REG mod 38c

Question 1

The deduction for business gifts is limited to what amount each year?

Answer 1

$25 per person

Question 2

What method of accounting for an entity’s bad debts is generally used for tax purposes?

Answer 2

Direct Charge Off (Direct Write Off) Method

Question 3

Identify the tax form that must be filed annually by an S Corporation.

Answer 3

1120S

Note: this form must be filed by the 15th day of the third month after the end of the fiscal year.

Question 4

What is the general treatment of distributions from the Accumulated Adjustments Account?

Answer 4

Generally, distributions are not taxable, but they are a return of the stockholder’s basis.

Question 5

Undistributed Personal Holding Company income is subject to a penalty tax of what percent?

Answer 5

There is a 15% penalty tax on the undistributed PHC income.

Question 6

The cash basis may not be used for tax purposes if…

Answer 6

The entity has inventory
The entity is a C Corporation
A partnership has a C Corporation as a partner
Note: certain trusts & tax shelters may not use the cash basis

Question 7

A corporation’s net operating loss may be carried back for ___ years and carried forward for ____ years.

Answer 7

The NOL may be carried back for 2 years and carried forward for 20 years.

Question 8

When is an entity required to complete form M-3?

Answer 8

When the entity has more than $10,000,000 in assets. Schedule M-3 is a more detailed reconciliation between book income and taxable income, compared to schedule M-1.

Question 9

Which of the following amounts is more likely to indicate an estimate on a tax return?
$10,000.00
$ 9,845.62

Answer 9

When using estimates on a tax return, the estimates should not imply greater accuracy than actually exists. $10,000.00 is more likely to be an estimated amount.

Question 10

When is a C corporation’s tax return due?

Answer 10

The 15th day of the third month after the fiscal year end. For a calendar year C corporation, this would be March 15th.

Question 11

What is the tax rate on international S Corporation income?

Answer 11

There is no such thing as an international S Corporation.

Question 12

Personal Service Corporations are taxed at what rate?

Answer 12

35% Note: a Personal Service Corporation may use the cash basis if certain requirements are met

Question 13

How is income recognized under the installment sales method?

Answer 13

Cash collected multiplied by the gross profit percentage

Question 14

The General Business Credit may be carried back one year and carried forward for twenty years. True / False

Answer 14

TRUE

Question 15

When is an entity prohibited from using the lower of cost or market to value inventory?

Answer 15

When the entity uses the LIFO cost flow assumption.