Gleim 10 & 11
Pursuant to a plan of corporate reorganization adopted in July Year 1, Gow exchanged 500 shares of Lad Corp. common stock that he had bought in January Year 1 at a cost of $5,000 for 100 shares of Rook Corp. common stock having a FMV of $6,000. Gow's recognized gain on this exchange was
$0
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 and entertainment $ 200 Capital loss carried over from prior year 3,000
$12,900
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:
$226,600
Bethel Corporation distributed $125,000 to its shareholders on December 31, 2017, the end of its taxable year. Bethel's capital structure was as follows:
$3,600
Francis Corporation had taxable income of $260,000 for its initial taxable year. A review of company records revealed the following information:
$351,000
Which of the following rates is used to compute the personal holding company tax for 2017?
20%
Nancy owns 10% interest in ABC Partnership and 20% of the outstanding shares of XYZ Corporation. Her son Nick owns 60% of the outstanding shares of XYZ Corporation. XYZ Corporation owns 50% interest in ABC Partnership. Denise, Nancy's mother, owns 40% interest in ABC Partnership. Under the constructive ownership rules for partnerships, Nancy is considered to own how much of ABC Partnership?
90%
An item not subtracted in determining accumulated taxable income for the accumulated earnings tax is
A net operating loss deduction from a prior year.
Which of the following would not be considered reasonable needs of a business in determining the accumulated earnings tax?
A specific and feasible plan to declare a stock dividend to all shareholders.
In which of the following circumstances is an entity required to file a tax return in the U.S.?
All of the answers are correct.
What is the difference between allocation and apportionment as it applies to state and local taxation?
Allocation is used to identify nonbusiness income from assets held exclusively for investment purposes for a specific state and local tax jurisdiction, whereas apportionment uses a formula to calculate income generated by conducting operations within that jurisdiction.
A distribution of taxable stock rights or dividends generally is treated the same as
Any other property distribution, and the holding period begins on the day after the distribution date.
The accumulated earnings tax is not imposed on corporations that
Are personal holding companies.
In figuring the amount of a distribution by a corporation to its shareholders, the term "property" includes all of the following except
Stock of the distributing corporation.
Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?
Stock redemption.
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.
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.
Margaret Corporation had suffered losses in its earlier years, up through 2016, but 2017 was profitable. Margaret Corporation has current earnings and profits for tax year 2017 of $15,000 and accumulated earnings and profits for prior years of $(14,000). An IRS audit of 2017 determined that the shareholder benefited from constructive dividends from personal use of corporate vehicles and equipment. The amount agreed on for the constructive dividend was $12,000. There were no other dividends or distributions. Which of the following is correct?
The constructive dividend is fully taxable.
Which of the following is not a requirement for a distribution to be treated as a partial liquidation of a corporation?
The distribution is not essentially equivalent to a dividend, which is determined at the shareholder level rather than at the corporate level.
Paul, Randy, and Steve form North Corporation by transferring the following properties:
The exchange qualifies for Sec. 351 and is nontaxable except that Randy must recognize $5,000 of capital gain.
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.
Rose Corporation, a calendar-year corporation, had accumulated earnings and profits of $40,000 as of January 1, 2017. However, for the first 6 months of 2017, Rose Corporation had an operating loss of $36,000 and finished the year with a total net operating loss for tax year 2017 of $55,000. Rose Corporation distributed $15,000 to its shareholders on July 1, 2017. Which of the following is correct?
The part of the distribution which is taxable is $12,500.
All of the following statements regarding stock redemptions are true except
The stock that is redeemed by a corporation may not be held as treasury stock.
Which one of the following statements is true regarding the complete liquidation of a subsidiary corporation under Sec. 332?
The tax attributes of the subsidiary corporation carry over to the parent.
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.
Jaxson Corp. has 200,000 shares of voting common stock issued and outstanding. King Corp. has decided to acquire 90% of Jaxson's voting common stock solely in exchange for 50% of its voting common stock and retain Jaxson as a subsidiary after the transaction. Which of the following statements is true?
The transaction will qualify as a tax-free reorganization.
With regard to the filing of Form 1099-DIV, all of the following are true except
This form is filed by payers for royalties paid to authors.
Edge Corp., a calendar-year C corporation, had a net operating loss and zero tax liability for its 2016 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter 2017 estimated income tax payment using the Annualized Preceding Income Method Year Method
Yes No
Ace Corp. and Bate Corp. combine in a qualifying reorganization and form Carr Corp., the only surviving corporation. This reorganization is tax-free to the
Yes Yes
Corporations A and B combine in a qualifying reorganization and form Corporation C, the only surviving corporation. This reorganization is tax-free to the
Yes Yes
Kane Corp. is a calendar-year domestic personal holding company. Which deduction(s) must Kane make from current year taxable income to determine undistributed personal holding company income prior to the dividends-paid deduction? Net Long-Term Capital Gain Federal Less Related Income Taxes Federal Income Taxes
Yes Yes
Par Corp. acquired the assets of its wholly owned subsidiary, Sub Corp., under a plan that qualified as a tax-free complete liquidation of Sub. Which of the following of Sub's unused carryovers may be transferred to Par?
Yes Yes
When computing a corporation's income tax expense for estimated income tax purposes, which of the following should be taken into account? Corporate Alternative Tax Credits Minimum Tax
Yes Yes
The accumulated earnings tax
Can be avoided by sufficient dividend distributions.
What is the usual result to the shareholders of a distribution in complete liquidation of a corporation?
Capital gain or loss.
Which of the following corporations is considered to be an includible corporation in an affiliated group of corporations?
Holding company.
The personal holding company tax
Should be self-assessed by filing a separate schedule with the regular tax return.
Under Public Law 86-272, which activity does not establish nexus?
Solicitation of orders is approved out-of-state, and delivery is made from an out-of-state location.
Which of the following activities would be considered a protected activity for avoiding establishing nexus for sales taxes on earnings in a state other than the firm's home state, according to the Multi-State Tax Commission (MTC)?
Soliciting sales from residents in a different state by the use of print advertising.
What is the general term for a single geographic area that has its own distinct set of tax rules and regulations?
Tax jurisdiction.
For a domestic corporation in the current year, the general business tax credit is limited to the lesser of its net income tax, with certain adjustments for other credits, over the greater of its tentative minimum tax for the year or 25% of its net regular tax liability for the year that exceeds $25,000. How does a controlled group of corporations treat the $25,000?
The $25,000 is divided among the corporations in any manner they choose.
Adams, Beck, and Carr organized Flexo Corp. with authorized voting common stock of $100,000. Adams received 10% of the capital stock in payment for the organizational services that he rendered for the benefit of the newly formed corporation. Adams did not contribute property to Flexo and was under no obligation to be paid by Beck or Carr. Beck and Carr transferred property in exchange for stock as follows:
$0
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 $112,000 Equity in earnings of subsidiary $112,000 Cash 48,000 Investment in Shore Corp. common stock 48,000 In its current year consolidated tax return, Bank should report dividend revenue of
$0
Forrest Corp. owned 100% of both the voting stock and total value of Diamond Corp. Both corporations were C corporations. Forrest's basis in the Diamond stock was $200,000 when it received a lump sum liquidating distribution of property as a result of the redemption of all of Diamond stock. The property had an adjusted basis of $270,000 and a fair market value of $500,000. What amount of gain did Forrest recognize on the distribution?
$0
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
Kee Holding Corp. has 80 unrelated equal shareholders. For the year ended December 31, 2017, Kee's income comprised the following:
$0
Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
$0
Mr. A owned 75% of the voting stock and 85% of the nonvoting stock of Corporation Y. Mr. A transferred property with a fair market value of $90,000 and an adjusted basis of $70,000 to Y for an additional 5% of the voting stock and 5% of the nonvoting stock. What is the amount of gain to be recognized by Mr. A?
$0
Mr. Bass transferred a building that had an adjusted basis to him of $300,000 and a fair market value of $500,000, to Corporation C solely in exchange for 100% of C's only class of stock. The building was subject to a mortgage of $100,000, which C assumed for bona fide business purposes. The fair market value of the stock on the date of transfer was $550,000. What is the amount of gain to be recognized by Mr. Bass?
$0
On January 1, Year 1, Pearl Corporation owned 90% of the outstanding stock of Seso Corporation. Both companies were domestic corporations. Pursuant to a plan of liquidation adopted by Seso in March Year 1, Seso distributed all of its property in September Year 1 in complete redemption of all its stock, when Seso's accumulated earnings equaled $18,000. Seso had never been insolvent. Pursuant to the liquidation, Seso transferred to Pearl a parcel of land with a basis of $10,000 and a fair market value of $40,000. How much gain must Seso recognize in Year 1 on the transfer of this land to Pearl?
$0
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:
$0
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:
$0
Sky Corp. was a wholly owned subsidiary of Jet Corp. Both corporations were domestic C corporations. Jet received a liquidating distribution of property in cancelation of its Sky stock when Jet's tax basis in Sky stock was $100,000. The distributed property had an adjusted basis of $135,000 and a fair market value of $250,000. What amount of taxable gain did Jet, the parent corporation, recognize on the receipt of the property?
$0
Tech Corp. files a consolidated return with its wholly owned subsidiary, Dow Corp. During 2017, Dow paid a cash dividend of $20,000 to Tech. What amount of this dividend is taxable on the 2017 consolidated return?
$0
Pursuant to a plan of corporate reorganization adopted in Year 1, Myra Eber exchanged 1,000 shares of Faro Corporation common stock that she had purchased for $75,000 for 1,800 shares of Judd Corporation common stock having a fair market value of $86,000. As a result of this exchange, Eber's recognized gain and her basis in the Judd stock should be
$0 $75,000
Nyle Corp. owned 100 shares of Beta Corp. stock that it bought 16 years ago for $9 per share. This year, when the fair market value of the Beta stock was $20 per share, Nyle distributed this stock to a noncorporate shareholder. Nyle's recognized gain on this distribution was
$1,100
XYZ, a calendar-year corporation, had accumulated earnings and profits of $5,000 as of January 1, 2017. XYZ's earnings and profits for 2017 were $8,000. During 2017, XYZ distributed one stock right for each of the 10,000 outstanding shares of its only class of stock. The fair market value of each stock right was $15. The corporation gave shareholders the option of receiving the stock rights or cash. No other dividends were paid in 2017. Ms. Y is a 10% shareholder and elects to receive the stock rights. What is the amount of the distribution that is includible in Ms. Y's 2017 gross income?
$1,300
A corporation had $10,000 of earnings and profits (E&P) for the current year and accumulated negative E&P of $100,000. It paid a cash distribution of $30,000. What amount represents the taxable dividend to the shareholder for that year?
$10,000
During 2017, Jake transferred land having an adjusted basis of $35,000 and a fair market value of $47,000 to Otter Corporation. In exchange for the land, he received $5,000 cash, equipment having an adjusted basis of $3,000 and a fair market value of $5,000, and 80% of Otter Corporation's only class of stock outstanding. The stock received by Jake had a fair market value of $37,000. What is the amount of gain that Jake will recognize?
$10,000
Mr. Brown transferred property, which had an adjusted basis to him of $40,000 and a fair market value of $50,000, to Corporation B in exchange for 100% of B's only class of stock and $15,000 cash. At the time of the transfer, the stock had a fair market value of $35,000. What is the amount of gain to be recognized by Mr. Brown?
$10,000
On January 1, Year 1, Kee Corp., a C corporation, had a $50,000 deficit in E&P. For Year 1, Kee had current E&P of $10,000 and made a $30,000 cash distribution to its shareholders. What amount of the distribution is taxable as dividend income to Kee's shareholders?
$10,000
Simon, a C corporation, had a deficit in accumulated earnings and profits of $50,000 at the beginning of the year and had current earnings and profits of $10,000. At year end, Simon paid a dividend of $15,000 to its sole shareholder. What amount of the dividend is reported as income?
$10,000
Tank Corp., which had earnings and profits of $500,000, made a nonliquidating distribution of property to its shareholders in 2017 as a dividend in kind. This property, which had an adjusted basis of $20,000 and a fair market value of $30,000 at the date of distribution, did not constitute assets used in the active conduct of Tank's business. How much gain did Tank recognize on this distribution?
$10,000
As part of a complete liquidation, a C corporation distributed the following assets to unrelated individual shareholders: Basis FMV Investment land $500,000 $540,000 Inventory 130,000 150,000 Marketable securities 70,000 20,000
$10,000 net capital loss.
On July 1, 2017, in connection with a recapitalization of Yorktown Corporation, Robert Moore exchanged 1,000 shares of stock, which cost him $95,000, for 1,000 shares of new stock worth $108,000 and bonds in the principal amount of $10,000 with a fair market value of $10,500. What is the amount of Moore's recognized gain during 2017?
$10,500
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 2016. In early 2017, P estimated its 2017 tax liability and paid a total of $1.2 million in equal installments on appropriate due dates. On February 12, 2018, the corporation's 2017 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.
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, 2016. For the year ended December 31, 2017, 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 2017 is required for the reasonable needs of the business. How much is the allowable Accumulated Earnings Credit at December 31, 2017?
$105,000
Jack Carson transferred a building that had an adjusted basis of $75,000 and a fair market value of $130,000 to Corporation R in exchange for 80% of R's only class of stock and a car with an adjusted basis to R of $25,000. The fair market value of the stock at the time of the transfer was $100,000 and the car's was $30,000. What is the amount of R's basis in the building?
$105,000
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?
$11,000
You transfer property with an adjusted basis of $20,000 and a fair market value of $31,000 in exchange for 100% of the stock in a new corporation. You receive 100 shares of stock having a fair market value of $16,000 and $10,000 in cash. The corporation also assumes a $5,000 mortgage on the property. Which of the following is correct?
$11,000 gain realized; $10,000 recognized.
A calendar-year corporation that is a member of a controlled group has taxable income for the current year return of $45,000. Its apportionment of each of the taxable income brackets is $15,000. Compute its tax using the tax table below:
$11,100
For the current year, Corporation Z had $60,000 of taxable income from operations. It also sold depreciable assets to its 100% shareholder as follows: What is Z's corporate income tax for the current year?
$11,500
Clark and Hunt organized Jet Corp. with authorized voting common stock of $400,000. Clark contributed $60,000 cash. Both Clark and Hunt transferred other property in exchange for Jet stock as follows:
$110,000
Under a plan of complete liquidation, Len Corporation distributed land, having an adjusted basis to Len of $26,000, to its sole shareholder. The land was subject to a liability of $38,000, which the shareholder assumed for legitimate business purposes. The fair market value of the land on the date of distribution was $35,000. What is the amount of Len Corporation's recognized gain (or loss)?
$12,000
Diane, the sole shareholder of Check Corporation's stock, owns 500 shares, which she purchased in 2006. Diane's basis in Check's stock is $20,000. During 2017, Check, which had earnings and profits of $50,000, redeemed 250 shares of Diane's stock for $12,000. What are the amount and the character of Diane's gain?
$12,000 dividend.
During 2017, Corporation T distributed machinery, having a fair market value of $300,000 and an adjusted basis to T of $150,000, to Mr. K in exchange for 85% of K's interest in T. This distribution was under a plan of partial liquidation that resulted in a contraction of the business. K's adjusted basis in the stock exchanged with T was $180,000. T had an earnings and profits balance of $500,000 prior to the partial liquidation. What is the character and amount of Mr. K's recognized gain on the distribution?
$120,000 capital gain.
Core Corporation reported current earnings and profits of $250,000. Core distributed a building with an adjusted basis to itself of $170,000 and a fair market value of $230,000 to its sole shareholder. The building had a mortgage of $90,000, which the shareholder will assume. What is the amount of the dividend received by the shareholder?
$140,000
The following information pertains to Lamb Corp.: Accumulated earnings and profits at January 1, 2017 $ 60,000 Earnings and profits (E&P) for the year ended December 31, 2017 80,000 Cash distributions to individual shareholders during 2017 180,000 What is the total amount of distributions taxable as dividend income to Lamb's shareholders in 2017?
$140,000
Porter Corporation, a calendar-year taxpayer reporting on the accrual basis, had accumulated earnings and profits of $110,000 as of January 1, 2017. The following occurred during the year:
$146,700
At the beginning of the year, Data, a C corporation, had a $45,000 deficit in accumulated earnings and profits. For the current year, Data reported earnings and profits of $15,000. Data distributed $18,000 to its shareholders during the current year. What amount of the distribution is treated as a taxable dividend?
$15,000
Aztec, a C corporation, distributed an asset to Burn, a shareholder. The asset had a fair market value of $30,000 and was subject to a $40,000 liability assumed by Burn. The asset had an adjusted basis of $25,000. What amount of gain must Aztec recognize?
$15,000
Elk Corporation, a calendar-year C corporation, had accumulated earnings and profits of $60,000 as of January 1, 2017, the beginning of its tax year, and had earnings and profits of $6,000 for 2017. Elk Corporation distributed $15,000 to its shareholders on July 1, 2017. What portion of the $15,000 distribution would be an ordinary dividend?
$15,000
Oak Corporation had earnings and profits of $500,000 before distributions. Due to economic conditions, Oak, in partial liquidation, distributed land having an adjusted basis to itself of $135,000 and a fair market value of $150,000 to Mr. Brown for his 35% interest in Oak Corporation. Mr. Brown's adjusted basis in the stock at the time of the distribution was $180,000. What is the amount of Oak Corporation's recognized gain (or loss)?
$15,000
Ivana Dolla received property with a fair market value of $60,000 and an adjusted basis of $33,000 from Candid Corporation in partial liquidation. Candid's earnings and profits for the year prior to the distribution were $250,000. Ms. Dolla's basis in the stock she exchanged was $44,000. What is the amount of Ms. Dolla's recognized gain?
$16,000
Elm Corp. is an accrual-basis, calendar-year C corporation with 100,000 shares of voting common stock issued and outstanding as of December 30, Year 1. On December 31, Year 1, Hall surrendered 2,000 shares of Elm stock to Elm in exchange for $33,000 cash. Hall had no direct or indirect interest in Elm after the stock surrender. Additional information follows:
$17,000 capital gain.
Wallace purchased 500 shares of Kingpin, Inc., 15 years ago for $25,000. Wallace has worked as an owner/employee and owned 40% of the company throughout this time. This year, Kingpin, which is not an S corporation, redeemed 100% of Wallace's stock for $200,000. What is the treatment and amount of income or gain that Wallace should report?
$175,000 long-term capital gain.
For the current calendar year, Sun Corporation had operating income of $80,000, exclusive of the following capital gains and losses: Long-term capital gain $14,000 Short-term capital gain 6,000 Long-term capital loss (2,000) Short-term capital loss (8,000) Assume the corporate tax rates currently in effect are 15% $0 - $50,000 25% $50,000 - $75,000 34% $75,000 - $100,000 What is Sun's income tax liability for the year?
$18,850
Kent Corp. is a calendar-year, accrual-basis C corporation. In Year 1, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:
$185,000
Corporation B had earnings and profits of $550,000 before distributions. Due to economic conditions, B, in partial liquidation, distributed Sec. 1231 property having an adjusted basis to B of $175,000 and a fair market value of $195,000 to Ms. Braun for 95% of her interest in Corporation B. Ms. Braun's adjusted basis in the stock at the time of the distribution was $180,000. What is the amount of Corporation B's recognized gain or loss?
$20,000
In 2017, Aca Corp. adopted a plan of complete liquidation. Under this plan of complete liquidation, distributions to shareholders in 2017 included marketable securities purchased in 2007, with a basis of $100,000 and a fair market value (FMV) of $120,000 at the date of distribution. On June 30, 2017, the date this plan of complete liquidation was adopted, Aca had 100 equal shareholders, and the FMV of all of Aca's outstanding stock was $12 million. In Aca's 2017 return, what amount should be reported as long-term capital gain?
$20,000
In a bona fide transaction, Jesse transferred land worth $50,000 to his 80%-controlled corporation for stock of the corporation worth $20,000 and cash of $20,000. The basis of the property to him was $15,000 and was subject to a $10,000 mortgage, which the corporation assumed. Jesse must report a gain of
$20,000
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
Maple Corporation, a calendar-year corporation, estimated its income tax for 2017 will be $20,000. Its 2016 tax liability was $100,000. Maple deposited the first two estimated tax installments on April 15 and June 15, 2017, in the amount of $5,000 each (25% of $20,000). On July 1, 2017, 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, 2017, and December 15, 2017?
$20,000 $10,000
Ann owned two blocks of Lou Corporation stock, which had the following characteristics: Block Shares Acquired Basis 1 200 6/01/16 $20,000 2 50 7/02/17 12,500 Ann's two blocks of stock combined represented 10% of Lou Corporation's outstanding stock. Pursuant to Lou's complete liquidation, Ann received a $50,000 cash distribution on December 1, 2017, in exchange for her 250 shares. Lou's earnings and profits balance immediately before any liquidating distributions was $50,000. What are the amount and the character of Ann's gain or loss?
$20,000 long-term capital gain and $2,500 short-term capital loss.
Pursuant to a plan of reorganization adopted in Year 1, Summit Corporation exchanged 1,000 shares of its common stock and paid $40,000 cash for Hansen Corporation's assets with an adjusted basis of $200,000 (fair market value of $300,000). Hansen Corporation was liquidated shortly after the exchange, with its shareholders receiving the Summit stock and cash. The 1,000 shares of Summit common stock had a fair market value of $260,000 on the date of the exchange. What is the basis to Summit of the assets acquired in the exchange?
$200,000
Corporations X, Y, and Z are component members of a controlled group of corporations on December 31 of the current year. For the current year, they allocate the taxable income brackets under an apportionment plan as follows:
$21,325
The Tinkers, Evers, and Chance Corporations have taxable income, all resulting from regular operations, of $100,000, $300,000, and $450,000, respectively. None is a member of a controlled group. The tax liabilities before credits in the current year are
$22,250 $100,250 $153,000
In January of the current year, Joan Hill bought one share of Orban Corporation stock for $300. On March 1 of this year, Orban distributed one share of a new class of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1 of this year, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. After the distribution of the preferred stock, Joan's bases for her Orban stocks are
$225 $75
Under a plan of complete liquidation, Bluebird Corporation distributed land, having an adjusted basis to Bluebird of $52,000, to its sole shareholder. The land was subject to a liability of $76,000, which the shareholder assumed for legitimate business purposes. The fair market value (FMV) of the land on the date of distribution was $70,000. What is the amount of Bluebird Corporation's recognized gain or loss?
$24,000
For 2017, Corporation N, a calendar-year taxpayer, had a tax liability of $100,000, consisting of $45,000 in regular taxes and $55,000 in alternative minimum taxes. N's 2016 tax liability was $200,000. What is the amount N must have paid for each quarter for 2017 to avoid any penalty or interest for underpayment of estimated tax?
$25,000
Mr. Fox owns 500 shares of stock in Ocean Corporation, which represents 52% of Ocean's only class of stock issued and outstanding. Mr. Fox's basis in the stock is $50,000 ($100 per share). Ocean redeems 250 shares of Mr. Fox's stock for $40,000. The redemption is properly treated as a distribution of cash in exchange for the stock. What is Mr. Fox's basis in his remaining shares of stock?
$25,000
Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?
$25,000 $90,000 $0
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.
Two unrelated individuals, Dave and Tom, own all the stock of Arnold Corporation, which has earnings and profits of $400,000. Because of his inactivity in the business for the last several years, Dave has decided to retire from the business completely and move to Oregon. Accordingly, Arnold Corporation will redeem all the stock owned by Dave and, in return, Dave will receive a distribution of $500,000. Dave's adjusted basis in the stock is $250,000. What will be the tax effect to Dave?
$250,000 capital gain.
The minimum Accumulated Earnings Credit in 2017 is
$250,000 for nonservice corporations.
The following information pertains to Dahl Corp.:
$280,000
A corporation transferred fully depreciated machinery to an individual shareholder in a liquidating distribution. The original cost of the machinery was $6,000, and the fair market value at the date of the transfer was $5,000. If the shareholder's basis in the corporation's stock was $2,000, then the shareholder reports
$3,000 capital gain.
On April 30, 2017, G, a calendar-year C corporation, determined its estimated tax liability to be $12,000. It should have made estimated tax payments of
$3,000 no later than the 15th day of the 4th, 6th, 9th, and 12th months of 2016.
Mr. X purchased stock in Corporation Y in 2013 for $5,000. In 2014, he received a distribution of $1,200, when Corporation Y had no current or accumulated earnings and profits. In 2017, Mr. X received a $400 dividend, when Corporation Y had earnings and profits in excess of its dividend distribution. There has been no other activity on this stock. What is Mr. X's basis in his stock of Corporation Y as of December 31, 2017?
$3,800
Fact Pattern: Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
$30,000
Mr. Brown transferred an office building to Corporation J in exchange for 100% of Corporation J's stock and $30,000 in cash. The building had an adjusted basis of $150,000 and a fair market value of $250,000. The building was subject to a mortgage of $120,000, which Corporation J assumed for a valid business reason. The fair market value of Corporation J's stock on the date of the transfer was $100,000. What is Mr. Brown's recognized gain?
$30,000
The following information pertains to Hull, Inc., a personal holding company, for the year ended December 31, 2017: Undistributed personal holding company income $100,000 Dividends paid during 2017 20,000 Consent dividends reported in the 2017 individual income tax returns of the holders of Hull's common stock, but not paid by Hull to its shareholders 10,000 In computing its 2017 personal holding company tax, what amount should Hull deduct for dividends paid?
$30,000
Vernon receives a truck from Berry Trucking Company as a distribution in complete liquidation. Vernon's basis in the stock of Berry Trucking Company is $2,000. The fair market value of the truck on the date of the distribution is $30,000. There is a $15,000 loan on the truck, which Vernon assumed. What is the basis of the truck to Vernon?
$30,000
In 2017, Stone, a cash-basis taxpayer, incorporated her CPA practice. No liabilities were transferred. The following assets were transferred to the corporation:
$30,500
Mr. P owned 100 shares of Corporation C common stock. During 2017, Mr. P received $300 in cash dividends, 50 additional shares of C's common stock, and the right to purchase 50 more shares. The fair market values of the stock and stock rights were $200 and $100, respectively. The distributions were not disproportionate, and the shareholders were not given an option to receive cash instead of the stock or stock rights. What amount of the distributions is includible in Mr. P's income for 2017?
$300
Tan Corp. calculated the following taxes for the current year: Regular tax liability $210,000 Tentative minimum tax 240,000 Personal holding company tax 65,000 What is Tan's total tax liability for the year?
$305,000
Dahl Corp. was organized and commenced operations in 1944. At December 31, 2017, Dahl had accumulated earnings and profits of $9,000 before a dividend declaration and distribution. On December 31, 2017, Dahl distributed cash of $9,000 and a vacant parcel of land to Mr. Green, Dahl's only shareholder. At the date of distribution, the land had a basis of $5,000 and a fair market value of $40,000. What was Mr. Green's taxable dividend income in 2017 from these distributions assuming a 35% corporate tax rate?
$31,750
Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox's tax basis in the land?
$38,000
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
Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
$40,000
Mr. Wind transferred property subject to a $35,000 liability to Corporation X in exchange for 90% of X's only class of stock outstanding. Mr. Wind's adjusted basis in the property transferred was $40,000. The fair market value of the stock at the time of the transfer was $60,000. What is Corporation X's basis in the property received and what is Wind's basis in the stock received?
$40,000 $5,000
During the year, a corporation declares a dividend and subsequently distributes to a stockholder $15,000 in cash and a bond with a basis of $25,000 and a fair market value of $26,000 on the date of distribution. The bond had a fair market value of $26,500 on the date that the corporation declared the dividend. The corporation has current earnings and profits in excess of the total amounts distributed during the year. Which of the following identifies the tax consequences of the distribution to the stockholder?
$41,000 of dividend income.
Tina, Inc., a calendar-year corporation, has taxable income of $150,000 for the current year with no capital gains. Tina's tax liability before credits for the current year is
$41,750
As an investment, Rambo Corporation owns 10% of the stock of Duntulum Corporation with a basis of $8,000 and a market value of $50,000. Rambo uses the Duntulum stock to redeem approximately 1%, or $10,000 par value, of its own outstanding stock from unrelated, noncorporate shareholders. As a result of this transaction, Rambo must report
$42,000 gain.
Mr. X owned 40% of Corporation B's only class of stock outstanding. The remaining 60% of B's stock was owned by Mr. Y (not related to Mr. X). Corporation B redeemed all of X's stock for $75,000 and one-half of Y's stock for $50,000. Mr. X's and Mr. Y's basis in their stock of Corporation B was $30,000 and $25,000, respectively. B's earnings and profits (E&P) were $200,000. Assuming that no partial liquidation occurred, what are the amount and the character of X's and Y's recognized gains?
$45,000 capital gain $50,000 dividend
Bridge, a C corporation, had $15,000 in accumulated earnings and profits at the beginning of the current year. During the current year, Bridge reported earnings and profits of $10,000 and paid $20,000 in cash distributions to its shareholders in both March and July. What amount of the July distribution should be classified as dividend income to Bridge's shareholders?
$5,000
In a Sec. 351 transaction, Mr. Biller transferred assets with an adjusted basis of $76,000 and a fair market value of $80,000 to Bay View Corporation in exchange for its capital stock with a fair market value of $72,000. Bay View Corporation also assumed a liability from Mr. Biller of $81,000 [not a trade account payable under Sec. 357(c)(3)]. What is Mr. Biller's recognized gain?
$5,000
Ames and Roth form Homerun, a C corporation. Ames contributes several autographed baseballs to Homerun. Ames purchased the baseballs for $500, and they have a total fair market value of $1,000. Roth contributes several autographed baseball bats to Homerun. Roth purchased the bats for $5,000, and they have a fair market value of $7,000. What is Homerun's basis in the contributed bats and balls?
$5,500
Irma Corporation is a C corporation that has a $1 million net operating loss carryover from last year. Irma's taxable income (before deducting the loss carryover) for the current year is $17 million.
$5,530,000
A corporation distributed land with a basis of $20,000 and a fair market value of $60,000, but was subject to a non-recourse liability of $70,000 to its sole shareholder. What amount represents the corporation's recognized gain?
$50,000
Kari Corp., a manufacturing company, was organized on January 2, 2017. Its 2017 federal taxable income was $400,000, and its federal income tax was $100,000. What is the maximum amount of accumulated taxable income that may be subject to the accumulated earnings tax for 2017 if Kari takes only the minimum Accumulated Earnings Credit?
$50,000
On January 1, Year 1, Locke Corp., an accrual-basis, calendar-year C corporation, had $30,000 in accumulated earnings and profits. For Year 1, Locke had current earnings and profits of $20,000 and made two $40,000 cash distributions to its shareholders: one in April and one in September of Year 1. What amount of the Year 1 distributions is classified as dividend income to Locke's shareholders?
$50,000
ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year. ParentCo $50,000 SubOne (60,000) SubTwo (40,000) No member reported a capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?
$50,000
Krol Corporation distributed marketable securities in redemption of its stock in a complete liquidation. On the date of distribution, these securities had a basis of $100,000 and a fair market value of $150,000. What gain does Krol have as a result of the distribution?
$50,000 capital gain.
In order for Corporation X, a calendar-year taxpayer, to be required to make estimated tax payments in 2017, its expected tax liability will have to be
$500 or more.
Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows:
$550,000
During 2017, Anna transferred land with an adjusted basis to her of $20,000 and a fair market value of $56,000 to Elm Corporation in exchange for 100% of Elm Corporation's only class of stock. The land was subject to a liability of $26,000, which Elm assumed for legitimate business purposes. The fair market value of Elm's stock at the time of the transfer was $30,000. What is the amount of Anna's recognized gain?
$6,000
Mintee Corp., an accrual-basis, calendar-year C corporation, had no corporate shareholders when it liquidated in Year 1. In cancelation of all their Mintee stock, each Mintee shareholder received in Year 1 a liquidating distribution of $2,000 cash and land with a tax basis of $5,000 and a fair market value of $10,500. Before the distribution, each shareholder's tax basis in Mintee stock was $6,500. What amount of gain should each Mintee shareholder recognize on the liquidating distribution?
$6,000
The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and a basis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder must recognize?
$6,000
Feld, the sole shareholder of Maki Corp., paid $50,000 for Maki's stock 12 years ago. This year, Feld contributed a parcel of land to Maki but was not given any additional stock for this contribution. Feld's basis for the land was $10,000, and the land's FMV was $18,000 on the date of the transfer of title. What is Feld's adjusted basis for the Maki stock?
$60,000
In April, A and B formed X Corp. A contributed $50,000 cash, and B contributed land worth $70,000 (with an adjusted basis of $40,000). B also received $20,000 cash from the corporation. A and B each receive 50% of the corporation's stock. What is the tax basis of the land to X Corp.?
$60,000
Lark Corporation and its wholly owned subsidiary, Day Corporation, operated on a calendar year. In January Year 1, Day adopted a plan of complete liquidation. Two months later, Day paid all of its liabilities and distributed its remaining assets to Lark. These assets consisted of the following:
$60,000
Borasco Corp. owns land with a fair market value of $200,000. Borasco purchased the land 10 years ago for $65,000 and owes a liability of $50,000 as of August 2 of the current year. Alvo Corp. owns 100% of Borasco. Borasco is completely liquidated on August 2 of the current year, according to a plan adopted on June 18 of the current year. As a result, the land is transferred to Alvo in complete cancelation of Borasco's stock. What basis does Alvo have in the land it receives?
$65,000
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?
$65,000 $0
The following information is available for Briner Corporation for the current tax year ended December 31: Revenues from sales $ 8,000,000 Cost of goods sold (4,000,000) Operating expenses (2,000,000) Taxable income $ 2,000,000 The tax liability for Briner's current tax year ended December 31 is
$680,000
Shepherd Corporation had earnings and profits of $500,000 before distributions. Due to economic conditions, Shepherd, in partial liquidation, distributed land having an adjusted basis of $67,500 and a fair market value of $75,000 to Ms. Rinnie for 95% of her interest in Shepherd. Ms. Rinnie's adjusted basis in the stock at the time of the distribution was $90,000. What is the amount of Shepherd Corporation's recognized gain or loss?
$7,500
Webster, a C corporation, has $70,000 in accumulated and no current earnings and profits. Webster distributed $20,000 cash and property with an adjusted basis and fair market value of $60,000 to its shareholders. What amount should the shareholders report as dividend income?
$70,000
Grafton Company, formed in 1985 by its current shareholders, is a calendar-year taxpayer. Grafton had accumulated earnings and profits of $120,000 as of December 31, 2017. During 2017, Grafton made distributions to each of its shareholders as follows:
$72,000
Since 2006, Ben has owned all 100 outstanding shares of N and M Corporation's stock. Ben's basis for the stock is $50,000. In 2017, N and M have earnings and profits of $100,000. The corporation redeemed 25 shares of Ben's stock for $75,000 in 2017. How will Ben report this?
$75,000 dividend.
Zebra Corporation distributed property in proportionate redemption of its stock in a partial liquidation. Zebra had earnings and profits exceeding the amount of the distribution. The distribution was made to Tiger Corporation, a 25% shareholder. The distributed property had a $75,000 fair market value and a $40,000 adjusted basis to Zebra. Tiger had an adjusted basis of $25,000 in the stock redeemed by Zebra. What is the tax effect to Tiger?
$75,000 dividend.
On December 31, a C corporation made a nonliquidating distribution of the following assets to its sole shareholder: What gain or loss should the corporation recognize as a result of the distribution?
$75,000 gain.
Standard Corporation and its wholly owned subsidiary, Savings Corporation, operated on a calendar year. In January Year 1, Savings adopted a plan of complete liquidation. Two months later, Savings paid all of its liabilities and distributed its remaining assets to Standard. These assets consisted of the following:
$80,000
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.
The following information is from Company B's most recent tax year in which it had $5 million of business income:
$850,000
On January 1, Year 1, Can Corporation distributed Sec. 1231 land with a market value of $300,000 and an adjusted basis of $205,000 under a plan of partial liquidation under the Sec. 302(b)(4) rules. The distribution was made to individual shareholder Clem, who had owned 40% of Can since it was founded. Clem's stock interest redeemed in the partial liquidation had a basis of $140,000. What are the amount and the character of gain/loss that Can should recognize on the distribution?
$95,000 Sec. 1231 gain.
Hotel Management Consulting (HMC) is a corporation chartered in state X, which has adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) and does business in another state, Y, that has also adopted the act. HMC owns an office building in state Y, with 3,000 square feet of space, valued at $500,000. The total square footage of all offices for the firm is 1,200,000 square feet nation-wide valued at $200,000,000. HMC has 5 employees in state Y with an annual payroll of $450,000 and another 100 employees outside state Y. The total annual payroll for all employees is $50,000,000. The consulting income in state Y totals $4,000,000 and total income from all sources is $700,000,000. State Y used the formula specified in UDITPA, not the gross receipts factor. What is the apportionment percentage to be applied to Hotel Management Consulting for taxing income in state Y?
0.574%
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%
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%
Finbury Corporation's taxable income for the year ended December 31, 2016, was $2 million. For Finbury to escape the estimated tax underpayment penalty for the year ending December 31, 2017, its total 2017 estimated tax payments must equal at least
100% of its 2017 tax liability.
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.
With respect to a partial liquidation under Sec. 302(b)(4), which of the following statements are false? The redemption must be part of a plan. The shareholder may be a corporation. The redemption may be pro rata. The distribution may not be made in the year after the plan was adopted.
2 and 4.
Mr. Oleaner owns 600 shares of the voting stock of Clarkson Corporation. The remaining 350 shares of the voting stock outstanding are held by persons unrelated to Mr. Oleaner. Mr. Oleaner wants a proposed redemption of part of the stock to qualify under Sec. 302(b)(2). What is the maximum number of shares that Mr. Oleaner can own after the redemption to qualify as a sale or an exchange?
349
Bob owns 250 shares of Rice Corporation. Rice Corporation plans on redeeming 100 shares of its 500 shares of common stock outstanding. Below what percentage must Bob's interest be reduced if the redemption is to be substantially disproportionate?
40%
Mary, an individual shareholder, owns 125 shares of West Corporation. West Corporation has 500 shares of common stock outstanding. If West Corporation redeems 100 shares of common stock from its shareholders, what is the least number of Mary's shares that will need to be redeemed in order for the redemption to be substantially disproportionate to Mary?
46
Dianne owns 10% interest in DJJ Partnership and 20% of the outstanding stock of PAD Corporation. Her son, Nick, owns 60% of the outstanding shares of PAD Corporation. The PAD Corporation owns 50% interest in the DJJ Partnership. Dianne's sister, Dolores, owns 40% interest in the DJJ Partnership. Using the constructive ownership rules for partnerships, Dianne is considered to own how much of DJJ Partnership?
50%
Danny owns 35% of Batch Corporation's only class of stock outstanding. His daughter Ann and son-in-law Tony each own 20%. Ann is legally separated from Tony. Danny's father owns 25% of Batch's outstanding stock. What is Ann's percentage of stock ownership under the attribution rules for stock redemption?
55%
The personal holding company income test requires the company's income for a given taxable year to be at least
60% of adjusted ordinary gross income.
Corporation H has 1,000 shares of stock issued and outstanding. Mr. K, the founder, owns 40% of the stock, his wife owns 10%, his son owns 20%, and the balance is owned by unrelated parties. Under the constructive ownership rules of the stock redemption provisions, what percentage of stock is Mr. K considered to own?
70%
Company A has property in two states that both use the UDITPA formula for apportioning business income.
71% 29%
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?
80% 80%
Jones incorporated a sole proprietorship by exchanging all the proprietorship's assets for the stock of Nu Co., a new corporation. To qualify for tax-free incorporation, Jones must be in control of Nu immediately after the exchange. What percentage of Nu's stock must Jones own to qualify as "control" for this purpose?
80.00%
On July 1 of the current year, Rich, sole proprietor of Kee Nail, transferred all of Kee's assets to Merit, Inc., a new corporation, solely for a certain percentage of Merit's stock. Dee, who is not related to Rich, also bought some of Merit's stock on July 1. Merit's outstanding capital stock consisted of 1,000 shares of common stock with a par value of $100 per share. For the transfer of Kee Nail's assets to be tax-free, what is the minimum number of shares of Merit's stock that must be owned by Rich and Dee immediately after the exchange?
800
Which one of the following statements about corporate tax rates for the current year is true?
A 5% surtax is charged on taxable income between $100,000 and $335,000, and a 3% surtax is charged on taxable income between $15,000,000 and $18,333,333.
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):
A and C may file as a group, but B and D may not file as a group.
What are some differences in taxation for a company that decides to use a branch in a foreign tax jurisdiction rather than its head office versus using a subsidiary in the foreign location?
A branch is not a separate legal entity from the parent entity, whereas a subsidiary is. Therefore, using a branch subjects the company to taxation of all income, whereas using a subsidiary subjects the company to taxation only on the subsidiary's income.
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.
Which of the following is applicable regarding the proper treatment of a distribution of appreciated property by a corporation?
A corporation must recognize gain when it distributes appreciated property as though the property had been sold for its FMV immediately before distribution, and for gain recognition purposes, a property's fair market value is at least equal to any liability to which the property is subject or that the shareholder assumes in connection with the distribution.
During 2017, Ambassador Matinee Company distributed a dividend in the form of land to its sole shareholder. The land has a fair market value of $50,000 and an adjusted basis of $10,000. Assuming that the corporation has sufficient earnings and profits and ignoring the potential tax effect of any taxes on the distribution, the net effect of the transaction on earnings and profits (E&P) is
A decrease of $10,000.
Which of the following statements is true in order for a distribution of corporate assets to be treated as being in exchange for stock in a partial liquidation of a corporation?
A distribution of corporate assets is treated as an exchange for stock in a partial liquidation of a corporation, whether or not the stock is actually surrendered.
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.
Alpha Properties is owned by three shareholders. During the current year, Alpha reported the following: Rental income $200,000 Dividend income 20,000 Depreciation expense 40,000 Property taxes 10,000 Interest expense on mortgage on rental property 50,000 Alpha's adjusted ordinary gross income (AOGI) and personal holding company income (PHCI) are
AOGI, $120,000; PHCI, $20,000.
In accordance with the UDITPA, which of the following is correct for allocating interest and dividends?
Allocate based on the commercial domicile of the taxpayer.
Pitkin Theatres, Inc., distributes land to its sole shareholder. The land is valued at $30,000 and has a basis of $10,000. The land is subject to a $16,000 mortgage, which the shareholder assumes. Pitkin has $20,000 in earnings and profits. Ignoring any potential effect of any taxes on the distribution, the net effect of the transaction on earnings and profits (E&P) is
An increase by $6,000.
Which of the following payment sources of income require federal income tax to be withheld and remitted to the IRS?
Any amounts paid to foreign persons.
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.
Which of the following statements correctly represents the tax effect of the liquidation of an 80% or more owned subsidiary?
Assets transferred to the parent of the liquidating corporation generally have a carryover basis.
Dart Corp., a calendar-year domestic C corporation, is not a personal holding company. For purposes of the accumulated earnings tax, Dart has accumulated taxable income for 2017. Which step(s) can Dart take to eliminate or reduce any 2017 accumulated earnings tax? Demonstrate that the "reasonable needs" of its business require the retention of all or part of the 2017 accumulated taxable income Pay dividends by March 15, 2018
Both I and II.
In a Type B reorganization as defined by the Internal Revenue Code, the Stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent. Acquiring corporation must have control of the target corporation immediately after the acquisition.
Both I and II.
Ridge Corp., a calendar-year C corporation, made a nonliquidating cash distribution to its shareholders of $1 million with respect to its stock. At that time, Ridge's current and accumulated earnings and profits totaled $750,000, and its total paid-in capital for tax purposes was $10 million. Ridge had no corporate shareholders. Ridge's cash distribution Was taxable as $750,000 in dividends to its shareholders Reduced its shareholders' adjusted bases in Ridge stock by $250,000
Both I and II.
The accumulated earnings tax
Cannot be imposed on a corporation that has undistributed earnings and profits of less than $150,000.
Which of the following items is not an adjustment to taxable income when determining a corporation's current earnings and profits amount?
Capital contributions.
Rachel purchased 100 shares of Comet Corporation stock for $500 in Year 1. In Year 4, Rachel received $5,000 in a distribution from the partial liquidation of Comet Corporation. On her personal Year 4 income tax return, Rachel must report income from this transaction as
Capital gains
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.
A distribution from a C corporation to a shareholder cannot be treated by the shareholder as which of the following classifications?
Capital loss.
Which of the following is an unprotected in-state activity?
Consigning goods for sale.
Which of the following might create a potential liability for the accumulated earnings tax?
Corporation is planning to redeem all the shares of one of its current shareholders.
A corporation was completely liquidated and dissolved during the current year. The filing fees, professional fees, and other expenditures incurred in connection with the liquidation and dissolution are
Deductible in full by the dissolved corporation.
Which of the following is a positive adjustment for calculating current earnings and profits (E&P)?
Deferred gain on installment sales.
Which of the following tax credits cannot be claimed by a corporation?
Earned Income Credit.
How does a noncorporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corporation?
Entirely as capital gain.
Donna exchanges property having an $18,000 adjusted basis and a $35,000 fair market value for 70 shares of the newly created Table Corporation stock. Evelyn exchanges legal services worth $15,000 for the remaining 30 shares of Table Corporation stock. Which of the following is true?
Evelyn must recognize $15,000 of income, and Donna must recognize $17,000 gain on the exchange.
Which of the following is not taken into account when determining if a gain or loss should be recognized on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation?
Fair market value of property transferred.
A corporation required to file Form 1099-DIV for a tax year with the Internal Revenue Service must do so by which of the following dates (not considering Saturdays, Sundays, or holidays)?
February 28 of the following year (not considering leap year).
Shale, a C corporation, made two liquidating distributions of $1,000 on January 9, 2017, and February 13, 2017, to shareholder Patricia. Shale must file Form 1099-DIV, Dividends and Distributions, with the Internal Revenue Service by
February 28, 2018.
Zero Corp. is an investment company authorized to issue only common stock. During the last half of the current year, Edward owned 450 of the 1,000 outstanding shares of stock in Zero. Zero would not be subject to the personal holding company (PHC) penalty tax if the remaining 550 shares of common stock were owned by
Fifty-five shareholders who are related neither to each other nor to Edward, in equal lots of 10 shares each.
How does the United States treat income earned in multiple foreign tax jurisdictions for income tax purposes?
Foreign earned income is identified as earned in a country in which income taxes are paid on that income, and these taxes are either deducted from income or offset through a tax credit on U.S. taxes.
A corporation may reduce its regular income tax by taking a tax credit for
Foreign income taxes.
Bass Corp., a calendar-year C corporation, made qualifying 2017 estimated tax deposits based on its actual 2017 tax liability. On April 15, 2018, Bass filed a timely automatic extension request for its 2017 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 2017 corporate income tax return. Bass paid $400 additional tax on the final 2017 corporate income tax return filed before the extended due date. For the 2017 calendar year, Bass was subject to pay Interest on the $400 tax payment made in 2018 A tax delinquency penalty
I only.
Blink Corp., an accrual-basis, calendar-year corporation, carried back a net operating loss for the tax year ended December 31, Year 1. Blink's gross revenues have been under $500,000 since inception. Blink expects to have profits for the tax year ending December 31, Year 2. Which method(s) of estimated tax payment can Blink use for its quarterly payments during the Year 2 tax year to avoid underpayment of federal estimated taxes? 100%-of-the-preceding-tax-year method Annualized income method
II only.
Edge Corp. met the stock ownership requirements of a personal holding company. What sources of income must Edge consider to determine if the income requirements for a personal holding company have been met? Interest earned on tax-exempt obligations Dividends received from an unrelated domestic corporation
II only.
Lincoln Corp., a calendar-year C corporation, made a nonliquidating cash distribution of $1.5 million to its shareholders with respect to its stock. At that time, Lincoln's current and accumulated earnings and profits totaled $825,000, and its total paid-in capital for tax purposes was $10 million. Lincoln had no corporate shareholders. Which of the following statements, if any, are true regarding Lincoln's cash distribution? The distribution was taxable as $1.5 million in dividends to its shareholders. The distribution reduced its shareholders' adjusted bases in Lincoln stock by $675,000.
II only.
Personal holding company tax may be imposed
If at least 60% of the corporation's adjusted ordinary gross income for the taxable year is personal holding company income, and the stock ownership test is satisfied.
In which of the following circumstances would a foreign corporation be required to file a U.S. tax return?
If it is engaged in a trade or business in the U.S.
When passive investment income is involved, the personal holding company tax may be imposed
If more than 50% of the company is owned by five or fewer individuals.
Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash? Brisk's Shareholder's taxable income taxable income
Increase No change
A distribution of stock or rights to acquire stock in the distributing corporation is not included in the recipient's gross income unless
It is either a disproportionate distribution, or a distribution instead of money or other property.
In January of the current year, Joan Hill bought one share of Orban Corporation stock for $300. On March 1 of this year, Orban distributed one share of a new class of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1 of this year, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. The holding period for Orban's preferred stock starts in
January, current year.
Zeb, an individual shareholder, owned 25% of Towne Corporation stock. Pursuant to a series of stock redemptions, Towne redeemed 10% of the shares of stock Zeb owned in exchange for land having a fair market value of $30,000 and an adjusted basis of $10,000. Zeb's basis for all of his Towne stock was $200,000. Zeb reported the redemption transaction as if it were a dividend. Zeb's basis in the land and his Towne stock (immediately after the redemption) is
Land, $30,000; stock, $200,000.
In 2008, Mr. P purchased stock for $1,000. In 2016, he received a return of capital of $800 and reduced the basis of his stock by that amount. In 2017, he received return of capital of $300, which reduced the basis of his stock to zero. At no time did the corporation have earnings and profits (E&P). He would report the $100 that was in excess of his basis as
Long-term capital gain.
Benson, a singer, owns 100% of the outstanding capital stock of Lund Corporation. Lund contracted with Benson, specifying that Benson was to perform personal services for Magda Productions, Inc., in consideration of which Benson was to receive $50,000 a year from Lund. Lund contracted with Magda, specifying that Benson was to perform personal services for Magda, in consideration of which Magda was to pay Lund $1 million a year. Personal holding company income will be attributable to
Lund only.
Which of the following groups may elect to file a consolidated corporate return?
Members of an affiliated group.
Which one of the following is a corporate reorganization as defined in the Internal Revenue Code?
Mere change in place of organization of one corporation.
Which of the following is a protected in-state activity?
Missionary sales activities.
In 2017, Chris and Loretta formed a new corporation and contributed appreciated property. They received 90 and 10 shares of the corporation's stock, respectively. Select the true statement.
Neither Chris nor Loretta must recognize gain.
During 2017, Mr. Hill and Mr. Dale formed a corporation to which Hill transferred a patent right that had a fair market value to him of $25,000 and a zero adjusted basis. Dale transferred a building that had a fair market value of $100,000 and an adjusted basis to him of $75,000. In return, Hill received 250 shares and Dale 750 shares of the corporation's 1,000 outstanding shares of its only class of stock. As a result of this transaction, what should Mr. Dale report?
Neither a gain nor a loss.
What is the general concept of nexus as it applies to taxing multi-jurisdictional transactions?
Nexus is establishing a physical and/or financial presence within a jurisdiction that allows taxing authorities to tax sales and income-generating activities.
Trio Corporation was formed in 2004 by Jordan, Karen, and Lois. These three shareholders have owned all of the corporation's stock as follows: Jordan owns 500 shares, Karen owns 100 shares, and Lois owns 100 shares. In 2017, Jordan contributed property worth $90,000 to the corporation in exchange for an additional 300 shares. Jordan's basis in the contributed property was $20,000. Jordan will recognize
No gain because he has sufficient stock ownership after the exchange.
Ms. Glantz owns all 100 shares of Remsen Company. These shares were all acquired on February 18, 2008. Ms. Glantz's basis in the stock is $20,000. Remsen Company adopted a plan of complete liquidation and distributed $56,000 to Ms. Glantz. Ms. Glantz received $16,000 in 2016 and $40,000 in 2017. How much gain or loss is recognized by Ms. Glantz in 2016 and 2017?
No gain or loss in 2016 and $36,000 gain in 2017.
Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, subject to liabilities of $50,000, to a newly formed corporation in return for all of the corporation's stock. Rela then distributed this stock to the partners in liquidation. In connection with this incorporation of the partnership, Rela recognizes
No gain or loss on the transfer of its assets nor on the assumption of its liabilities by the corporation.
Gar purchased 1,000 shares of Pat Corporation common stock at $5 per share in Year 1. On September 19, Year 4, he received 1,000 stock rights entitling him to buy 250 additional shares of Pat Corporation common stock at $10 per share. On the day that the rights were issued, the fair market value of the stock was $12 per share ex-rights and that of the rights was $1 each. Gar did not exercise the rights; he let them expire on November 28, Year 4. What should be the loss that Gar can report for Year 4?
No gain or loss.
A corporation's penalty for underpaying federal estimated taxes is
Not deductible.
When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as shareholder) will ordinarily
Not recognize gain or loss on the liquidating distribution(s).
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.
During 2017, Marlene, Nancy, and Olive formed a new corporation. Solely in exchange for stock, Marlene and Nancy contributed appreciated property, while Olive contributed services. The exchanges of Marlene and Nancy will be nontaxable if
Olive receives 10% of the stock.
The only class of outstanding stock of Corporations L, M, N, O, and P is owned by the following unrelated individuals:
Only L, M, N, and O.
Consolidated returns may be filed
Only by parent-subsidiary affiliated groups.
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.
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.
Orson Corp. had an E&P deficit of $160,000 at December 31, 2016. Its net income per books was $80,000 for 2017. Cash dividends on common stock totaling $40,000 were paid in December 2017. Orson should report the distribution to its shareholders as
Ordinary dividends 100%.
In 2017, Aaron transferred property worth $75,000 and services worth $25,000 to the BJ Corporation. In exchange, he received stock in BJ valued at $100,000. Immediately after the exchange, Aaron owned 80% of the only class of outstanding stock. Which of the following is true with regard to Aaron's treatment of this transaction in 2017?
Ordinary income of $25,000.
The Snow Corporation, a calendar-year taxpayer, estimates at the end of March 2017 that its federal income tax for 2017 will be $800,000. It pays $200,000 of estimated tax by April 15, 2017, and pays another $200,000 on June 15, 2017. At the end of August 2017, a recalculation shows that its 2017 tax is expected to be $900,000. Which of the following is correct?
Payment due September 15, 2017 -- $275,000; Payment due December 15, 2017 -- $225,000.
The accumulated earnings tax does not apply to
Personal holding companies.
Acme Corp. has two shareholders. Acme derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its shareholders. Acme is a
Personal holding company.
Which of the following types of income is not considered personal holding company income?
Personal services income earned by a 20% shareholder.
A corporation that has both preferred and common stock has a deficit in accumulated earnings and profits at the beginning of the year. The current earnings and profits are $25,000. The corporation makes a dividend distribution of $20,000 to the preferred shareholders and $10,000 to the common shareholders. How will the preferred and common shareholders report these distributions?
Preferred - $20,000 dividend income; common - $5,000 dividend income, $5,000 return of capital.
A distribution of stock or stock rights is generally considered a taxable dividend unless it is which of the following?
Proportionate distribution.
Houston Corporation distributed marketable securities to Sam Alamo, a shareholder owning 90% of Houston, in redemption of Alamo's stock. This distribution took place as part of the complete liquidation of Houston. Alamo had contributed the securities 3 years before in a Sec. 351 transaction. On the day the securities were distributed, their adjusted basis was $340,000, and their fair market value was $210,000. What is the tax result to Houston on the distribution date?
Realized capital loss of $130,000 and recognized capital loss of $0.
The accumulated earnings tax can be imposed
Regardless of the number of shareholders in a corporation.
With regard to corporate reorganizations, which one of the following statements is true?
Securities in corporations not parties to a reorganization are always boot.
