ACCT 545 Exam #1
The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year: Proceeds received $50,000 Cost 30,000 Par value 9,000 What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock?
$0 A corporation does not recognize gain or loss on the receipt of money or other property in exchange for its stock, including treasury stock. Therefore, no gain or loss is recognized by Lee as a result of the treasury stock sale.
Tech Corp. files a consolidated return with its wholly owned subsidiary, Dow Corp. During the current year, Dow paid a cash dividend of $20,000 to Tech. What amount of this dividend is taxable on the 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.
Sanders Corporation purchased a $1 million 10-year debenture for $1.2 million on January 1, 2014. In 2021, how much amortization of bond premium must Sanders report on its 2021 income tax return from purchase of this bond?
$20,000 In the case of a bond, the amount of amortizable bond premium for the taxable year shall be allowed as a reduction of interest income. The amount is amortized over the life of the bond. Thus, Sanders must report $20,000 [($1,200,000 - $1,000,000) ÷ 10].
In which type of business organization are income taxes always required to be paid by the entity on profits earned as well as by the owners upon distribution thereof?
C corporation. A C corporation is an entity subject to the corporate income tax. Any corporation that is not an S corporation is a C corporation. An S corporation is a closely held corporation that has made an election under federal law to be taxed similarly to a partnership. Thus, an S corporation does not usually pay corporate income tax.
One of the elections a new corporation must make is its choice of an accounting period. Which of the following entities has the most flexibility in choosing an accounting period?
C corporation. Generally, C corporations may elect either a calendar or fiscal tax year, S corporations and personal service corporations are generally required to use a calendar year, and partnerships must use a "required" tax year.
ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year.ParentCo$50,000SubOne(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?
C.$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.
The selection of an accounting method for tax purposes by a newly incorporated C corporation
Is made on the initial tax return by using the chosen method. A newly incorporated C corporation makes its initial accounting method selection simply by using the chosen method on their initial return. This is a form of an election.
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, and (7) domestic international sales corporations. 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.
During 2021, Ral Corp. exchanged 5,000 shares of its own $10 par common stock for land with a fair market value of $75,000. As a result of this exchange, Ral should report in its 2021 tax return
No gain. A corporation does not recognize any gain or loss on the sale or exchange of its own stock, including treasury stock. Ral Corp. should report no gain.
Which one of the following statements about the includible foreign operations of Nora Corporation (a domestic corporation) is true?
Nora may elect to take either a credit or a deduction, but not both, for the income taxes paid to a foreign country. Section 164 allows a deduction for foreign income taxes paid or accrued during the taxable year. Alternatively, Secs. 27 and 901(a) permit both individual taxpayers and corporations to 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 [Sec. 275(a)(4)].
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 3%. 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.
The only class of outstanding stock of Corporations L, M, N, O, and P is owned by the following unrelated individuals: Corporations/Percent of Stock Owned Individual L M N O P G 30% 40% 50% 50% 5% H 10% 5% 10% 20% 5% I 30% 40% 30% 10% 5% J 30% 15% 10% 20% 5% K -0- -0- -0- -0- 5% Which of the following corporations are members of a brother-sister controlled group?
Only L, M, N, and O.
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 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 carryover can occur.
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:Adjusted tax basisFMVCash$4,000$4,000Land2,0009,000What 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.
For the year ended December 31, 2021, Kell Corp.'s book income, before income taxes, was $70,000. Included in the computation of this $70,000 was $10,000 of proceeds of a life insurance policy, representing a lump-sum payment in full as a result of the death of Kell's controller. Kell was the owner and beneficiary of this policy since 2005. In its income tax return for 2021, Kell should report taxable life insurance proceeds of
$0 For employer-owned policies issued prior to August 17, 2006, proceeds of a life insurance policy paid by reason of death of the insured are excluded by the beneficiary. Since no part of the $10,000 represents interest on proceeds retained by the insurance company, no part of it is reported as gross income.
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:DebitCreditInvestment in Saga Corp. common stock$56,000Equity in earnings of subsidiary$56,000Cash24,000Investment in Saga Corp. common stock24,000In 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.
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 The DRD does not apply to dividends paid among affiliated group members that file a consolidated tax return.
During the current year, Webster Corporation repurchased 2,000 shares of its $1 par common stock in the open market for $5,000. Webster later resold 1,000 of these treasury shares to new shareholders when the stock was selling for $4 per share. Webster will report a gain (loss) on its current-year tax return of
$0 Under Sec. 1032(a), a corporation recognizes no gain or loss on the receipt of money or other property in exchange for its own stock, including treasury stock. Therefore, Webster should not report any gain.
Sunshine Corp., a wholly owned subsidiary of Pierpoint Corp., purchased land from Pierpoint for its fair market value of $10,000 on January 1 of the previous tax year. Pierpoint's adjusted basis of the land on the date of sale was $8,000. During the current tax year, Sunshine sold the land for $9,000 to an unrelated taxpayer. What gain or loss will be reported on a consolidated tax return filed by Sunshine and Pierpoint for the current tax year?
$1,000 An intercompany transaction is a transaction between corporations that are members of the same consolidated group. In the consolidated tax return, realizing any gain or loss is postponed until the next transaction outside of the consolidated group. The buyer in the intercompany transaction assumes the same basis and holding period as the selling member. Thus, the consolidated entity's adjusted basis in the land is $8,000. When the land is sold for $9,000 to an unrelated party, a $1,000 gain ($9,000 sales proceeds - $8,000 land basis on the date of sale) is recognized and reported on the consolidated tax return.
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 2020. In early 2021, P estimated its 2021 tax liability and paid a total of $1.2 million in equal installments on appropriate due dates. On February 12, 2022, the corporation's 2021 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, 2020. For the year ended December 31, 2021, 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 2021 is required for the reasonable needs of the business. How much is the allowable Accumulated Earnings Credit at December 31, 2021?
$105,000 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 2021.
Press Corp. and Swank Corp. file a consolidated return. The companies had the following items of income and deductions for the current year:Press Corp.Swank Corp.Income from operations$80,000$40,000Section 1231 loss(12,000)0Capital gain (loss)4,000(3,000)What is Press and Swank's consolidated taxable income?
$109,000 Consolidated taxable income is calculated by computing (1) taxable income of each member of the consolidation and (2) computing certain consolidated amounts that include but are not limited to Sec. 1231 gains and losses and capital gains and losses. Thus, the consolidated taxable income is $109,000 ($120,000 total income from operations - $12,000 total Sec. 1231 losses + $1,000 net capital gain).
Jackson Corp.'s taxable income for 2021 from all of its global operations was $500,000. Taxable income from foreign sources was $125,000 during 2021. Jackson, a domestic corporation, calculated its 2021 tax liability before consideration of the Foreign Tax Credit to be $50,000, due with its 2021 tax return on March 1, 2022. What is the amount of Jackson's Foreign Tax Credit limitation for 2021?
$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 2021 is limited to $50,000 × ($125,000 ÷ $500,000), or $12,500.
What is the current earnings and profits (E&P) of a corporation with taxable income of $10,000 that included the following unadjusted items:Meals$ 200Capital loss carried over from prior year3,000
$12,900 Corporations are allowed to deduct 50% of qualifying meal expenses. The corporation's current E&P is $12,900 [$10,000 + $3,000 - ($200 ×50%)].
The following information for 2021 pertains to Bartley Corporation: Capital contributions by shareholders $50,000 Realized loss on sale of treasury stock (10,500) Income from rental property in a sinking fund (in the hands of a trustee) 5,500 Rent paid directly to a bond holder on a lease of corporate property 8,000 What is the amount of gross income to Bartley Corporation for 2021?
$13,500 Gross income of a corporation includes all income, unless specifically excluded. Excluded from a corporation's gross income are capital contributions by shareholders and any gain or loss realized by a corporation on the sale or exchange of its own stock (including treasury stock). Included in a corporation's gross income are income from property in a sinking fund and income that has been assigned by the corporation to another. Thus, Bartley Corporation's gross income is $13,500 ($5,500 sinking fund income + $8,000 assignment of income).
B Corporation had a taxable income of $140,000 for the current tax year. B's financial records contained the following information related to B's performance:Municipal bond interest of $10,000 was earned and is not included in taxable income.Depreciation claimed on trucks used in B's operations was $25,000. If the straight-line method had been used, depreciation expense would have been $15,000.B Corporation had a net capital loss of $6,000 that is carried over from a previous year to reduce its current-year taxable income. Current-year net capital gain before net capital loss carryover is $5,000.The nondeductible portion of the business meals expense for the current year was $8,000.B received a state tax refund of $7,500 related to the previous year's taxes. This amount has not been included in taxable income. What is B's current E&P at the end of the year?
$157,000 Thus, net capital loss carryover deducted in the current year is $5,000. Accordingly, the current E&P at the end of the year is $157,000 ($140,000 taxable income + $10,000 municipal interest + $5,000 capital loss carryover deducted + $10,000 excess depreciation - $8,000 nondeductible business meals expense).
On December 31, 1999, Homer Corporation issued $2 million of 50-year bonds for $2.6 million. On December 31, 2021, Homer issued new bonds with a face amount of $3 million for which it received $3.4 million. Part of the proceeds received were used to repurchase $2,320,000 of the bonds issued in 1999. No elections were made to adjust the basis of any property. Assume the straight-line method is used for premium amortization. What is the taxable income to Homer on the repurchase of the 1999 bonds?
$16,000 Original issue price $2,600,000 Less: Face amount (2,000,000) Total premium $ 600,000 Issue price $2,600,000 Less: Premium already recognized as income [($600,000 ÷ 50 years) × 22 years] (264,000) Issue price less premium already included in income $2,336,000 Less: Repurchase price (2,320,000) Amount included in 2021 income $ 16,000
Sappington Corporation is a C corporation that has a $1 million net operating loss carryover from last year. Sappington's taxable income (before deducting the loss carryover) for the current year is $12 million. What is Sappington's income tax liability?
$2,310,000 The net operating loss may be carried forward under Sec. 172(b) to reduce current-year taxable income to $11 million. The corporate tax rate is a flat 21%. The corporation's income tax liability, therefore, is $2,310,000 ($11,000,000 × 21%).
T, a calendar-year corporation that began doing business 10 years ago, had $35,000 in accumulated earnings and profits on January 1 of this year. T had an operating loss of $60,000 for the first 6 months of this year but had $10,000 in earnings and profits for the entire year. T made a distribution of $25,000 cash to its shareholders on April 1 this year. What is the amount of T's accumulated earnings and profits at the close of business on December 31?
$20,000 Determination must first be made as to whether or not the cash distribution is a dividend. Section 316 defines a dividend as a distribution of earnings and profits. Regulation 1.316-1(a)(1)(ii) states that current E&P is to be computed at the end of the tax year without regard to distributions during the year. At December 31 of this year, T has a current E&P of $10,000 and accumulated E&P of $35,000. The cash distribution comes first from current E&P ($10,000 - $10,000 = $0), with the balance from accumulated E&P, thereby leaving a $20,000 balance ($35,000 - $15,000).
C Corporation had taxable income of $35,000 which included the following items:Excess depreciation claimed over the straight-line method$7,500Dividends-received deduction4,000Total business meals expense2,000What is C's current E&P?
$45,500 Accordingly, 50% of the total expense, or $1,000 ($2,000 × 50%), should be subtracted from taxable income. As such, the current E&P is $45,500 ($35,000 + $7,500 + $4,000 - $1,000).
For the current year, Gannon Corporation has U.S. taxable income of $500,000, which includes $100,000 from a foreign division. Gannon paid $32,000 of foreign income taxes on the income of the foreign division. Assuming Gannon's U.S. income tax for the current year before credits is $105,000, its maximum Foreign Tax Credit for the current year is
$21,000 The Foreign Tax Credit is allowed under Secs. 27 and 901 for foreign income taxes paid or accrued during the year and is limited by Sec. 904(a). The limitation is the proportion of the taxpayer's tentative U.S. 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. The following calculation should be made: Foreign source taxable income × U.S. income tax = Foreign tax credit limitation Worldwide taxable income $100,000 × $105,000 = $21,000 $500,000 The unused credit of $11,000 ($32,000 - $21,000) may be carried back 1 preceding year and then forward to the following 10 taxable years [Sec. 904(c)].
Corporation W, which uses the accrual method of accounting, had earnings and profits of $95,000 on December 31, Year 1. Based on the following information, compute earnings and profits as of December 31, Year 2:Taxable income per return$185,000Contributions in excess of the adjusted taxable income limitation1,500Interest paid for tax-exempt bonds1,000Tax-exempt interest received3,000Federal income taxes55,400MACRS depreciation in excess of straight-line alternative depreciation system1,500
$226,600 Calculation of earnings and profits begins with taxable income according to the tax return. Tax-exempt income is added to the taxable income, and nondeductible expenditures are subtracted, e.g., federal income taxes, charitable contributions in excess of the adjusted taxable income limitation, and interest paid for tax-exempt bonds. Also, earnings and profits are calculated based upon straight-line depreciation using the alternative depreciation system, so excess MACRS depreciation must be added back. E&P at December 31, Year 1 $ 95,000 Taxable income for Year 2 185,000 Add: Tax-exempt interest 3,000 Excess depreciation 1,500 Deduct: Excess contributions (1,500) Interest paid on tax-exempt bonds (1,000) Federal income taxes (55,400) E&P at December 31, Year 2 $226,600
In 2021, CPAs, Inc., a corporation owned entirely by its employees, all of whom are certified public accountants performing only services in the accounting profession, had taxable income of $110,000. What is the tax liability of CPAs, Inc., for 2021?
$23,100 A personal service corporation has two main characteristics: (1) Substantially all of its activities must involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and (2) substantially all of its stock must be owned by employees who perform the services. The taxable income of a personal service corporation (like other C corps.) is taxed at a flat rate of 21%. Therefore, CPAs, Inc., will have a $23,100 ($110,000 × 21%) tax liability.
For 2021, Corporation N, a calendar-year taxpayer, had a tax liability of $100,000. N's 2020 tax liability was $200,000. What is the amount N must have paid for each quarter for 2021 to avoid any penalty or interest for underpayment of estimated tax?
$25,000 Section 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). Corporation N has a total tax liability of $100,000 for 2021. 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).
The minimum Accumulated Earnings Credit is
$250,000 for non-personal service 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 corporations other than personal service corporations.
John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in wholesaling operations. Ral's retained earnings at January 1, 2021, amounted to $1 million. For the year ended December 31, 2021, Ral's book income, before federal income tax, was $300,000. Included in the computation of this $300,000 was the following: On 12/1/21, Ral received prepaid rent of $27,000 from a tenant for a 3-year lease commencing 1/1/22 to cover rents for the years 2022, 2023, and 2024. In conformity with GAAP, Ral did not include any part of this rental in its income statement for the year ended 12/31/21. What amount should Ral include in its 2021 taxable income for rent revenue?
$27,000 Both cash- and accrual-basis taxpayers must include in gross income amounts actually or constructively received if the taxpayer has an unrestricted claim to the amounts. Ral has an unrestricted claim to the rent received under the lease. The full amount is gross income in 2021.
On April 30, Year 2, 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 Year 2. 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.
addo Corporation is owned by three engineers, all of whom are employed by the corporation. It primarily performs civil engineering activities with respect to construction projects. During the current year, Caddo Corporation earned $150,000 of taxable income. Caddo has not elected to be taxed under Subchapter S. What is Caddo's current-year regular tax liability?
$31,500 the taxable income of a personal service corporation is taxed at a flat rate of 21%. Therefore, Caddo Corporation's current-year tax liability is $31,500 ($150,000 × 21%).
The following information pertains to Wald Corp.'s operations for the year ended December 31, 2021: 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 2021?
$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 basket computation: ($30,000 ÷ $300,000) × $96,000 = $9,600 Other (i.e., general) foreign source taxable income basket computation: ($90,000 ÷ $300,000) × $96,000 = $28,800 Foreign taxes paid on the general income basket is less than the limit and fully creditable. The total credit is $36,600 ($9,600 + $27,000).
A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?
$40,000 The estimated tax payments for the year are limited to the lesser of 100% of the prior year's tax ($40,000) or 100% of the current year's tax ($48,000). Thus, the lowest amount that must have been paid as estimated taxes for the current year is $40,000.
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?
$5,000 The dividend received by Company X must be eliminated. This increases Company X's net loss to $130,000. Company Y receives a 50% dividends-received deduction because the dividends come from less than 20% owned stock. Therefore, Company Y has taxable income of $125,000 [$140,000 - (50% × $30,000)]. When these amounts are combined, the total tax loss is $5,000 ($125,000 - $130,000).
In order for Corporation X, a calendar-year taxpayer, to be required to make estimated tax payments in 2021, 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.
A company's taxable income of $50,000 includes the following unadjusted items:Interest from municipal bonds$ 5,000Depreciation in excess of straight-line12,000Excessive compensation4,000What is the company's E&P?
$63,000 Positive adjustments to taxable income include (1) exempt income, such as interest from municipal bonds; and (2) deductions for taxable income, but not for book purposes, such as depreciation in excess of straight-line. Negative adjustments to taxable income include nondeductible items for taxable income, such as excessive compensation. Therefore, E&P is $63,000 ($50,000 + $5,000 + $12,000 - $4,000).
Andi Corp. issued $1 million face amount of bonds in 2016 and established a sinking fund to pay the debt at maturity. The bondholders appointed an independent trustee to invest the sinking-fund contributions and to administer the trust. In 2021, the sinking fund earned $60,000 in interest on bank deposits and $8,000 in net long-term capital gains. All of the trust income is accumulated with Andi's periodic contributions so that the aggregate amount will be sufficient to pay the bonds when they mature. What amount of trust income was taxable to Andi in 2021?
$68,000 If a corporation establishes a sinking fund under the control of a trustee for the payment of its debt, any gain arising from the fund must be included in income of the corporation. Andi must include both the interest and the net long-term capital gains.
A corporation's taxable income for the current year was reported as $70,000. Items of interest on the return include the following:Penalties and fines$4,500Life insurance premiums3,600NOL carryover5,300Municipal bond expense1,100Dividends-received deduction2,700What are the corporation's earnings and profits (E&P) at year end?
$68,800 Therefore, the corporation's E&P at year end are $68,800 ($70,000 + $2,700 + $5,300 - $3,600 - $4,500 - $1,100).
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 $40,000 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 $120,000. As a result of the sale of the land in Year 2, the corporations should report on their consolidated return
$80,000 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 $80,000 of ordinary income ($120,000 amount realized - $40,000 adjusted basis) to be reported on the Year 2 consolidated return.
Able Corporation and Baker Corporation file a consolidated return on a calendar-year basis. Last year, Able sold land to Baker for its fair market value of $50,000. At the date of sale, Able had an adjusted basis in the land of $35,000 and had held the land for several years as an investment. Baker held the land primarily for sale to its customers in the ordinary course of its business and sold it to a customer early this year for $60,000. As a result of the sale of the land this year, the corporations should report on their consolidated return
.$25,000 ordinary income. The total gain that is reported by the affiliated group in the current year is $25,000 ($60,000 sale price to third party - $35,000 basis on Able's books). The entire gain from the two transactions is ordinary income even though Able held the land as a capital asset [Reg. 1.1502-13(c)(7)(ii)(j), Ex. (2)].
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):OwnershipPropertyA 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. 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.
In order to adopt a fiscal tax year on its first federal income tax return, a corporate taxpayer must
.Maintain books and records and report income and expenses using that tax year.
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.
Rigg, Steele, and Urco Corps., all accrual-basis, calendar-year C corporations, have only voting common stock outstanding. Rigg owns 85 percent of Steele and 40 percent of Urco. Steele owns 50 percent of Urco. Which group of corporations qualifies as an affiliated group and may join in the filing of a consolidated federal income tax return?
.Rigg, Steele, and Urco. An affiliated group includes each corporation in a chain of corporations. The other group members in total must directly own stock in the corporation that represents both (1) 80% or more of total voting power and (2) 80% or more of total value outstanding. Additionally, a parent corporation must directly own stock as outlined in (1) and (2) (80% voting and value) of at least one includible corporation. Rigg owns 85% of Steele directly and 82.5% of Urco directly and indirectly [40% direct ownership + (85% × Steele's 50% ownership of Urco)]. Thus, Rigg, Steele, and Urco qualify as an affiliated group.
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 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.
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:Investment in Shore Corp. common stock$112,000Equity in earnings of subsidiary$112,000Cash48,000Investment in Shore Corp. common stock48,000In its current year consolidated tax return, Bank should report dividend revenue of
0 Dividends paid among entities that file a consolidated tax return are eliminated
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.
In the consolidated income tax return of a corporation and its wholly owned subsidiary, what percentage of cash dividends paid by the subsidiary to the parent is tax-free?
100% Distributions from outside the affiliated group are eligible for the 50%, 65%, or 100% dividends-received deductions that are available to corporations that do not make a consolidated tax return election.
Finbury Corporation's taxable income for the year ended December 31, 2020, was $2 million. For Finbury to escape the estimated tax underpayment penalty for the year ending December 31, 2021, its total 2021 estimated tax payments must equal at least
100% of its 2021 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.
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.
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?
A corporation must own 80% of the total voting power and 80% of the total value of the stock in order to file a consolidated return.
In Year 1, a domestic LLC with two members elected classification as a corporation. In Year 2, one of the members withdrew from the LLC. What is the LLC's tax classification for Year 2 immediately after the member withdrew?
A corporation. The withdrawal of one of the members does not change the LLC's elected tax classification. An entity that elects to be classified as a corporation by filing Form 8832, Entity Classification Election, can make another election to change its classification. The entity generally cannot change its classification by election again during the 60 months after the effective date of the election. The 60-month limitation does not apply if the previous election was made by a newly formed eligible entity and was effective on the date of formation.
A group of corporations (A, B, C, D, and E) all having only one class of stock have the following ownership and classification: Corp. A -- Domestic corporation that owns 85% of B, 20% of C, and 100% of E's outstanding stock Corp. B -- Domestic corporation that owns 70% of C and 100% of D's outstanding stock Corp. C -- Domestic corporation that owns 10% of A's stock Corp. D -- B's Foreign Sales Corporation (FSC) Corp. E -- Foreign corporation that owns 10% of C and 5% of B's stock Which are members of an affiliated group?
A, B, and C. Corporation A is the common parent because it owns 85% of Corporation B directly, and Corporation A combined with Corporation B owns 90% of Corporation C. Thus, Corporations A, B, and C are members of an affiliated group.
Francis Corporation had taxable income of $260,000 for its initial taxable year. A review of company records revealed the following information:The current-year tax depreciation expense on furniture and fixtures, the only asset owned by Francis Corporation, was $10,000. If Francis had used the alternative depreciation system (straight-line method), depreciation expense deducted would have been $5,000.Francis had tax-exempt interest income of $22,000 that has not been included in taxable income.Francis paid dividends of $16,000 that were not deducted.Francis had $20,000 of returns and allowances that were deducted on the return.Francis reported a $20,000 gain on an installment sale of a noninventory item. The total gain on the sale was $100,000. Earnings and profits for Francis Corporation at the close of the current year were
A.$351,000 Taxable income $260,000 Depreciation ($10,000 - $5,000) 5,000 Tax-exempt interest income 22,000 Installment sale gain not reported for tax purposes ($100,000 - $20,000) 80,000 Current earnings and profits $367,000 Less: Dividends paid out of current earnings and profits (16,000) Earnings and profits balance $351,000
Which of the following entities may adopt any tax year end?
A.C corporation.
Most unincorporated businesses can choose whether to be taxed as a partnership or a corporation. The new regulations provide for a default rule if no election is made. If an election is not made and the default rules apply, which of the following is true?
All of the answers are correct. Under a "check-the-box" system, certain business entities are automatically treated as corporations for federal tax purposes, while others may elect to be treated as corporations for federal tax purposes. If an entity has one owner and is not automatically considered a corporation, it may nevertheless elect to be treated as a corporation or, by default, it will be treated as a disregarded entity (e.g., a sole proprietorship). Similarly, if an entity has two or more owners and is not automatically considered a corporation, it can elect to be taxed as a corporation for federal tax purposes; otherwise, it will be taxed as a partnership. Further, if all members of a new foreign entity have limited liability, the entity is classified as a corporation. One type of a corporation as defined in the Internal Revenue Code is an association.
Which of the following corporations would be taxed as a personal service corporation?
An architecture and engineering firm. Personal service corporations are corporations that derive substantially all (roughly 95%) of their gross receipts from personal service activities (health, law, engineering, accounting, actuarial science, consulting, or performing arts). Accordingly, an architecture and engineering firm would be classified as a personal service corporation.
Edge Corp., a calendar-year C corporation, had a net operating loss and zero tax liability for its 2020 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter 2021 estimated income tax payment using the
Annualized Income Method - yes Preceding Year Method - yes 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.
Which one of the following statements about a controlled group of corporations is false?
Any controlled group may elect to file consolidated federal income tax returns.
The accumulated earnings tax is not imposed on corporations that
Are personal holding companies. Any corporation, unless expressly exempt, may incur AET liability. PHCs are expressly exempt from the AET but may be subject to the PHC tax.
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 personal service corporations. When undistributed (current and accumulated) earnings and profits do not exceed $150,000, the ATI will be equal to zero in all circumstances and no accumulated earnings tax will be imposed.
Which of the following items is not an adjustment to taxable income when determining a corporation's current earnings and profits amount?
Capital contributions. Section 312 provides a partial definition of earnings and profits. Capital contributions are excluded from the corporation's gross income under Sec. 118. They are also excluded from earnings and profits since they do not represent an increase in corporate earnings that are available to be paid out in the form of a dividend. As a result, no adjustment to taxable income is made for capital contributions.
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 carryforwards are not allowed. Instead, capital losses are deductible in full in the year incurred (but must be reduced by prior net capital gain deductions).
When computing a corporation's income tax expense for estimated income tax purposes, which of the following should be taken into account?
CorporateTax Credits - Yes Corporate Regular Income - 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 and certain other taxes, reduced by corporate tax credits.
Which of the following is a positive adjustment for calculating current earnings and profits (E&P)?
Deferred gain on installment sales. Current E&P is the current year taxable income adjusted for specific items. Some adjustments are positive and some are negative. Deferred gain on installment sales for taxable income is recognized in the year of sale (i.e., the current year) for E&P.
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.
When calculating current-year E&P, which of the following items represents a negative adjustment to current-year taxable income?
Excessive compensation. Negative adjustments to current-year taxable income include some nondeductible items for taxable income and recognized deferred income. Examples include life insurance premiums, penalties, fines, municipal bond expenses, and excessive compensation, among other items.
ABC, a C corporation, ends its tax year on October 30. When must ABC's income tax return be filed for the year ending October 30, 2021?
February 15, 2022. A corporation must file its return on or before the 15th day of the 4th month following the close of the tax year. For a fiscal-year corporation with a year end of October 30, 2021, the return must be filed by February 15, 2022.
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.
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 2021 estimated tax deposits based on its actual 2021 tax liability. On April 15, 2022, Bass filed a timely automatic extension request for its 2021 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 2021 corporate income tax return. Bass paid $400 additional tax on the final 2021 corporate income tax return filed before the extended due date. For the 2021 calendar year, Bass was subject to pay Interest on the $400 tax payment made in 2022 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. Moreover, there is no failure to pay penalty because Bass paid at least 90% of its tax liability by the original due date and paid the remaining balance by the extended due date
Blink Corp., an accrual-basis, calendar-year corporation, has zero tax liability 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?100%-of-the-preceding-tax-year methodAnnualized income method
II only. Since the previous year had zero tax liability, this method cannot be used. The annualized income method is available in this situation.
Sunex Co. is an accrual-basis, calendar-year domestic C corporation. 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 - Yes The Foreign Tax Rate - 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.
Which of the following statements regarding the election to file a consolidated tax return is correct?
Intercompany gains are eliminated. In a consolidated tax return, realizing any gain or loss is postponed until the next transaction outside the consolidated group. This treatment is referred to as the single-entity approach.
The Snow Corporation, a calendar-year taxpayer, estimates at the end of March 2021 that its federal income tax for 2021 will be $800,000. It pays $200,000 of estimated tax by April 15, 2021, and pays another $200,000 on June 15, 2021. At the end of August 2021, a recalculation shows that its 2021 tax is expected to be $900,000. Which of the following is correct?
Payment due September 15, 2021 -- $275,000; Payment due December 15, 2021 -- $225,000. 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, 2021, is $275,000 ($225,000 quarterly payment + $50,000 shortfall), and the payment due December 15, 2021, is $225,000.
Which one of the following statements about the taxation of personal service corporations is false for the current tax year?
Personal service corporations are subject to the "flat" 21% tax rate only if more than 75% of their gross income is earned income. Under Sec. 448(d)(2), a personal service corporation has two main characteristics: (1) Substantially all of its activities must involve the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and (2) substantially all of its stock must be owned by employees who perform the services. Section 11(b)(2) provides that the taxable income of a personal service corporation is taxed at a flat rate of 21% for tax years beginning after December 31, 2017. There is no requirement that more than 75% of the gross income be earned income for the flat 21% tax rate.
Maple Corporation, a calendar-year corporation, estimated its income tax for 2021 will be $20,000. Its 2020 tax liability was $100,000. Maple deposited the first two estimated tax installments on April 15 and June 15, 2021, in the amount of $5,000 each (25% of $20,000). On July 1, 2021, 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, 2021, and December 15, 2021?
Sept. 15, 2021 - 20,000 Dec. 15, 2021- 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). Seventy-five percent 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.
Which of the following items is not considered when adjusting current-year taxable income to current-year E&P?
State tax refunds. Transactions that are excluded for both E&P and taxable income do not require any adjustment. Examples include unrealized gains and losses, gifts, state tax refunds, and contributions to capital.
Which of the following items reported on a C corporation's tax return would not require an adjustment to taxable income in computing current earnings and profits?
Straight-line depreciation. Current E&P is the current-year taxable income adjusted for specific items. Some adjustments are positive and some are negative. Since straight-line depreciation was used in computing both the corporation's tax and current earnings and profits, it does not require an adjustment.
In Year 1, Brun Corp. properly accrued $10,000 for an income item on the basis of a reasonable estimate. In Year 2, Brun determined that the exact amount was $12,000. Which of the following statements is true?
The $2,000 difference is includible in Brun's Year 2 income tax return.
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. Section 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.
An S corporation engaged in manufacturing has a year end of June 30. Revenue consistently has been more than $30 million under both cash and accrual basis of accounting. The stockholders would like to change the tax status of the corporation to a C corporation using the cash basis with the same year end. Which of the following statements is correct if it changes to a C corporation?
The year end will be June 30, using the accrual basis of accounting.
A C corporation must use the accrual method of accounting in which of the following circumstances?
The business has more than $50 million in average sales. The cash method may be used only by PSCs, S corporations, and C corporations that have average annual gross receipts of not more than $26 million in the 3 preceding tax years.
All of the following are true with respect to the filing of consolidated tax returns except that
The filing of consolidated returns is available to brother-sister corporations. Only parent-subsidiary affiliated groups will meet this requirement of having a common parent corporation. Brother-sister corporations do not have a common parent and therefore cannot file a consolidated tax return.
Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership?
The owner may participate in management while limiting personal liability. A great advantage of the LLC is that its creditors have no claim on the personal assets of members (owners) or managers. Moreover, an LLC is assumed to be member-managed unless its articles of organization state otherwise.
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.
Which of the following items is excluded from both E&P and taxable income and does not require an adjustment in calculating current E&P?
Unrealized gain. Transactions excluded from both E&P and taxable income do not require any adjustment. Examples include unrealized gains and losses, gifts, state tax refunds, and contributions to capital.
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).
Martin Corporation's (a C corporation) bookkeeper told the owner that she could not have all the tax information ready for the accountant immediately after the tax year end of June 30. She was having surgery and asked if the tax return could be postponed. The accountant's answer should be:
Yes, we can request an extension until the following April 15. Generally, a corporation is allowed an automatic extension of 6 months for filing its income tax return if the corporation files the appropriate form (7004) and pays its estimated unpaid tax liability on or before the due date of the return. However, until tax year 2026, June 30 fiscal-year C corporations are given 7 months. The IRS may revoke the extension at any time. Martin's tax return is normally due by September 15 but will be due April 15 after the extension.
