STUDY UNIT EIGHT CORPORATE TAX COMPUTATIONS Flashcards
For a domestic corporation in the current year, the general business tax credit is limited to the lesser of its net income tax, with certain adjustments for other credits, over the greater of its tentative minimum tax for the year or 25% of its net regular tax liability for the year that exceeds $25,000. How does a controlled group of corporations treat the $25,000?
A The $25,000 is divided among the corporations in any manner they choose.
B The $25,000 is divided according to each corporation’s tax liability.
C Each corporation is allowed $25,000.
D The $25,000 is divided equally among the corporations.
A The $25,000 is divided among the corporations in any manner they choose.
This answer is correct.
Sec. 38(c)(3)(B) provides that, for members of a controlled group, the $25,000 amount must be apportioned among the members as the regulations provide. The regulations allow the members to apportion the $25,000 amount in any manner they choose [Reg. 1.46-1(p)(2)]. They need to agree on an apportionment plan.
In the current year, Portal Corp. received $100,000 in dividends from Sal Corp., its 80%-owned subsidiary. What net amount of dividend income should Portal include in its current year consolidated tax return? A $100,000 B $80,000 C $0 D $70,000
C $0
This answer is correct.
A dividend distributed by one member of a group filing a consolidated tax return to another member of that group is eliminated. The recipient of the dividend makes an adjustment to its separate taxable income that eliminates the dividend from the affiliated group’s consolidated taxable income. This elimination process is to be distinguished from the dividends received deduction (DRD), whereby a domestic corporation may deduct a percentage of the dividends received from another domestic corporation. The DRD does not apply to dividends paid among affiliated group members that file a consolidated tax return.
The minimum Accumulated Earnings Credit in 2014 is A $250,000 for nonservice corporations. B $250,000 for all corporations. C $150,000 for nonservice corporations. D $150,000 for all corporations.
A $250,000 for nonservice corporations
This answer is correct.
The Accumulated Earnings Credit is defined as the increase in the reasonable needs of a business during the tax year. Without showing a reason for the accumulation, the minimum Accumulated Earnings Credit is $250,000 for nonservice corporations.
Bass Corp., a calendar-year C corporation, made qualifying 2013 estimated tax deposits based on its actual 2013 tax liability. On March 15, 2014, Bass filed a timely automatic extension request for its 2013 corporate income tax return. Estimated tax deposits and the extension payment totaled $7,600. This amount was 95% of the total tax shown on Bass’s final 2013 corporate income tax return. Bass paid $400 additional tax on the final 2013 corporate income tax return filed before the extended due date. For the 2013 calendar year, Bass was subject to pay
i Interest on the $400 tax payment made in 2014
ii A tax delinquency penalty
A I only.
B II only.
C Both I and II.
D Neither I nor II.
A I only.
This answer is correct.
Interest accrues from the date the payment was due until it is received by the IRS. Extension requests only lengthen the filing deadline (i.e., taxes still must be paid by the due date). No estimated tax underpayment penalty is imposed on a corporation if qualifying estimated tax payments were made.
Rona Corp.’s 2014 alternative minimum taxable income was $200,000. The exempt portion of Rona’s 2014 alternative minimum taxable income was A $27,500 B $50,000 C $0 D $12,750
A $27,500
This answer is correct.
The basic exemption amount is $40,000. However, this is reduced by 25% of the excess of alternative minimum taxable income over $150,000. Therefore, Rona Corp.’s exemption amount is reduced by $12,500 [($200,000 – $150,000) × 25%]. Rona’s exempt amount is $27,500.
