Fed Tax II - Chapter 3: The Corporate Income Tax
Identify which of the following statements is true. A. When a corporation donates appreciated capital gain property to a private nonoperating foundation, the corporation's contribution is limited to the property's FMV minus the ordinary gain that would have resulted from the property's sale. B. When a corporation donates appreciated capital gain property to a charity, the amount of the contribution deduction generally equals the property's FMV. C. When a corporation contributes appreciated property to a charity, the charitable contribution deduction is the property's FMV or adjusted basis, depending on the election made by the taxpayer. D. All of the above are false.
B
Organizational expenditures include all of the following except for A. expenses of organizational meetings. B. costs incurred when issuing stock. C. legal costs incident to the creation of the corporation. D. fees paid to the state of incorporation
B
Blueboy Inc. contributes inventory to a qualified charity for use in feeding the needy. The inventory has a $70,000 FMV and a $30,000 adjusted basis. Blueboy Inc. can take a charitable contribution deduction of A. $60,000. B. $20,000. C. $50,000. D. $30,000.
C
Identify which of the following statements is true. A. A corporation with gross receipts, total income, and total assets of $1,000,000 or less is permitted to file Form 1120-A. B. A corporate tax return must be filed by the fifteenth day of the fourth month following the close of the corporation's tax year. C. A corporation is required to file a tax return even if it has no taxable income. D. All of the above are false.
C
All of the taxable income of a personal service corporation is taxed at a flat 35% rate. True False
True
An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. True False
True
Corporations may carry charitable contributions in excess of the income limitation forward for five years. True False
True
Corporations may deduct the adjusted basis of inventory plus one-half of the excess of the property's FMV over its adjusted basis if the inventory is used for the care of the ill, needy, or infants. True False
True
Sparks Corporation receives a dividend of $100,000 from Jill Corporation, a C Corporation. Sparks owns 70% of Jill Corporation stock. Sparks' dividends-received deduction is $80,000. True False
True
In 2011, Summer Corporation earns domestic gross receipts of $2 million and incurs allocable expenses of $800,000. It has $400,000 of income from other sources, resulting in taxable income of $1.6 million before the U.S. production activities deduction. What is its U.S. production activities deduction? A. $36,000 B. $108,000 C. $120,000 D. $60,000
B
Island Corporation has the following income and expense items for the year: Gross receipts from sales: $60,000 Dividends received from 15%-owned domestic corporation: $40,000 Expenses connected with sales: $30,000 The taxable income of Island Corporation is A. $47,000. B. $42,000. C. $70,000. D. $100,000.
B
Bishop Corporation reports taxable income of $700,000 on its tax return. Given the following information from the corporation's records, determine Bishop's net income per its financial accounting records. Deduction for federal income taxes per books: $240,000 Depreciation claimed on the tax return: $135,000 Depreciation reported on the financial accounting books: $75,000 Life insurance proceeds on death of a corporate officer: $100,000 A. $620,000 B. $520,000 C. $560,000 D. $660,000
A
Describe three ways in which the treatment of charitable contributions by individual and corporate taxpayers differ. A. They differ three ways, (1) the timing of the deduction, (2) the amount of the deduction permitted for the contribution of certain nonmonetary property, and (3) the maximum deduction permitted in any given year. B. They differ three ways, (1) the timing of the deduction, (2) the amount of the carry forward for corporations is 10% more than for individuals, and (3) the maximum deduction permitted in any given year. C. They differ three ways, (1) the year the deduction is allowed, (2) the amount of the carry forward for corporations is 10% more than for individuals, and (3) corporations have no dollar limit for the deduction permitted, but individuals can only deduct 50%. D. They differ three ways, (1) the year the deduction is allowed, (2) the amount of the deduction permitted for the contribution of certain nonmonetary property, and (3) corporations have no dollar limit for the deduction permitted, but individuals can only deduct 50%.
A
Identify which of the following statements is true. A. A corporate capital loss can be carried back three years, and then can be carried forward five years. B. Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years. C. At the election of a corporation, a net capital loss carryback can be forgone and carried forward only. D. All of the above are false.
A
Identify which of the following statements is true. A. The NOL deduction claimed by a corporation must be taken after the dividends-received deduction. B. The charitable contribution deduction is computed after the deduction for an NOL. C. The charitable contribution deduction is computed after the dividends-received deduction. D. All of the above are false.
A
Maxwell Corporation reports the following results: Gross income from operations: $90,000 Dividends received from 18%-owned domestic corporation: $70,000 Expenses: $100,000 Maxwell's dividends-received deduction is A. $42,000. B. $49,000. C. $70,000. D. $56,000.
A
Miller Corporation has gross income of $100,000, which includes $40,000 of dividends from a 10%-owned corporation. In addition, Miller has $80,000 of expenses. Miller's taxable income or loss is A. $6,000. B. ($8,000). C. $0. D. $20,000.
A
Money Corporation has the following income and expenses for the tax year: Gross profit on sales: $200,000 Expenses: $700,000 Dividends received from less-than-20%-owned domestic corporations: $20,000 What is Money's net operating loss? A. $494,000 B. $220,000 C. $480,000 D. $520,000
A
What corporations must pay estimated taxes? When are the estimated tax payments due? (Ignore holidays for purposes of this question.) A. A corporation must pay estimated taxes if it expects its tax liability to exceed $500. The payments are due April 15, June 15, September 15, and December 15 for a calendar year corporation unless the fifteenth falls on a weekend or holiday, in which case amounts paid on the next business day are considered as paid on the due date. For a fiscal year corporation, the due dates are the fifteenth day of the fourth, sixth, ninth, and twelfth months of the tax year. B. A corporation must pay estimated taxes if it expects its tax liability to exceed $2,000. The payments are due April 15, June 15, September 15, and December 15 for a calendar year corporation unless the fifteenth falls on a weekend or holiday, in which case amounts paid on the next business day are considered as paid on the due date. For a fiscal year corporation, the due dates are the fifteenth day of the fourth, sixth, ninth, and twelfth months of the tax year. C. A corporation must pay estimated taxes if it expects its tax liability to exceed $500. The payments are due April 15, June 15, September 15 and December 15. This does not matter if the corporation is a calendar year or fiscal year corporation. D. A corporation must always pay estimated taxes. These are due on a monthly basis on the last day of the month. They are dependent upon the sales made for the month due.
A
When is a corporate tax return due for a calendar-year taxpayer? What extension(s) of time in which to file the return are available? (Assume a tax year beginning after 2015 and before 2026. Ignore holidays and weekend days for the purpose of these questions.) A. A corporate tax return is due by April 15. Although Internal Revenue Code section 6081(b) provides a five-month automatic extension period for calendar year C Corporations, the IRS is granting a six-month automatic extension under section 6081(a) instead. B. A corporate tax return is due by March 15. There are two extensions required. Both must be filed by March 15 to ensure a September 15 extended filing. C. A corporate tax return is due by April 15. There are two extensions available, one for four-months and the other for an additional two-month extension by filing Form 2220. D. A corporate tax return is due by March 15. An automatic seven-month extension is available to extend the due day out until October 15.
A
What are organizational expenditures? How are they treated for tax purposes? A. Organizational expenditures are ordinary and necessary business expenses paid or incurred to investigate the creation or acquisition of an active trade or business, to create an active trade or business, or to conduct an activity engaged in for profit or the production of income before the time the activity becomes an active trade or business. A corporation can elect under Sec. 195 to deduct the first $5,000 of the expenditures and to amortize the remainder over a period of 180 months starting with the month in which an active trade or business begins. B. Organizational expenditures include outlays incident to the creation of a corporation, chargeable to the corporation's capital account, and of a character that would be amortizable if the corporation had a limited life. The corporation can elect under Sec. 248 to deduct the first $5,000 of the expenditures incurred in the corporation's first tax year and to amortize the remainder over a period of 180 months starting with the month in which the corporation begins business operations. C. Organizational expenditures are ordinary and necessary business expenses paid or incurred to investigate the creation or acquisition of an active trade or business, to create an active trade or business, or to conduct an activity engaged in for profit or the production of income before the time the activity becomes an active trade or business. The corporation can elect under Sec. 248 to deduct the first $10,000 of the expenditures incurred in the corporation's first tax year and to amortize the remainder over a period of 180 months starting with the month in which the corporation begins business operations. D. Organizational expenditures include outlays incident to the creation of a corporation, chargeable to the corporation's capital account, and of a character that would be amortizable if the corporation had a limited life. A corporation can elect under Sec. 195 to deduct the first $10,000 of the expenditures and to amortize the remainder over a period of 180 months starting with the month in which an active trade or business begins.
B
Which of the following items is a temporary difference between tax income and financial accounting income? A. dividends-received deduction B. depreciation C. production activities deduction D. proceeds on life insurance on a key executive
B
Why are corporations allowed a dividends-received deduction? What dividends qualify for this special deduction? A. Corporations are allowed a dividends-received deduction to partially or fully mitigate the effects of multiple taxation of corporate earnings. Dividends received by a domestic corporation from another domestic corporation (other than S corporations) qualify for the special 60%, 70%, or 80% deduction. Distributions that receive capital gain treatment, most dividends from foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed stock are eligible. B. Corporations are allowed a dividends-received deduction to partially or fully mitigate the effects of multiple taxation of corporate earnings. Dividends received by a domestic corporation from another domestic corporation (other than S corporations) qualify for the special 70%, 80%, or 100% deduction. Distributions that receive capital gain treatment, most dividends from foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed stock are not eligible. C. Corporations are allowed a dividends-received deduction to prevent abuse in situations where a corporation is closely held. Dividends received by a domestic corporation from another domestic corporation (other than S corporations) qualify for the special 70%, 80%, or 100% deduction. Distributions that receive capital gain treatment, most dividends from foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed stock are not eligible. D. Corporations are allowed a dividends-received deduction to prevent abuse in situations where a corporation is closely held. Dividends received by a domestic corporation from another domestic corporation (other than S corporations) qualify for the special 60%, 70%, or 80% deduction. Distributions that receive capital gain treatment, most dividends from foreign corporations, dividends on stock held 45 days or less, and dividends on debt financed stock are eligible.
B
Identify which of the following statements is true. A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. B. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. C. A corporate NOL can be carried back two years and forward 15 years. D. All of the above are false.
B
Identify which of the following statements is true. A. The full 80% dividends-received deduction is available without restriction. B. The dividends-received deduction is designed to reduce double taxation of corporate dividends. C. If a corporation receives dividends eligible for the 80% dividends-received deduction and the 70% dividends-received deduction, the 70% dividends-received deduction reduces taxable income prior to the 80% deduction. D. All of the above are false.
B
Compare the tax treatment of capital gains and losses by a corporation and by an individual. A. Corporations can net capital losses with ordinary income since they are taxed at the same rate. However, individuals can only carry losses forward for an indefinite period. B. Capital gains are computed the same way for corporations and individuals. However, capital losses are treated as a carry back of 5 years and a carry forward of 20 years for corporations. Individuals can only take capital losses in the year they are incurred. C. Corporations and individuals compute capital gains and losses the same way. However, corporations cannot deduct capital losses from ordinary income, and instead carry a capital loss back three years and forward five years to offset capital gains. Individuals carry losses forward for an indefinite period. D. Corporations and individuals compute capital gains and losses the same way. However, corporations have a preferential tax rate for net capital gains that is lower than the ordinary income rate of corporations, so more corporations invest for gains.
C
Evans Corporation has a $15,000 net capital loss in 2011. The corporation reported the following capital gain net income during the past three years. Identify which of the following statements is true. Year Capital Gain Net Income 2008 $10,000 2009 11,000 2010 5,000 A. The loss is used to offset the $11,000 of the 2009 gains and then carried back to offset $4,000 of the year 2008 net gain. B. The loss is used to offset the gains from 2010 and then carried back to offset $10,000 of the gains in 2008. C. The loss is used to offset the year 2008 net gains, then $5,000 of the year 2009 net gains. Your answer is correct. D. The loss is used to offset $3,000 of the current year ordinary income, all of the year 2008 capital gains, and $7,000 of the year 2009 net gain.
C
In February of the current year, Brent Corporation donates computer equipment that it purchased six months ago to Eastside High School for use in its educational program. The donated property had a $20,000 adjusted basis to Brent and a $40,000 FMV. What is the amount of the gift? A. $20,000 B. $35,000 C. $30,000 D. $50,000
C
What are the tax advantages of substituting fringe benefits for salary paid to a shareholder-employee? A. This allows the shareholder-employee to keep a large salary, since these fringe benefits include car allowances, house expense, and any other business or personal expense that is not covered under the salary paid. B. If salaries are too high for shareholder-employee's, the IRS will investigate the salary paid to ensure it is not too inflated for the position. Therefore, fringe benefits are beneficial to avoid IRS encounters. C. This permits the shareholder-employee to exclude these amounts from personal taxation while the corporation obtains a deduction for the expenditure. D. None of the above.
C
What are start-up expenditures? How are they treated for tax purposes? A. Start-up expenditures are ordinary and necessary business expenses paid or incurred to investigate the creation or acquisition of an active trade or business, to create an active trade or business, or to conduct an activity engaged in for profit or the production of income before the time the activity becomes an active trade or business. A corporation can elect to deduct the first $500 of the expenditures and amortize the remainder over a period of 72 months starting with the month in which an active trade or business begins. B. Start-up expenditures are outlays incident to the creation of a corporation, chargeable to the corporation's capital account, and of a character that would be amortizable if the corporation had a limited life. A corporation can elect to deduct the first $500 of the expenditures and amortize the remainder over a period of 72 months starting with the month in which the corporation begins business operations. C. Start-up expenditures are ordinary and necessary business expenses paid or incurred to investigate the creation or acquisition of an active trade or business, to create an active trade or business, or to conduct an activity engaged in for profit or the production of income before the time the activity becomes an active trade or business. A corporation can elect to deduct the first $5,000 of the expenditures and amortize the remainder over a period of 180 months starting with the month in which an active trade or business begins. D. Start-up expenditures are outlays incident to the creation of a corporation, chargeable to the corporation's capital account, and of a character that would be amortizable if the corporation had a limited life. A corporation can elect to deduct the first $5,000 of the expenditures and amortize the remainder over a period of 180 months starting with the month in which the corporation begins business operations.
C
Which of the following items is a permanent difference between taxable and financial accounting income? A. net capital loss B. bad debts C. dividends-received deduction D. depreciation
C
Carver Corporation uses the accrual method of accounting and the calendar year as its tax year. Its board of directors authorizes a cash contribution on November 3 of Year 1, that the corporation pays on March 9 of Year 2. In what year(s) is it deductible? What happens if the corporation does not pay the contribution until April 20 of Year 2? A. Carver Corporation must deduct the contribution in Year 2 in both situations because the contribution was paid in Year 2 in both scenarios. B. Carver Corporation must deduct the contribution in Year 1 in both situations because the contribution was authorized in Year 1 in both scenarios. C. Carver Corporation will deduct the contribution in Year 2 if it pays it on March 9 of Year 2. However, if Carver pays it on April 20 of Year 2, it will deduct the contribution in Year 1. D. Carver Corporation can deduct the contribution in Year 1 if it pays it on March 9 of Year 2. However, if Carver pays it on April 20 of Year 2, it cannot deduct the contribution until Year 2
D
Crane Corporation incurs a $75,000 NOL in the current year. In which years can Crane use this NOL if it makes no special elections? When might a special election to forgo the carryback of the NOL be beneficial for Crane? A. Crane Corporation may carry its NOL back two years and forward to the next 20 years, or it can forgo the carry back period and just carry the NOL forward to the next 22 years. The corporation might elect to forgo the carryback if (1) its income was taxed at a high marginal rate in the carryback period and the corporation anticipates income being taxed at a lower marginal rate in later years, or (2) it used tax credit carryovers in the earlier year that were about to expire. B. Crane Corporation may carry its NOL back two years and forward to the next 20 years, or it can forgo the carry back period and just carry the NOL forward to the next 20 years. The corporation might elect to forgo the carryback if (1) its income was taxed at a high marginal rate in the carryback period and the corporation anticipates income being taxed at a lower marginal rate in later years, or (2) it used tax credit carryovers in the earlier year that were about to expire. C. Crane Corporation may carry its NOL back two years and forward to the next 20 years, or it can forgo the carry back period and just carry the NOL forward to the next 22 years. The corporation might elect to forgo the carryback if (1) its income was taxed at a low marginal rate in the carryback period and the corporation anticipates income being taxed at a higher marginal rate in later years, or (2) it used tax credit carryovers in the earlier year that were about to expire. D. Crane Corporation may carry its NOL back two years and forward to the next 20 years, or it can forgo the carry back period and just carry the NOL forward to the next 20 years. The corporation might elect to forgo the carryback if (1) its income was taxed at a low marginal rate in the carryback period and the corporation anticipates income being taxed at a higher marginal rate in later years, or (2) it used tax credit carryovers in the earlier year that were about to expire.
D
If a corporation's charitable contributions exceed the deduction limitation in a particular year, the excess A. is not deductible in any future year. B. is carried over indefinitely. C. may be carried back to the third preceding year. D. becomes a carryover to a maximum of five succeeding years.
D
List four types of differences that can cause a corporation's book income to differ from its taxable income. A. (1) Book income is always taxable income, (2) some gross income is not included in book income for the current period, (3) financial accounting expenses are also allowed as a deduction in the same year for tax purposes, and (4) all deductions allowed for tax purposes are also allowed as expenses in determining book income for the current period. B. (1) Book income is always taxable income, (2) gross income always equals book income for the current period, (3) some financial accounting expenses are not deductible for tax purposes, and (4) all deductions allowed for tax purposes are also allowed as expenses in determining book income for the current period. C. (1) Some book income is not taxable, (2) gross income always equals book income for the current period, (3) financial accounting expenses are also allowed as a deduction in the same year for tax purposes, and (4) some deductions allowed for tax purposes are not expenses in determining book income for the current period. D. (1) Some book income is not taxable, (2) some gross income is not included in book income for the current period, (3) some financial accounting expenses are not deductible for tax purposes, and (4) some deductions allowed for tax purposes are not expenses in determining book income for the current period.
D
Super Corporation gives a painting to a museum for public display on August 6. The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift. Also, Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year. Super Corporation is a calendar-year corporation that uses the accrual method of accounting. Before considering the 10% limitation rule, the maximum deduction for the current year is A. $12,000. B. $20,000. C. $30,000. D. $32,000.
D
Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In addition, Trail has a net capital gain of $60,000. Trail's taxable income is A. a $20,000 loss. B. a $40,000 loss. C. $60,000. D. $20,000.
D
What are the major advantages and disadvantages of filing a consolidated tax return? A. An advantage includes profits or gains reported on intercompany transactions are given preferential tax treatments. However, a disadvantage includes capital gains of one member cannot be offset by capital losses of another member. B. An advantage includes gains on intercompany transactions are deferred. However, a disadvantage is profits or gains reported on intercompany transactions are deferred meaning taxes will still need to be paid in the future. C. An advantage includes lower administrative expenses incurred in preparing and filing the consolidated return. However, a disadvantage is the election must be made yearly. D. An advantage includes income of a profitable member can be offset by losses of another member. However, a disadvantage includes losses of an unprofitable member may limit deductions or credits of a profitable member.
D
What is a "large" corporation for purposes of the estimated tax rules? What special rules apply to such large corporations? A. A large corporation is one that expects taxable income to be $1 million or more in the current year. Estimated taxes must be based on the current year's liability, with 75% paid in by the second quarterly installment. B. A large corporation is one that expects net income to be $1 million or more in the current year. If this applies, estimated taxes must be based on the current year's liability in four equal installments. C. A large corporation is one whose net income was $1 million or more in the preceding tax years. Estimated taxes must be based on 110% of the current year's liability. D. A large corporation is one whose taxable income was $1 million or more in any of its three immediately preceding tax years. If this applies, estimated taxes must be based on the current year's liability.
D
A C corporation must use a calendar year as its tax year unless it has a substantial business purpose to use a fiscal year. True False
False
Corporate estimated tax payments are due April 15, June 15, September 15, and January 15. True False
False
Corporations are permitted to deduct $3,000 in net capital losses annually. True False
False
The dividends-received deduction is designed to reduce double taxation of corporate dividends payable to individual shareholders. True False
False