee had current earnings and profits of $10,000 and made a $30,000 cash distribution to its shareholders. What amount of the distribution is taxable as dividend income to Kee's stockholders?

Answer 41

$10,000

Question 42

Temporary or permanent difference. Certain proceeds from life insurance on life of an officer where the corporation is the beneficiary.

Answer 42

Permanent difference

Question 43

What does QPAI stand for?

Answer 43

Qualified production activities income

Question 44

How do you calculate QPAI (qualified production activities income)?

Answer 44

``` Domestic production gross receipts (COGS) (Other directly allocable expenses or losses) (Proper share of other deductions) = QPAI ```

Question 45

A publicly held corporation may NOT deduct compensation expense in excess of what paid to the CEO or the four other most highly compensated officers?

Answer 45

$1 million

Question 46

Accrual basis taxpayers must use what method for bad debts for tax purposes?

Answer 46

Specific charge-off method EXPLANATION: Tax deduction when specific A/R written off

Question 47

When should one deduct a prepaid business interest expense?

Answer 47

Deduct "later" when incurred

Question 48

How much should one deduct for business interest expense on investments?

Answer 48

Deduct up to investment income

Question 49

Any disallowed charitable contribution by a corporation may be carried forward for how long?

Answer 49

5 years

Question 50

Up to what percent may a business deduct for business losses or casualty losses related to the business?

Answer 50

100% deductible

Question 51

For property that is only partially destroyed, the loss is limited to the lesser of what?

Answer 51

1) Decline in value of property (Change in FMV) | 2) NBV of property immediately before casualty

Question 52

For property that has been fully destroyed, the amount of the loss is what?

Answer 52

NBV of the property

Question 53

What is the difference in the GAAP and the tax rule for organizational and start-up expenses?

Answer 53

Tax Rule: $5,000 expense maximum/180 months of amortization of remainder GAAP Rule: Expense

Question 54

What is the difference in the GAAP and the tax rule for purchased goodwill?

Answer 54

Tax Rule: amortized on straight-line basis over 15 years GAAP Rule: not amortized; test for impairment

Question 55

Business gifts are deductible up to a maximum deduction of what amount per recipient per year?

Answer 55

$25

Question 56

Business meals and entertainment are what percent deductible to the corporation?

Answer 56

50% tax deductible

Question 57

What types of taxes are deductible when incurred on property or income relating to the business?

Answer 57

1) State income tax 2) City income tax 3) Federal payroll tax

Question 58

Are direct-type lobbying expenses in connection with LCOAL governmental lobbying tax deductible?

Answer 58

YES

Question 59

Are lobbying expense incurred in attempting to influence state or federal legislation tax deductible?

Answer 59

NO

Question 60

Is the $3,000 deduction for net capital losses available to corporations?

Answer 60

NO EXPLANATION: corporation can only use capital losses to offset capital gains

Question 61

What is the capital loss carryover period for corporations?

Answer 61

3 back, 5 forward EXPLANATION: they are carried over as ST capital losses and are applied only against capital gains.

Question 62

How are capital gains taxed?

Answer 62

At ordinary tax rates

Question 63

What is the NOL carryover period for corporations?

Answer 63

2 back, 20 forward EXPLANATION: same rules as for individuals

Question 64

Deferred taxes are only established for what type of differences?

Answer 64

Temporary differences

Question 65

What is the additional tax rate for accumulated earnings?

Answer 65

Flat 20%

Question 66

The accumulated earnings tax is imposed on regular C corporations whose accumulated (retained) earnings are in excess of what amount if improperly retained instead of being distributed as dividends to (high tax bracket) shareholders?

Answer 66

$250,000

Question 67

Is the accumulated earnings tax imposed on personal service corporations?

Answer 67

YES

Question 68

Is the the accumulated earnings tax imposed on personal holding companies?

Answer 68

NO

Question 69

What is defined 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 NIRD?

Answer 69

Personal holding company

Question 70

In relation to personal holding companies, what does NIRD represent?

Answer 70

NIRD Net rent (if less than 50% of ord. gross income) Interest that is taxable Royalties (not mineral, oil, gas, copyright roy.) Dividends from an unrelated domestic corp.

Question 71

Corporations deemed to be personal holding companies are taxed at an additional ____ percent on personal holding company net income not distributed.

Answer 71

20%

Question 72

A corporation's E&P is a major factor in determining the ability of the corporation to do what?

Answer 72

Pay dividends to the shareholders

Question 73

What is the starting point for the calculation of E&P?

Answer 73

Start w/ corporate taxable income

Question 74

Stock dividends are generally not taxable unless the shareholder has a choice of what?

Answer 74

Receiving cash or other property

Question 75

What is defined as a distribution by a corporation of its own stock to its shareholders?

Answer 75

Stock dividend

Question 76

The value of a taxable stock dividend is the FMV on what date?

Answer 76

Distribution date

Question 77

True or false. The general rule is the PMT of a dividend does not create a taxable event. A dividend is a reduction of earnings and profits (retained earnings).

Answer 77

True

Question 78

True or false. A corporation's capital loss carryback or carryover is always treated as a ST capital loss.

Answer 78

True EXPLANATION: Corporations may not deduct any capital loss from ordinary income, but instead only carry it back 3 and forward 5 as "ST" capital loss to deduct from net capital or Section 1231 gains.

Question 79

True or false. PHCs are corporations that meet certain "closely-held" ownership criteria and have over 50% of their AGI consisting of net ret (less than 50% of ordinary gross income), taxable interest, most royalties, and dividends from an unrelated domestic corporation.

Answer 79

False EXPLANATION: While most of the info is correct, it is when over 60% of the AGI of a closely-held corporations consists of "NIRD" that it is defined as a PHC. Not over 50% (as in the selection).

Question 80

Mock operates a retail business selling illegal drugs. Which of the following may Mock deduct in calculating business income? I. Cost of merchandise II. Business expenses other than cost of merchandise

Answer 80

I. Cost of merchandise EXPLANATION: A gain from an illegal activity is includible in income. To determine the gain, a deduction is permitted for the cost of merchandise. Business expenses for operating illegal business, other than the cost of merchandise, are not permitted as deduction.

Question 81

True or false. The general rule is that the accrual method of accounting will be required by tax shelters, large C corporations and manufacturers.

Answer 81

True

Question 82

True or false. A qualified personal service corporation is permitted to use the cash method of accounting.

Answer 82

True

Question 83

Does a PHC deduct federal income taxes in computing undistributed PHC income?

Answer 83

YES

Question 84

Does a PHC deduct net LT capital gain less related federal income taxes in computing undistributed PHC income?

Answer 84

YES