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Tech Corp. files a consolidated return with its wholly owned subsidiary, Dow Corp. During 2016, Dow paid a cash dividend of $20,000 to Tech. What amount of this dividend is taxable on the 2016 consolidated return?

$0 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. Note that the dividends-received deduction (DRD) does not apply to intergroup dividends of affiliated groups that file a consolidated tax return.

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?

$0 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.

Bank Corp. owns 80% of Shore Corp.'s outstanding capital stock. Shore's capital stock consists of 50,000 shares of common stock issued and outstanding. Shore's current year net income was $140,000. During the current year, Shore declared and paid dividends of $60,000. In conformity with generally accepted accounting principles, Bank recorded the following entries in the current year: Dr. Investment in Shore Corp. common stock$112,000 Cr. Equity in earnings of subsidiary $112,000 Dr. Cash 48,000 Cr. Investment in Shore Corp. common stock 48,000

$0 Dividends paid among entities that file a consolidated tax return are eliminated.

Prin Corp., the parent corporation, and Strel Corp., both accrual-basis, calendar year C corporations, file a consolidated return. During the current year, Strel made dividend distributions to Prin as follows: Cash- Adjusted Bases: 4,000 | FMV: 4,000 Land- Adjusted Bases: 2,000 | FMV: 9,000 What amount of income should be reported in Prin and Strel's consolidated income tax return for the current year?

$0 Dividends paid from one member of a consolidated group to another member are eliminated. None of the dividends, whether in cash or property, are included in the consolidated income tax return for the current year. The DRD is not allowed for such dividends.

Page Corp. owns 80% of Saga Corp.'s outstanding capital stock. Saga's capital stock consists of 50,000 shares of common stock issued and outstanding. Saga's current year net income was $70,000. During the current year, Saga declared and paid dividends of $30,000. In conformity with generally accepted accounting principles, Page recorded the following entries in the current year: Investment in Saga Corp. common stock: $56,000 Equity in earnings of subsidiary: $56,000 Cash: 24,000 Investment in Saga Corp. common stock: 24,000 In its current-year consolidated tax return, Page should report dividend revenue of

$0 Page is the parent of Saga, and they file a consolidated return. Thus, the full amount of dividends from Saga to Page are eliminated from Page's taxable income.

Kee Holding Corp. has 80 unrelated equal shareholders. For the year ended December 31, 2016, Kee's income comprised the following: Net rental income: $ 1,000 Commissions earned on sales of franchises: 3,000 Dividends from taxable domestic corporations: 90,000 Deductible expenses for 2016 totaled $10,000. Kee paid no dividends for the past 3 years. Kee's liability for personal holding company tax for 2016 will be based on

$0 To be defined as a personal holding company, more than 50% in value of the outstanding stock must be owned during the last half of the taxable year, either directly or indirectly, by not more than five individuals. Since Kee Holding Corporation is owned by 80 unrelated shareholders, each of whom owns an equal amount of shares, any five shareholders own only 6.25% of the corporation. Since five or fewer shareholders do not own more than 50% of the corporation, it is not a personal holding company, there is no undistributed personal holding company income, and there is no personal holding company tax.

P, a C corporation, filed a federal tax return and appropriately paid $1,150,000 for its federal tax liability incurred for the full calendar year 2015. In early 2016, P estimated its 2016 tax liability and paid a total of $1.2 million in equal installments on appropriate due dates. On February 12, 2017, the corporation's 2016 return was completed. The return indicated an actual liability of $1.3 million. The corporation desires to defer the payment of the balance of tax due as long as possible. What is the amount and due date(s) of the corporation's minimum obligation (not considering weekends and holidays)?

$100,000 on April 15. A corporation's entire tax liability is due on the same date as the return. Under Sec. 6072(b), a calendar-year corporation must file its income tax return on or before the 15th day of April following the close of the calendar year. P Corporation must therefore pay $100,000 of tax on April 15. An extension of time to file the tax return does not provide an extension of time to pay the tax liability without incurring interest and/or penalty.

Daystar Corp., which is not a mere holding or investment company, derives its income from retail sales. Daystar had accumulated earnings and profits of $145,000 at December 31, 2015. For the year ended December 31, 2016, it had earnings and profits of $115,000 and a dividends-paid deduction of $15,000. No throwback distributions have been made. It has been determined that $20,000 of the current and accumulated earnings and profits for 2016 is required for the reasonable needs of the business. How much is the allowable Accumulated Earnings Credit at December 31, 2016?

$105,000 The Accumulated Earnings Credit is the greater of (1) the difference between $250,000 and the accumulated earnings and profits at the end of the prior year or (2) the difference between current earnings and profits retained for the reasonable needs of the business (minus the long-term capital gain adjustments of the current year) and the accumulated earnings and profits at the end of the prior year. The difference between $250,000 and Daystar's accumulated earnings and profits at the end of the prior year ($145,000) is $105,000. Since the minimum credit base is greater than the $20,000 of reasonable needs of the business, the available Accumulated Earnings Credit is $105,000. The amount of $100,000 ($115,000 current E&P - $15,000 dividends-paid deduction) will be used in 2016, and $5,000 will be available in following years.

Parent company X and subsidiary company Y file a calendar year consolidated federal income tax return. Company X reported a $120,000 tax loss, which included a $10,000 dividend from Y. Company Y reported $140,000 of taxable income, which included $30,000 of dividends received from less than 20% owned stock investments. Neither company took into account any applicable dividends received deduction. What is the group's consolidated tax loss for the year?

$11,000 The dividend received by Company X must be eliminated. This increases Company X's net loss to $130,000. Company Y receives a 70% dividends-received deduction because the dividends come from less than 20% owned stock. Therefore, Company Y has taxable income of $119,000 [$140,000 - (70% × $30,000)]. When these amounts are combined, the total tax loss is $11,000 ($119,000 - $130,000).

A calendar-year corporation that is a member of a controlled group has taxable income for the current year return of $45,000. Its apportionment of each of the taxable income brackets is $15,000. Compute its tax using the tax table below: [See Tax table]

$11,100 Sec. 1561(a)(1) requires the income tax brackets to be apportioned among the members of a controlled group. The members can elect an apportionment schedule of their choice or, in default, the brackets will be prorated equally among the members. The corporation's current year tax will be $15,000 × 15% = $ 2,250 15,000 × 25% = 3,750 15,000 × 34% = 5,100 Total $11,100

Jackson Corp.'s taxable income for 2016 from all of its global operations was $500,000. Taxable income from foreign sources was $125,000 during 2016. Jackson, a domestic corporation, calculated its 2016 tax liability before consideration of the Foreign Tax Credit to be $50,000, due with its 2016 tax return on March 1, 2017. What is the amount of Jackson's Foreign Tax Credit limitation for 2016?

$12,500 The maximum amount of foreign taxes that may be credited is the proportion of the taxpayer's tentative U.S. income tax (before consideration of the Foreign Tax Credit) that the taxpayer's foreign taxable income bears to the taxpayer's worldwide taxable income for the year. The proportion of Jackson's foreign income to its worldwide income is $125,000 ÷ $500,000. Therefore, Jackson's allowable Foreign Tax Credit for 2016 is limited to $50,000 × ($125,000 ÷ $500,000), or $12,500.

For the current calendar year, Sun Corporation had operating income of $80,000, exclusive of the following capital gains and losses: Long-term capital gain: $14,000 Short-term capital gain: 6,000 Long-term capital loss: (2,000) Short-term capital loss: (8,000) Assume the corporate tax rates currently in effect are: 15% $0 - $50,000 25% $50,000 - $75,000 34% $75,000 - $100,000 What is Sun's income tax liability for the year?

$18,850 Sec. 11 imposes a tax on the taxable income of every corporation. Sun Corporation's taxable income includes $80,000 of operating income and a net long-term capital gain of $10,000 [($14,000 - $2,000) + ($6,000 - $8,000)], or $90,000. The current-year tax liability of Sun Corporation is $50,000 × 15% $ 7,500 $25,000 × 25% 6,250 $15,000 × 34% 5,100 Total $18,850

Maple Corporation, a calendar-year corporation, estimated its income tax for 2016 will be $20,000. Its 2015 tax liability was $100,000. Maple deposited the first two estimated tax installments on April 15 and June 15, 2016, in the amount of $5,000 each (25% of $20,000). On July 1, 2016, Maple estimated its tax will be $40,000. What are the amounts of the estimated tax payments that Maple Corporation should pay on September 15, 2016, and December 15, 2016 September 15, 2016 | December 15, 2016

$20,000 $10,000 Under Sec. 6655(d), the minimum installment is 25% of the required annual payment (the lesser of 100% of current tax or 100% of preceding year's tax). Although Maple correctly estimated its first two tax payments, the amount of estimated tax for the year increased. Since Maple already paid $10,000 ($5,000 × 2) in taxes, it still owes $30,000 ($40,000 - $10,000). 75% of $40,000 should be paid by the third installment, so Maple would have to pay $20,000 to get the total of $30,000. The final installment would be $10,000, which should finish its estimated payments.

The Tinkers, Evers, and Chance Corporations have taxable income, all resulting from regular operations, of $100,000, $300,000, and $450,000, respectively. None is a member of a controlled group. The tax liabilities before credits in the current year are Tinkers | Evers | Chance

$22,250 | $100,250 | $153,000 Sec. 11 imposes a tax on the taxable income of every corporation. The amounts are determined by using the graduated rates below. Graduated tax rates are phased out by imposing an additional 5% tax on income between $100,000 and $335,000, which effectively offsets the graduated rates on the initial $75,000.

For 2016, Corporation N, a calendar-year taxpayer, had a tax liability of $100,000, consisting of $45,000 in regular taxes and $55,000 in alternative minimum taxes. N's 2015 tax liability was $200,000. What is the amount N must have paid for each quarter for 2016 to avoid any penalty or interest for underpayment of estimated tax?

$25,000 Sec. 6655(b) provides that a corporation will not be considered to have underpaid its income tax if it pays the lesser of (1) 100% of the tax shown on the return for the tax year or (2) 100% of the tax shown on the return for the preceding year. The definition of tax for this purpose is found in Sec. 6655(f). This definition includes the alternative minimum tax. Corporation N has a total tax liability of $100,000 for 2016. It must pay 100% of this amount in estimated taxes in order to avoid any penalties or interest. The quarterly payment is $25,000 ($100,000 ÷ 4).

Emerald Corporation and Sound Corporation file a consolidated return on a calendar-year basis. In Year 1, Emerald sold land to Sound for its fair market value of $50,000. At the date of sale, Emerald had an adjusted basis in the land of $35,000 and had held the land for several years as an investment. Sound held the land primarily for sale to its customers in the ordinary course of its business and sold it to a customer early in Year 2 for $60,000. As a result of the sale of the land in Year 2, the corporations should report on their consolidated return

$25,000 ordinary income. A sale or exchange of property between members of an affiliated group is a deferred intercompany transaction. In the case of nondepreciable property (e.g., land) not sold on the installment basis, the gain is not reported until the property is sold outside the group. Under the single-entity approach, the character and amount of the gain are determined with reference to the consolidated group. Therefore, the sale to the outside customer results in $25,000 of ordinary income ($60,000 amount realized - $35,000 adjusted basis) to be reported on the Year 2 consolidated return.

The minimum Accumulated Earnings Credit in 2016 is

$250,000 for nonservice corporations 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.

Rona Corp.'s 2016 alternative minimum taxable income is $200,000. The exempt portion of Rona's 2016 alternative minimum taxable income is

$27,500 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.

On April 31, 2017, G, a calendar-year C corporation, determined its estimated tax liability to be $12,000. It should have made estimated tax payments of

$3,000 no later than the 15th day of the 4th, 6th, 9th, and 12th months of 2016. A calendar-year corporation is required to pay 25% of its estimated tax on the 15th day of the 4th, 6th, 9th, and 12th months of the year.

The following information pertains to Hull, Inc., a personal holding company, for the year ended December 31, 2016: Undistributed personal holding company income: $100,000 Dividends paid during 2016: 20,000 Consent dividends reported in the 2016 individual income tax returns of the holders of Hull's common stock, but not paid by Hull to its shareholders: 10,000 In computing its 2016 personal holding company tax, what amount should Hull deduct for dividends paid?

$30,000 A deduction from TI in computing UPHCI is allowed for five types of distributions attributable to E&P. The full amount of distributions treated as ordinary dividend income are deductible, as are consent dividends. A consent dividend is treated as a dividend currently taxable to the shareholders even though no distribution was made.

Tan Corp. calculated the following taxes for the current year: Regular tax liability: $210,000 Tentative minimum tax: 240,000 Personal holding company tax: 65,000 What is Tan's total tax liability for the year?

$305,000 The tentative minimum tax is the total amount of tax due. If the tentative minimum tax (AMT) exceeds the regular tax, the additional amount is the alternative minimum tax, which is payable in addition to the regular tax liability. Therefore, the AMT equals $30,000 ($240,000 - $210,000) and is due in addition to the regular tax liability. Personal holding company tax is an additional tax assessed to corporations that are owned by 5 or fewer individuals and having 60% of their adjusted gross income consisting of net rent, interest, royalties, and dividends. Therefore, the total tax liability is $305,000 ($210,000 regular tax liability + $30,000 AMT + $65,000 PHC tax).

Eastern Corp., a calendar-year corporation, was formed January 3, 2016, and on that date placed 5-year property in service. The property was depreciated under the general MACRS system. Eastern did not elect to use the straight-line method. The following information pertains to Eastern: Eastern's 2016 taxable income: $300,000 Adjustment for the accelerated depreciation taken on 2016 5-year property: 1,000 2016 tax-exempt interest from specified private activity bonds issued in 2015: 5,000 What was Eastern's 2016 alternative minimum taxable income before the adjusted current earnings (ACE) adjustment?

$306,000 The accelerated portion of MACRS depreciation is considered an adjustment item. Tax-exempt interest from the private activity bonds is considered a preference item. Both items must be added back to taxable income before consideration of the ACE adjustment.

The following information pertains to Wald Corp.'s operations for the year ended December 31, 2016: Worldwide taxable income: $300,000 U.S. source taxable income: 180,000 U.S. income tax before Foreign Tax Credit: 96,000 Foreign nonbusiness-related interest earned: 30,000 Foreign income taxes paid on nonbusiness-related interest earned: 12,000 Other foreign source taxable income: 90,000 Foreign income taxes paid on other foreign source taxable income: 27,000 What amount of Foreign Tax Credit may Wald claim for 2016?

$36,600 The Foreign Tax Credit limit is the proportion of the taxpayer's tentative U.S. income tax (before the Foreign Tax Credit) that the taxpayer's foreign taxable income bears to his or her worldwide taxable income for the year. The limit must be applied separately to nonbusiness interest income. Nonbusiness interest income computation: ($30,000 ÷ $300,000) × $96,000 = $9,600 Other foreign source taxable income computation: ($90,000 ÷ $300,000) × $96,000 = $28,800 Foreign taxes paid on the other income is less than the limit and fully creditable. The total credit is $36,600 ($9,600 + $27,000).

ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year. ParentCo: $50,000 SubOne: ($60,000) SubTwo: ($40,000) No member reported a capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?

$50,000 A single federal income tax return may be filed by two or more includible corporations that are members of an affiliated group. Certain items are consolidated separately (e.g., capital gain or loss, charitable contributions). However no member of this group reported any separately consolidated items, therefore the consolidated net operating loss is $50,000 ($50,000 ParentCo - $60,000 SubOne - $40,000 SubTwo), the sum of all three taxable incomes (losses) for the year.

Kari Corp., a manufacturing company, was organized on January 2, 2016. Its 2016 federal taxable income was $400,000, and its federal income tax was $100,000. What is the maximum amount of accumulated taxable income that may be subject to the accumulated earnings tax for 2016 if Kari takes only the minimum Accumulated Earnings Credit?

$50,000 The accumulated earnings tax is applied to accumulated taxable income, which is taxable income subject to certain adjustments. Federal income taxes are deducted as an adjustment to taxable income. Without showing a reason for the accumulation, the minimum Accumulated Earnings Credit is $250,000 for nonservice corporations. The credit is a negative adjustment to taxable income in computing ATI. ATI is $50,000 ($400,000 taxable income - $100,000 federal income tax - $250,000 minimum Accumulated Earnings Credit).

Finbury Corporation's taxable income for the year ended December 31, 2015, was $2 million. For Finbury to escape the estimated tax underpayment penalty for the year ending December 31, 2016, its total 2016 estimated tax payments must equal at least

100% of its 2016 tax liability. A large corporation will not be considered to have underpaid its income tax if it pays 100% of the tax shown on the return for the tax year. A large corporation is one having $1 million or more taxable income during any of its 3 preceding tax years. Large corporations are not able to avoid underpaying their taxes by relying on the 100% of the tax shown on the return for the preceding year exception.

January Corporation has a minimum tax credit from year 2012 of $85,000. For tax year 2013, it had a total tax liability of $80,000, including $75,000 tentative minimum tax. For tax years 2014 and 2015, it had losses and no tentative minimum tax or regular corporate tax liability. The tax year 2016 tax liability is undetermined. January Corporation is not exempt from alternative minimum tax. Which of the following is true regarding the prior-year alternative minimum tax credit?

2013: Use AMT credit of $5,000; carry over $80,000 to 2014 (unused); carry over $80,000 to 2015 (unused); carry over $80,000 to 2016 (available). Corporations are allowed a credit for the full amount of AMT paid in a tax year against regular tax liability in one or more subsequent tax year(s). Any minimum tax credit amount is carried forward indefinitely.

The personal holding company income test requires the company's income for a given taxable year to be at least

60% of adjusted ordinary gross income. Personal holding company status is limited to corporations with personal holding company income of at least 60% of adjusted ordinary gross income.

Dana Corporation owns stock in Seco Corporation. For Dana and Seco to qualify for the filing of consolidated returns, at least what percentage of Seco's total voting power and total value of stock must be directly owned by Dana? Total Voting Power | Total Value of Stock

80% | 80% A corporation must own 80% of the total voting power and 80% of the total value of the stock (excluding certain preferred stock issues) in order to file a consolidated return.

Jans, an individual, owns 80% and 100% of the total value and voting power of A and B Corporations, respectively, which in turn own the following (both value and voting power): Ownership Property A Corp. B Corp. C Corp. 80% -- D Corp. -- 100% All companies are C corporations except B Corp., which had elected S status since inception. Which of the following statements is correct with respect to the companies' ability to file a consolidated return?

A and C may file as a group, but B and D may not file as a group. A single federal income tax return may be filed by two or more includible corporations that are members of an affiliated group. Includible corporations are not tax-exempt corporations, S corporations, foreign sales corporations, insurance corporations, real estate investment trusts, regulated investment companies, domestic international sales corporations, or corporations that claim Sec. 936 possessions tax credit. An affiliated group includes each corporation in a chain of corporations in which the other group members directly own 80% or more of both total value and voting power, and a parent corporation must directly own stock of 80% voting and value of at least one includible corporation. All corporations qualify for consolidated treatment of returns under the 80% voting power and value outstanding rules, but because B Corp. elected S status, neither B Corp. nor D Corp. may file a consolidated return.

On June 30, Gold and Silver are calendar-year C corporations. The corporations have merged, with Gold as a subsidiary of Silver. Silver owns 85% of Gold's voting stock and fair market value (FMV). Which of the following tax return filings would be appropriate for the two companies?

A consolidated return, because Silver owns at least 80% of both the voting stock and FMV of Gold. A single federal income tax return may be filed by two or more includible corporations that are members of an affiliated group. An affiliated group includes each corporation in a chain of corporations in which the parent corporation directly owns stock in the subsidiary that represents both 80% or more of total voting power and 80% or more of total value outstanding. Since Silver owns 85% of Gold's voting stock and FMV, Gold and Silver are an affiliated group, and, therefore, they may file a consolidated return.

Which of the following would not be considered reasonable needs of a business in determining the accumulated earnings tax

A specific and feasible plan to declare a stock dividend to all shareholders. For a corporation to justify its accumulation of earnings, there must be evidence that the future needs of the business will require such an accumulation and that the corporation has specific and feasible plans for the use of the accumulation [Reg. 1.537-1(b)]. A specific plan to declare a stock dividend to all shareholders will not qualify as the reasonable needs of a business since such dividends usually do not involve a use of funds. The accumulated earnings tax was imposed to prevent corporations from accumulating excess earnings and not distributing them as taxable dividends.

A corporation's tax preference items that must be taken into account for 2016 AMT purposes include

Accelerated depreciation on pre-1987 real property to the extent of the excess over straight-line depreciation. Tax preference items increase adjusted taxable income to arrive at alternative minimum taxable income. Excess depreciation is a tax preference item for real property placed in service prior to 1987. Depreciation on assets placed in service after 1986 is computed as an adjustment rather than as a tax preference.

Dart Corp., a calendar-year domestic C corporation, is not a personal holding company. For purposes of the accumulated earnings tax, Dart has accumulated taxable income for 2016. Which step(s) can Dart take to eliminate or reduce any 2016 accumulated earnings tax? I. Demonstrate that the "reasonable needs" of its business require the retention of all or part of the 2016 accumulated taxable income II. Pay dividends by March 15, 2017

Both I and II. A taxpayer may reduce the accumulated earnings tax by adequately demonstrating that the retention of the income is necessitated by the "reasonable needs" of the business. The burden of proof is upon the taxpayer. The taxpayer is allowed a dividends paid deduction in determining accumulated taxable income for dividends paid after the close of any tax year provided the dividends are actually paid on or before the 15th day of the third month following the year-end.

The accumulated earnings tax

Cannot be imposed on a corporation that has undistributed earnings and profits of less than $150,000 The Accumulated Earnings Credit (AEC) is deducted from taxable income (TI) to determine accumulated taxable income (ATI), the AET base. The minimum credit base is $250,000. However, the minimum credit base is $150,000 for certain service corporations. The AET base is not less than any excess of the minimum credit base ($150,000) over accumulated E&P. Thus, AET is not imposed on a corporation that has undistributed earnings and profits of less than $150,000.

In determining whether a corporation is subject to the accumulated earnings tax, which of the following items is not a subtraction in arriving at accumulated taxable income?

Capital loss carryback. The accumulated earnings tax is applied to accumulated taxable income, which is taxable income, subject to certain adjustments. Capital loss carrybacks and carryovers are not allowed. Instead, capital losses are deductible in full in the year incurred (but must be reduced by prior net capital gain deductions).

Zak Corporation has an alternative minimum tax credit available as a result of alternative minimum tax paid for 2016. Which of the following is true regarding how the alternative minimum tax credit may be carried?

Carry forward indefinitely. Under Sec. 53, the minimum tax credit can be carried forward indefinitely. It may be used to offset regular tax liabilities in future years to the extent the regular tax liability exceeds the corporation's tentative minimum tax in the carryforward year.

Which of the following might create a potential liability for the accumulated earnings tax?

Corporation is planning to redeem all the shares of one of its current shareholders. For a corporation to justify its accumulation of earnings, there must be evidence that the future needs of the business will require such an accumulation and that the corporation has specific and feasible plans for the use of the accumulation [Reg. 1.537-1(b)]. A plan to redeem the shares of a shareholder does not qualify as a reasonable need of a business because the tax was imposed to prevent earnings accumulation. However, a stock redemption plan that involves a deceased shareholder whose stock is included in his gross estate can qualify as a reasonable need [Sec. 537(a)(2)].

Which of the following tax credits cannot be claimed by a corporation

Earned Income Credit. Most tax credits are allowable to corporations, but certain personal credits are not permitted. They include the Earned Income Credit, the Child and Dependent Care Credit, and the Elderly and Disabled Credit.

Zero Corp. is an investment company authorized to issue only common stock. During the last half of the current year, Edward owned 450 of the 1,000 outstanding shares of stock in Zero. Zero would not be subject to the personal holding company (PHC) penalty tax if the remaining 550 shares of common stock were owned by

Fifty-five shareholders who are related neither to each other nor to Edward, in equal lots of 10 shares each. One of the tests used to determine if a company is subject to the personal holding company (PHC) penalty tax is the stock ownership test. More than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year. However, if 10 or more unrelated taxpayers own equal shares, the ownership requirement cannot be met. Therefore, if 55 taxpayers own equal lots of 10 shares each, Zero will not be subject to the personal holding company penalty tax.

A corporation may reduce its regular income tax by taking a tax credit for

Foreign income taxes A credit is available for certain foreign income taxes paid or accrued. Note that credits are more valuable than deductions since they reduce the tax on a dollar-for-dollar basis.

The credit for prior-year alternative minimum tax liability may be carried

Forward indefinitely The minimum tax credit can be carried forward indefinitely. It may be used to offset regular tax liabilities in future years to the extent the regular tax liability exceeds the corporation's tentative minimum tax in the carryforward year.

Which of the following corporations is considered to be an includible corporation in an affiliated group of corporations?

Holding company. An includible corporation means any corporation except those corporations listed as not includible. A holding company is not listed as an exception. A holding company is generally one which conducts little or no active business and only holds stock in other corporations. The significance of includible corporations is that they may be part of an affiliated group which may file a consolidated tax return.

Bass Corp., a calendar-year C corporation, made qualifying 2016 estimated tax deposits based on its actual 2016 tax liability. On April 15, 2017, Bass filed a timely automatic extension request for its 2016 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 2016 corporate income tax return. Bass paid $400 additional tax on the final 2016 corporate income tax return filed before the extended due date. For the 2016 calendar year, Bass was subject to pay I. Interest on the $400 tax payment made in 2017 II. A tax delinquency penalty

I only 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.

The minimum tax credit amount is the most recent year's AMT without adjustment for which of the following items? I. Medical expenses II. Qualified interest expense III. Standard deduction

I, II, and III. The minimum tax credit (MTC) amount is the AMT that would have been computed if the only adjustments made to taxable income in computing AMTI were those for items that result in deferral of income. To compute the MTC amount, recompute the most recent year's AMT without adjustment for medical expenses, qualified interest expense, and the standard deduction.

Edge Corp. met the stock ownership requirements of a personal holding company. What sources of income must Edge consider to determine if the income requirements for a personal holding company have been met? I. Interest earned on tax-exempt obligations II. Dividends received from an unrelated domestic corporation

II only. A personal holding company tax is assessed on the undistributed personal holding company income (PHCI) of many C corporations. This tax is self-assessed when 50% or more of the value of the corporation's shares are owned by five or fewer shareholders at any time during the last half of the fiscal year, and 60% or more of AGI is PHCI. PHCI includes taxable interest and dividends but not tax-exempt interest.

Blink Corp., an accrual-basis, calendar-year corporation, carried back a net operating loss for the tax year ended December 31, Year 1. Blink's gross revenues have been under $500,000 since inception. Blink expects to have profits for the tax year ending December 31, Year 2. Which method(s) of estimated tax payment can Blink use for its quarterly payments during the Year 2 tax year to avoid underpayment of federal estimated taxes? I. I00%-of-the-preceding-tax-year method II. Annualized income method

II only. Blink Corp. qualifies as a small corporation because it has not had taxable income exceeding $1 million during any of the 3 preceding years. However, it must have shown a tax liability in the previous year in order to use the 100%-of-the-preceding-tax-year method. Since the previous year generated an NOL, this method cannot be used. The annualized income method is available in this situation.

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

If a corporation's tentative minimum tax exceeds the regular tax, the excess amount is The excess of the tentative minimum tax over the regular tax is payable in addition to the regular tax. This excess is called the alternative minimum tax and is due on the same date as the regular tax.

Personal holding company tax may be imposed

If at least 60% of the corporation's adjusted ordinary gross income for the taxable year is personal holding company income, and the stock ownership test is satisfied This answer describes the two objective tests on which liability for the PHC tax depends.

Which one of the following items properly reported by the corporation in determining alternative minimum taxable income is not adjusted in order to determine adjusted current earnings?

Long-term capital gains. Adjustments that apply in determining adjusted current earnings include life insurance proceeds received by the corporation on the death of a corporate officer, organizational expenditures that were amortized under Sec. 248, and tax-exempt interest from a local government bond that is not a private activity bond and is not issued in 2009 or 2010. Long-term capital gains are not included as an adjustment in determining adjusted current earnings. If the interest were earned from a private activity bond, it would be included in alternative minimum taxable income as a tax preference item, and no adjustment would be needed.

Benson, a singer, owns 100% of the outstanding capital stock of Lund Corporation. Lund contracted with Benson, specifying that Benson was to perform personal services for Magda Productions, Inc., in consideration of which Benson was to receive $50,000 a year from Lund. Lund contracted with Magda, specifying that Benson was to perform personal services for Magda, in consideration of which Magda was to pay Lund $1 million a year. Personal holding company income will be attributable to

Lund only. Amounts received by corporations under personal service contracts involving a 25%-or-more shareholder are personal holding company income if the contract designates specifically that only the shareholder will provide the services. As such, Lund has personal service income of $1 million a year.

Foreign income taxes paid by a corporation

May be claimed either as a deduction or as a credit, at the option of the corporation. A deduction is allowed for foreign income taxes paid or accrued during the taxable year. Alternatively, both individual taxpayers and corporations may claim a Foreign Tax Credit on income earned and subject to tax in a foreign country or U.S. possession. One may not claim both the deduction and the credit.

Which of the following groups may elect to file a consolidated corporate return?

Members of an affiliated group. A single federal income tax return may be filed by two or more includible corporations that are members of an affiliated group. Includible corporations are all corporations except (1) tax-exempt corporations, (2) S corporations, (3) foreign sales corporations, (4) insurance corporations, (5) REITs, (6) regulated investment companies, (7) domestic international sales corporations, and (8) corporations claiming Sec. 936 possessions tax credit. An affiliated group includes each corporation in a chain of corporations under the following conditions: The other group members must directly own stock in the corporation that represents 80% or more of both total voting power and total value outstanding. A parent corporation must directly own stock under the 80% rules of at least one includible corporation.

Bent Corp., a calendar-year C corporation, purchased and placed into service residential real property during February 2016. No other property was placed into service during 2016. What convention must Bent use to determine the depreciation deduction for the alternative minimum tax?

Mid-month. AMT depreciation of real property is computed using a straight-line method, 40-year recovery period, and the mid-month convention.

A corporation's penalty for underpaying federal estimated taxes is

Not deductible. The penalty for underpayment of federal estimated taxes is imposed in the amount by which the required installment exceeds the amount paid multiplied by the federal short-term rate plus 5%. This penalty is not allowed as a deduction.

In the filing of a consolidated tax return for a corporation and its wholly owned subsidiaries, intercompany dividends between the parent and subsidiary corporations are

Not taxable. A dividend distributed by one member of a group filing a consolidated tax return to another member of that group is eliminated during consolidation. Therefore, no dividends received deduction is allowed for the consolidated entity, and the transaction is not taxable.

Consolidated returns may be filed

Only by parent-subsidiary affiliated groups. Corporations must be members of an affiliated group to file a consolidated tax return. An affiliated group consists of one or more chains of includible corporations that are connected through stock ownership with a common parent corporation. There is an 80% ownership requirement. Only parent-subsidiary affiliated groups will meet this requirement of having a common parent corporation.

With regard to consolidated tax returns, which of the following statements is true

Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return. Operating losses of one group member must be used to offset current-year operating profits of other group members before a net operating loss carryback or carryforward can occur.

When a consolidated return is filed by an affiliated group of includible corporations connected from inception through the requisite stock ownership with a common parent,

Operating losses of one member of the group offset operating profits of other members of the group. Operating losses of one group member must be used to offset current-year operating profits of other group members before a net operating loss carryback or carryover can occur.

The Snow Corporation, a calendar-year taxpayer, estimates at the end of March 2016 that its federal income tax for 2016 will be $800,000. It pays $200,000 of estimated tax by April 15, 2016, and pays another $200,000 on June 15, 2016. At the end of August 2016, a recalculation shows that its 2016 tax is expected to be $900,000. Which of the following is correct?

Payment due September 15, 2016 -- $275,000; Payment due December 15, 2016 -- $225,000. Sec. 6655(e) requires that the estimated payment in the subsequent quarter be large enough so that 100% of the shortfall is paid in. A corporate taxpayer who continues to use the annualization exception for making its estimated tax payments will, in later quarters, have paid in 100% of the tax due on the new annualized income. If this amount is paid in when income is increasing, 100% of the shortfall will be paid in as is required by Sec. 6655(e). Although Snow correctly estimated its first two tax payments, the amount of estimated tax for the year increased to $900,000. Since Snow should have made quarterly payments of $225,000 ($900,000 ÷ 4), it must adjust the next quarterly payment by the amount of the shortfall. Therefore, the payment due September 15, 2016, is $275,000 ($225,000 quarterly payment + $50,000 shortfall), and the payment due December 15, 2016, is $225,000.

The accumulated earnings tax does not apply to

Personal holding companies The accumulated earnings tax is imposed on unreasonably large accumulations of earnings in a corporation. The purpose of the tax is to require the shareholders to include the earnings in their income, usually as dividends. The accumulated earnings tax does not apply to personal holding companies since they are already subject to a penalty tax on undistributed income

Acme Corp. has two shareholders. Acme derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its shareholders. Acme is a

Personal holding company. A corporation is a personal holding company if at least 60% of its adjusted ordinary gross income for the year is personal holding company income and if, at any time during the last half of the taxable year, more than 50% of the value of its outstanding stock is owned by not more than five individuals. Personal holding company income includes income received from stocks and securities.

Which of the following types of income is not considered personal holding company income?

Personal services income earned by a 20% shareholder. The personal holding company tax is imposed by Sec. 541 on undistributed income of a personal holding company. A personal holding company is a corporation that is more than 50% owned by five or fewer shareholders anytime during the last half of the tax year and that has at least 60% of its income as personal holding company income. Under Sec. 543(a), personal holding company income is generally passive income such as dividends, interest, and royalties. Personal services income is generally not included in the definition of personal holding company income. Note that personal services income is included in the personal holding company income definition only if earned by a 25%-or-more shareholder from a personal service contract, and either some person other than the corporation has the right to designate the individual who is to perform the services or the individual who is to perform the services is designated by name or description in the contract.

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?

The $25,000 is divided among the corporations in any manner they choose. 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

If otherwise qualified, a "large corporation" (defined as a corporation with at least $1 million of modified taxable income in any of the last 3 years) may use all of the following methods to figure all four required installments of estimated tax except

The 25% of the corporation's income tax for the preceding year method. Sec. 6655(d)(2) provides that a large corporation will not be considered to have underpaid its income tax if it pays 100% of the tax shown on the return for the tax year. A large corporation is defined by Sec. 6655(g)(2) as a corporation having $1 million or more taxable income during any of its 3 preceding tax years. Large corporations are not able to avoid underpaying their taxes by relying on the option of paying 100% of the tax shown on the return for the preceding year. Basing the first payment on the preceding year is allowed but not all four payments.

The accumulated earnings tax can be imposed

The accumulated earnings tax can be imposed The accumulated earnings tax (AET) is imposed only on a corporation that, for the purpose of avoiding income tax at the shareholder level, allows earnings and profits to accumulate instead of being distributed. The AET will be imposed regardless of the number of shareholders, provided the corporation does not qualify as a personal holding company.

Which of the following is a true statement of the adjusted current earnings adjustment to alternative minimum taxable income?

The adjustment is equal to 75% of the excess of ACE over AMTI. The ACE adjustment is equal to 75% of the excess of ACE over AMTI.

Kane Corp. is a calendar-year domestic personal holding company. Which deduction(s) must Kane make from current year taxable income to determine undistributed personal holding company income prior to the dividends-paid deduction? Federal Income Taxes | Net Long-Term Capital Gain Less Related Federal Income Taxes

Yes | Yes Undistributed personal holding company income is taxable income net of specific adjustments and the dividends-paid deduction. Federal income taxes accrued and capital gains (net of related federal taxes) are subtracted from taxable income.

The amount required to be paid in estimated tax installments by a corporation is the lesser of 100% of the tax shown on its return for the preceding 12-month tax year (if some tax was reflected), or what percentage of the tax shown on its return for the current year (determined on the basis of actual income or annualized income)?

100% At least 100% of a calendar-year corporation's final tax must be paid in installments on a quarterly basis. If this 100% requirement is not met, the corporation will be subject to a penalty on the amount by which the installment payments are less than 100% of the tax due. The penalty will not apply if a corporation (other than a large corporation) timely pays an installment based on either 100% of its tax liability for the prior year or 100% of the tax that would be due on its income computed on an annualized or seasonal basis.

If a corporation is required to make estimated tax payments because it expects its tax to be $500 or more for the year, the first installment payment of estimated tax is due by the

15th day of the fourth month of the corporation's tax year A corporation that anticipates a tax bill of $500 or more must estimate its income tax liability for the current tax year and pay four quarterly estimated tax installments. Installments of fiscal-year corporations are due on the 15th day of the fourth, sixth, ninth, and twelfth months.

The personal holding company tax

Should be self-assessed by filing a separate schedule with the regular tax return. The personal holding company tax should be self-assessed by a corporation by filing Schedule PH along with its regular Form 1120 tax return.

No penalty will be imposed on a corporation for underpayment of estimated tax for a particular year if

The tax for that year is less than $500. No estimated tax underpayment penalty is imposed on a corporation if actual tax liability shown on the return for the tax year is less than $500.

In order for Corporation X, a calendar-year taxpayer, to be required to make estimated tax payments in 2016, its expected tax liability will have to be

$500 or more. All corporations must make estimated tax payments, except those which have an estimated tax liability of less than $500.

The accumulated earnings tax is not imposed on corporations that

The accumulated earnings tax is not imposed on corporations that Any corporation, unless expressly exempt, may incur AET liability. PHCs are expressly exempt

Potter Corp. and Sly Corp. file consolidated tax returns. In January of Year 1, Potter sold land, with a basis of $60,000 and a fair value of $75,000, to Sly for $100,000. Sly sold the land in December of Year 2 for $125,000. In the consolidated group's Year 1 and Year 2 tax returns, what amount of gain should be reported for these transactions in the consolidated return?

Year 2: $65,000 Year 1: $0 A sale or exchange of property between members of the consolidated group is a deferred intercompany transaction. In the case of nondepreciable property (e.g., land) not sold on the installment basis, the gain is not reported until the property is sold outside the group. Therefore, Potter should report no income in the consolidated return for Year 1 as a result of the sale. For Year 2, however, Potter should recognize the full amount of the $65,000 gain ($125,000 - $60,000).

Edge Corp., a calendar-year C corporation, had a net operating loss and zero tax liability for its 2015 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter 2016 estimated income tax payment using the Annualized Income Method | Preceding Year Method

Yes No Edge Corp. must have shown a tax liability in the previous year in order to use the 100%-of-the-preceding-tax-year method. Since the previous year generated an NOL, this method cannot be used. The annualized income method is available in this situation

When computing a corporation's income tax expense for estimated income tax purposes, which of the following should be taken into account Corporate Tax Credits | Alternative Minimum Tax

Yes Yes A corporation is required to make payments of estimated tax liability in quarterly installments. The estimated tax liability is the sum of the regular income tax, AMT, and certain other taxes, reduced by corporate tax credits

Sunex Co., an accrual-basis, calendar-year domestic C corporation, is taxed on its worldwide income. In the current year, Sunex's U.S. tax liability on its domestic and foreign source income is $60,000, and no prior-year foreign income taxes have been carried forward. Which factor(s) may affect the amount of Sunex's Foreign Tax Credit available in its current-year corporate income tax return? Income Source | The Foreign Tax Rate

Yes Yes The Foreign Income Tax Credit is equal to the lesser of the actual foreign tax paid or the Foreign Tax Credit limit. The Foreign Tax Credit limit is the proportion of the taxpayer's tentative income tax (before the Foreign Tax Credit) that the taxpayer's foreign source taxable income bears to his or her worldwide taxable income for the year