tax 16
Corporate estimated tax payments are due on the 15th of which of the following months of the tax year?
4th 6th 12th 9th
Net operating losses arising in tax years beginning after December 31, 2017 can offset only-------% of taxable income in future years
80%
Which of the following are reorganizations for tax purposes?
Change in corporate capital structure Change of corporate name Disposition of a subsidiary's stock
Qiang Corporation acquires the assets of Kween Corporation in a cash transaction. Which of the following BEST represents the likely tax treatment for Qiang and Kween?
Kween will recognize a gain or loss on the sale of its assets. Qiang will take a new tax basis in the assets.
Hunda Corp. exchanges its voting stock for all of the shares of Kneesawn Corp., held by its sole shareholder, Chevy, in a reorganization. Chevy's basis in his Kneeswan stock was $30,000 and the fair market value of the Hunda stock Chevy received was $100,000. What is Chevy's realized gain, recognized gain and basis in his Hunda shares?
Realized gain = $70,000; Recognized gain = $0; Basis = $30,000
Lena contributes land used in business and held for more than one year (basis = $10,000 and value = $20,000) and inventory (basis = $40,000 and value = $70,000) to a corporation in exchange for shares of stock with a value of $70,000 and cash of $20,000 in a qualifying §351 transaction. Lena will recognize ______.
a $20,000 gain of which $4,444 is Sec 1231 and $15,556 is ordinary Reason: Gain recognized is lesser of realized gain of $40,000 ($90,000 less total basis of $50,000) or boot received of $20,000. The gain must be characterized based on underlying property contributed on a pro rata basis based on FMV. Land = 22.2% (20 ÷ 90) and inventory = 77.78% (70 ÷ 90). Thus $4,444 is Sec 1231 ($20,000 gain x 22.22%) and $15,556 ($20,000 x 77.78%) is ordinary.
A corporate taxpayer can carry a capital loss ________ for three years and ---------- for five years.
back, forwards
The excess of the fair market value of the stock when a stock option is exercised over the exercise price of the option is the
bargain element
To properly track earnings and profits, a corporation must keep ______ E&P account.
both a current and an accumulated
Old Corp. (target) merges into New Corp (acquiring) in a statutory Type A merger. What will the basis in Old Corp.'s assets be in the hands of New Corp?
carryover basis
Michael contributes cash and property to a corporation in exchange for its stock which results in a deferred gain. Michael's basis in the stock will be _______ by the deferred gain.
decreased
If a transfer of property or cash in exchange for corporate stock does not meet the requirements of §351, the taxpayer must ----any gain on the transfer.
recognize
When an individual (filing single) shareholder sells Section 1244 stock at a loss, the shareholder will
recognize an ordinary loss up to $50,000.
If a corporation has a calendar year-end, a tax return extension will extend the due date for ______ months.
six
A(n) ----- acquisition generally results in a tax-deferral and carryover basis of assets acquired.
stock
True or false: Contributions of cash and property to a corporation in exchange for shares of the corporations stock can be tax deferred.
true
In which type of merger will the exchange of cash for the stock of the target corporation taint the tax deferral of the reorganization?
type b
Joshua receives Dee Corp. stock worth $150,000 in a §351 transaction where he transfers property worth $135,000 (adjusted basis = $130,000) and cash of $15,000. Dee Corp.'s basis in all the property received is ______.
145,000
Which of the following are non-tax advantages to a cash acquisition with an acquiring corporation?
Target corporation shareholders do NOT join the acquiring corporation's shareholders. No additional stock is issued that dilutes the existing earnings per share.
The tax basis of stock received in a tax-deferred §351 transaction is typically the same basis as the property transferred which is referred to as a(n)----- basis
substituted
A liability transferred to a corporation in a §351 transaction will NOT be treated as boot unless the purpose of the transaction is
tax avoidance
Guenther Corporation has two shareholders: Gene and Asami. Guenther distributes a stock dividend to Asami only. The stock dividend is:
taxable
Ski Inc. owns 30 percent of Snow Inc., both of which are domestic C corporations. Snow pays Ski a dividend of $20,000 in 2019. What is the amount of Ski's dividend's received deduction, assuming the taxable income limitation does not apply?
$13,000(Ski is entitled to a 65% dividends received deduction ($20,000 × 65% = $13,000) because it owns 30% of the stock of Snow Inc.).)
chairs-R-Us, Inc. reported a net capital loss of $25,000 in year 4. It reported net capital gains of $10,000 in year 3 (before any capital loss carryback) and $20,000 of net capital gains in year 5 (before any capital loss carryovers). What is the amount and nature of the book-tax difference in year 5 related to the net capital loss carryover?
$15,000 favorable(Chairs-R-Us carries back $10,000 of the loss to year 3 and then carries the remaining $15,000 forward to year 5. In year 5 it deducts $15,000 for tax purposes and $0 for book purposes.)
Burke, Inc. granted 1,000 nonqualified employee stock options with an estimated value of $2 per option. Each option entitled the owner to purchase 1 share at a price of $10 per share (the price of the stock at grant date). The options vested immediately but none were exercised in the current year. What is the current year book-tax difference?
$2,000 temporary and unfavorable difference
Gopher, Inc. has $40,000 of current E&P and $50,000 of accumulated E&P at the start of the year. The sole shareholder, Carl has a basis in his stock of $10,000. If Gopher distributes $60,000 cash to Carl, it will be treated as a ______.
60000 dividend
When the basis of property contributed carries over to the corporation in a tax-deferred 351 transaction, the depreciation schedule:
also carries over from the shareholder
A C-corporation with a calendar year-end has an income tax return due on ______ 15th.
april
Schedules M-1 and M-3 ______.
are both schedules filed with Form 1120 are both for reporting differences in book and taxable income
acquiring corporation
asset acquisition with step up in basis of assets
The basic models of acquisition include a corporation acquiring a target corporation's: (Check all that apply.)
assets and stock
Which of the following does not create a permanent book-tax difference?
charitable contributions in excess of the 10% of taxable income limitation
A transfer of property to a corporation by a shareholder for which no stock or other property is received is called a(n)
contribution to capital
When current E&P is positive, but accumulated E&P is negative,:
distributions are deemed to come from current E&P first
A stock redemption could result in ______.
dividend treatment, taxable at preferential rates sale treatment with a gain or loss recognized by the shareholder
The corporate tax formula differs from the individual tax formula because the corporate tax formula
does not separate deductions into those before AGI and those after AGI like the individual formula does
Dividends are taxable at both the corporate and shareholder level, resulting in
double taxation
A measure of a corporation's economic profits is known as __________________ and __________________.
earnings and profits
nonqualified stock options
employer receives a deduction at exercise
incentive stock option
employer receives no tax deduction
result of a corporate noncash property distribution with taxable gain on the corporation
fair market value of distributed property exceeds its adjusted basis
result of a corporate noncash property distribution with loss not recognized
fair v,market value of distributed property is less than its adjusted basis
A §351 deferral is only available when a single shareholder transfers property for a controlling stock interest in a corporation.
false
Federal income tax expense reported on a corporation's financial statement generates an unfavorable temporary book-tax difference.
false
True or false: A Net Operating Loss arising in tax years beginning after December 31, 2017 can only be carried forward 20 years.
false
True or false: A corporation that receives property in exchange for its stock in a §351 transfer recognizes gain or loss realized on the transfer.
false
True or false: All corporations may choose to use either the cash or accrual method of accounting for tax.
false
True or false: In a stock redemption, the stock redeemed by the corporation must be immediately canceled.
false
True or false: Like individuals, corporations can claim a deduction for qualified business income.
false
True or false: The United States taxes C corporations on their income using a progressive tax rate system.
false
True or false: The statutory language regarding corporate reorganizations is stated clearly and simply in the Internal Revenue Code.
false
Aztec Corp. is calculating its current E&P and is considering the following items: Federal income taxes paid $50,000 Political contributions to the state governor's race $5,000 Fines and penalties $1,000 Ordinary and necessary business expenses $50,000 Salaries paid to owner/employees $30,000 Which of the items above should Aztec deduct when adjusting its taxable income to get to E&P? (Check all that apply.)
federal income tax political contributions fines and penalties
Permanent book-tax differences include ______.
half of the cost of a business meal with an important customer a political contribution made by a business interest from a bond issued by the City of Los Angeles
Which of the following requirements must be met to qualify for a deferral under §351? (
immediately after the transfer, the contributing shareholders must be in control. Shareholders transfer property in exchange for stock.
Individuals prefer exchange treatment for redemptions due to the ______
increased ability to deduct capital losses reduction in the amount of income for the adjusted basis
A shareholder can treat a stock redemption as an exchange if the redemption ______.
is substantially disproportionate with respect to the shareholder is a complete redemption of all the shareholder's stock in the corporation
Current E&P and accumulated E&P are both positive. The order in which a distribution is deemed to come from E&P is:
1 current 2 accumulated
Ack Corp. acquires all the assets and liabilities of Targ Corp for $200,000 cash. Targ has two assets at the time of acquisition: land valued at $120,000 (basis = $50,000) and inventory valued at $40,000 (basis = $40,000) and no liabilities. What amount of gain or loss does Targ recognize on the sale?
Gain recognized = $110,000
Corporation P receives a dividend from Corporation Q. Corporation P includes the dividend in its gross income for tax and financial accounting purposes. If P accounted for the dividend as gross income for book and tax purposes, what can we conclude about P's ownership in Q?
P likely owns less than 20 percent of the stock of Q.
A stock redemption is _____
an acquisition by a corporation of its own stock from a shareholder in exchange for property
In 2019, Dan transferred 5-year property to Fleck Corp. in a tax-deferred Section 351 transaction. Fleck took Dan's adjusted basis in the property. Dan originally placed the depreciable property in service in 2017. What year of the depreciation schedule will Fleck use to depreciate the property?
Year 3 Reason: Since the basis of the property carries over to Fleck, the depreciation schedule also carries over, thus 2017 was Year 1, making 2019 Year 3.
Almonds, Inc. redeems 25 shares of Lucy's common stock in exchange for $10,000, dropping her ownership from 40 shares to 15. There is only one class of stock and 100 shares were outstanding prior to the redemption. Is Lucy's redemption substantially disproportionate?
Yes Reason: Lucy owns less than 50% (15 ÷ 75). Lucy's percentage ownership went from 40% (40 ÷ 100) to 20% (15 ÷ 75), which is more than the 80% decrease required (32% is 80% of 40%). The market value test is met by virtue of there being only one class of common stock.
Fast Rocket, Inc. generated a net loss of $5,000 in its first year (2018) and taxable income of $15,000 in its second year of operations (2019). Assuming a tax rate of 21%, what is Fast Rocket's total tax for both years?
2,100 Reason: A corporation can carry forward its net operating losses to offset 80% of income in a future period. Since 80% x 15,000 > the NOL of $5,000, Fast Rocket can use the whole NOL carryforward. ($15,000 - $5,000 = $10,000 x 21% = $2,100)
Corporation ABC had taxable income of $10,000,000 for its tax year ended December 31, 2018. Corporation ABC owes $Blank 1 of 1 in corporate income taxes for 2018.
2.1 million
Eddie contributes property worth $50,000 (adjusted basis = $30,000) to Lindy Corp. Eddie is already the sole shareholder of Lindy and receives nothing in return for his transfer. Lindy's basis in the property is ______.
30000
In order to receive tax deferred treatment for a reorganization, which of the following are typically required?
A significant business purpose for engaging in the transaction A continuing ownership interest in the assets Receipt of equity from acquiring corporation
Which are the following are exceptions that allow a corporation to use the cash method of accounting?
Have average gross receipts of $26 million or less over the prior three years. Be a qualified personal service corporation.
A reconciliation of the corporation's beginning and ending balance in its unappropriated retained earnings account is reported on Schedule ______.
M-2
A corporation that distributes additional shares of its own stock with respect to existing shares already held by shareholders has made a
stock divident
Puma, Inc. sold equipment at a loss. Puma depreciated the property using the straight-line method for financial accounting purposes and expensed the property for tax purposes. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes on the date of the sale, what is the nature of the book-tax difference associated with the loss on the sale?
temporary, unfavorable
Ripley, Inc. has a life insurance policy on one of its officers for which Ripley is the beneficiary. The premium that Ripley pays is ______ book-tax difference.
a permanent
Which of the following provides an opportunity for a corporation to avoid double taxation on payments to its shareholders?
a reasonable deduction for salaries paid to owner
Black & Red Corp. distributes a machine with a fair market value of $10,000 to its sole shareholder, Mike. Black & Red's basis in the machine was $4,000 at the time of the distribution. Black & Red has ______.
a taxable gain of $6,000 and a $4,000 reduction in E&P
Newt, Inc. incurs capital losses of $500 and capital gains of $100 in the current year. For tax purposes, Newt will recognize a net capital gain or loss of ______.
$0 Reason: Corporations can only offset capital losses against capital gains in the year of a net capital loss ($100 losses offset against $100 gains).
Joshua, Inc. has taxable income of $1,000,000 in the current year. Using the corporate tax tables, Joshua Inc.'s federal tax liability is ______.
$210,000
Andrew contributes a building with a value of $650,000 (his basis is $400,000) to a corporation in a tax-deferred Section 351 transaction. The corporation assumes a $370,000 mortgage as part of the transfer. What is Andrew's basis in the stock he receives from the corporation?
$30,000 Reason: $400,000 basis in building less $370,000 liability assumed by the corporation = $30,000.
Gopher Inc. has current E&P of $40,000 and accumulated E&P of negative $100,000. Gopher makes a $60,000 distribution. What is the character of the distribution?
$40,000 dividend, $20,000 return of capital to the extent of basis
Gene, a single taxpayer, sells Section 1244 stock for a $35,000 loss. He also earns wages of $75,000 and generates net capital gains of $12,000. What is Gene's ordinary income and capital gain income?
$40,000 ordinary income; $12,000 capital gains
Gopher, Inc. has $40,000 of current E&P and $10,000 of accumulated E&P at the start of the year. The sole shareholder, Carl has a basis in his stock of $20,000. If Gopher distributes $100,000 to Carl, it will be treated as a ______.
$50,000 dividend, $20,000 return of capital, and $30,000 capital gain
Permanent book-tax differences include _____
$50,000 of interest expense associated with the generation of tax-exempt income
Yellow Sub Corp. deducted $30,000 of 5-year property immediately under Section 179. How much of that expenditure can be expensed for E&P?
$6,000 Reason: Section 179 immediate expensing is amortized over five years for E&P.
Andre receives 50 shares of stock with a fair market value of $200,000 plus $50,000 cash in exchange for his contribution of machinery, land, and inventory valued at $40,000, $150,000, and $60,000, respectively. His adjusted basis is $10,000 for the machinery, $180,000 for the land and $50,000 for the inventory. Andre will recognize gains of ______.
$8,000 on the machinery and $10,000 on the inventory, and no gain or loss on the land
Macadamia Corp. redeems 60 shares of common stock from Patty in exchange for $50,000. Patty held 100 shares of the 150 total outstanding shares in Macadamia for the past 5 years. Patty's basis in the 60 redeemed shares was $10,000. Assuming Patty has a 15% tax rate on both dividends and long-term capital gains, what is Patty's tax liability from this redemption?
6000
Rebecca, Inc. incurred a net capital loss of $500 in 2020. The corporation incurred net capital gains of $0, $600 and $1,700 in tax years 2017, 2018, and 2019, respectively. Rebecca, Inc. will carry back and utilize the loss in tax year ______.
2018
Test Pilot, Inc. reported a net operating loss of $25,000 for its tax year ended December 31, 2018. Test Pilot reported income of $20,000, $10,000 and $8,000 in 2019, 2020, and 2021, respectively. What is Test Pilot's 2019 income after NOL carry forward and the amount of NOL carry forward available for 2020?
2019 income of $4,000 and carry forward of $9,000 to 2020
Amy redeemed all 50 of her shares of Fontaine Corp. for $46,000. This represented one-half of Fontaine's outstanding stock. Just prior to the redemption, Fontaine has E&P of $80,000. What is Fontaine's E&P after the redemption?
40000
Peyton contributes property to a corporation in exchange for its stock with a fair market value of $100,000. This transaction qualifies as a tax-free exchange, allowing Peyton to defer a $40,000 gain. What is Peyton's basis in the stock?
60,000
Which of the following items qualify as boot in a §351 transaction? (Check all that apply.)
Fair market value of property received Cash
Which of the following is one of the bright line tests of a substantially disproportionate redemption?
The shareholder owns less than 50% of the voting power of the corporation after the redemption.
Cashews Corp. had 200 outstanding shares of its only class of stock when it redeemed 30 of Linus' shares in exchange for land worth $50,000. The exchange reduced Linus' ownership from 180 shares to 150 shares. Is Linus' redemption substantially disproportionate?
no
The general rule when a corporation assumes liabilities attached to property transferred by a shareholder in a §351 transaction is the liabilities assumed are ______
not treated as boot received
The federal income tax deduction that a corporation takes under ASC 740 is ______ book-tax difference.
permanent
Fleck Corporation redeemed stock from a shareholder in exchange for $20,000. The redemption qualified as a dividend. As a result, Fleck will ______.
reduce e&p by 20000
When forming a corporation, shareholders contribute cash and noncash property in exchange for
stock
target corporation
stock acquisition with tax deferral