Corporate Taxation - General

Question 1

What is Sec. 1244?

Answer 1

Sec. 1244 permits a shareholder to deduct an ordinary loss of up to $50,000 per year ($100,000 if married filing jointly) if qualifying stock is sold, exchanged, or becomes worthless.

Question 2

Sec. 1244 permits a shareholder to deduct an ordinary loss of up to _____ per year (____ if married filing jointly) if qualifying stock is sold, exchanged, or becomes worthless.

Answer 2

$50,000

$100,000

Question 3

What is qualifying stock under Sec. 1244?

Answer 3

Qualifying stock must have been issued in exchange for money or other property and must have been issued to the individual or partnership sustaining the loss

Question 4

T/F

Ordinary loss treatment under Sec. 1244 is available to a shareholder sustaining the loss that was not the original holder of the stock, perhaps they acquired the stock by purchase, gift, or inheritance

Answer 4

FALSE

Ordinary lost treatment under Sec. 1244 is only available for qualifying stock, which means that the stock must have been issued to the individual or partnership sustaining the loss - it must be the ORIGINAL HOLDER

Question 5

If stock does not qualify under Sec. 1244, but a loss does occur, how is the loss recognized?

Answer 5

It will be recognized as a LTCL or STCL, but NOT as an Ordinary Loss

Question 6

T/F

“The stock must be issued to an individual or to a partnership” is a requirement for stock to qualify as Sec. 1244 small business corporation stock

Answer 6

TRUE

Question 7

T/F

“The stock was issued for money or property other than stock and securities” is a requirement for stock to qualify as Sec. 1244 small business corporation stock

Answer 7

TRUE

Question 8

T/F

“The stock must be common stock” is a requirement for stock to qualify as Sec. 1244 small business corporation stock

Answer 8

FALSE

Any type of stock can qualify whether common, preferred, voting, or nonvoting

Question 9

T/F

“The issuer must be a domestic corporation” is a requirement for stock to qualify as Sec. 1244 small business corporation stock

Answer 9

TRUE

Question 10

T/F

Omitting income as a result of inadequate recordkeeping will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result

Answer 10

FALSE

This does not constitute deliberate actions with the specific intent of evading tax

Question 11

T/F

Failing to report income it erroneously considered not to be part of corporate profits will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result

Answer 11

FALSE

This does not constitute deliberate actions with the specific intent of evading tax

Question 12

T/F

Filing an incomplete return with an ammeded statement, making clear that the return is incomplete, will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result

Answer 12

FALSE

This does not constitute deliberate actions with the specific intent of evading tax

Question 13

T/F

Maintaining false records and reporting fictiious transactions to minimize corporate tax liability will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result

Answer 13

TRUE

Question 14

A corporation’s penalty for underpaying federal estimated taxes is ________ (not deductible/partially deductible/fully deductible)

Answer 14

Not Deductible

Question 15

A large corporation is one with taxable income of ___________ or more in any of its three preceding tax years, must make its estimated tax payments at least equal to _____ of its current year liability to avoid the estimated tax underpayment penalty

Answer 15

$1M

100%

Question 16

T/F

A corporation may recognized gain/loss on the receipt of money or other property in exchange for its stock, including treasury stock

Answer 16

FALSE

A corporation will NEVER recognized gain/loss on the receipt of money or other property in exchange for its stock, including treasury stock

Question 17

T/F

Professional fees to issue the corporation’s stock is a deductible organizational expenditure

Answer 17

FALSE

The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible

Question 18

T/F

Commissions paid by the corporation to underwriters for stock issue is a deductible organizational expenditure

Answer 18

FALSE

The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible

Question 19

T/F

Printing costs to issue the corporation’s stock is a deductible organizational expenditure

Answer 19

FALSE

The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible

Question 20

T/F

Expenses of temporary directors meetings is a deductible organizational expenditure

Answer 20

TRUE

Organizational expenditures include fees for accounting and legal services incident to incorporation, expenses of organizational meetings and of temporary directors meetings, and fees paid to the state of incorporation

Question 21

A corporation may deduct up to _____ of organizational expenditures for the tax year in which the corporation begins business, however this amount must be reduced by the amount by which organizational expenditures exceed _____. Remaining expenditures are deducted ratably over the ____ period beginning with the month in which the corporation ______ (is organized/begins business)

Answer 21

$5000

$50,000

180-month

Begins Business

Question 22

Assume a corporation was organized and began business in year x1. They incurred $4,800 of organizational expenditures. How much can they deduct of organizational expenditures?

Answer 22

The entire $4,800 because it is under the $5,000 limit

Question 23

Assume a corporation was organized and began business in year x1. They incurred $6,000 of organizational expenditures. How much can they deduct of organizational expenditures?

Answer 23

Because they have more than $5,000 of organizational expenditures, but less than $50,000 of organizational expenditures, they will deduct:

$5,000 + [(6000 - 5000) * months-in-x1/180]

Question 24

Assume a corporation was organized and began business in year x1. They incurred $60,000 of organizational expenditures. How much can they deduct of organizational expenditures

Answer 24

Because they are over the limit of $50,000 or organizational expenditures they will deduct:

$60,000 * months-in-x1/180

Question 25

A corporation’s charitable contributions deduction is limited to ____ of its taxable income

Answer 25

10%

Question 26

A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the deduction for charitable contributions

Answer 26

BEFORE

Question 27

A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the dividends received deduction

Answer 27

BEFORE

Question 28

A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the the deductions for a NOL carryback

Answer 28

BEFORE

Question 29

A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the capital loss carryback

Answer 29

BEFORE

Question 30

A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the domestic production activities deduction

Answer 30

BEFORE

Question 31

Accrual method calendar-year corporations may deduct contributions actually made in the year plus they can elect to deduct any contribution authorized by the board of directors during the year so long as the contribution is subsequently made no later than ____ months after the end of the tax year

Answer 31

2 1/2 months

Question 32

To maximize a corporation’s deduction, accrual method calendar-year corporations may deduct contributions actually made in the year plus they can elect to deduct any contribution authorized by the board of directors during the year so long as the contribution is subsequently made no later than 2 1/2 months after the end of the tax year. The deduction is still limited to ____ of taxable income ____ the charitable contribution deduction. The remaining deduction can be carried over a maximum of ____

Answer 32

10%

Before

5 years

Question 33

Dividends received from less than 20%-owned corporations are generally eligible for a ___ Dividend Received Deduction (i.e., ____% * Dividend). However, if the corporation’s taxable income before the DRD is less than the amount of the dividend, the DRD will be limited to ___ of ____

Answer 33

70%

70%

70%

Taxable Income

Question 34

Dividends received from less than 20%-owned corporations are generally eligible for a 70% Dividend Received Deduction (i.e., 70% * Dividend). However, if the corporation’s taxable income before the DRD is less than the amount of the dividend, the DRD will be limited to 70% of taxable income. The exception is if the full DRD (70% * Dividend) creates or increases a _____

Answer 34

Net Operating Loss

Question 35

T/F

The corporate dividends received deduction must exceed the applicable percentage of the recipient shareholder’s taxable income

Answer 35

FALSE

The DRD may be LIMITED to the applicable percentage of the investor corporation’s taxable income

Question 36

T/F

The corporate dividends received deduction is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period

Answer 36

TRUE

To qualify for a DRD, the investor corporation must own the investee’s stock for more than 45 days (90 days for preferred stock if the dividends received are in arrears for more than one year)

Question 37

T/F

The corporate dividends received deduction is unaffected by the percentage of the investee’s stock owned by the investor corporation

Answer 37

FALSE

A 70% DRD applies to dividends from less-than-20%-owned corporations, an 80% DRD applies to dividends from unaffiliated corporations that are at least 20%-owned, and a 100% DRD applies to dividends from corporations that are at least 80%-owned when a consolidated tax return is not filed

Question 38

T/F

The corporate dividends received deduction may be claimed by S corporations

Answer 38

FALSE

Question 39

To qualify for a DRD, the investor corporation must own the investee’s stock for more than ____ days (___ days for preferred stock if the dividends received are in arrears for more than _____)

Answer 39

45

90

One year

Question 40

A ____ DRD applies to dividends from less-than-20%-owned corporations, an ____ DRD applies to dividends from unaffiliated corporations that are at least 20%-owned, and a ____ DRD applies to dividends from corporations that are at least 80%-owned when a consolidated tax return is not filed

Answer 40

70%

80%

100%

Question 41

T/F

Dividends paid by mutual savings banks are eligible for a DRD

Answer 41

FALSE

So-called “dividends” paid by mutual savings banks are reported as interest and are not eligible for the dividends received deduction

Question 42

A C Corporation’s Net Capital Losses are carribed back ____ and forward ____ as a _____ (STCL/LTCL) to offset capital gains in those years

Answer 42

3 years

5 years

STCL

Question 43

A Net Operating Loss is generally carried back ____ and forward ____ to offset taxable income in the carryback and carryforward years

Answer 43

2 years

20 years

Question 44

T/F

When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it retains its original identity as short-term or long-term

Answer 44

FALSE

Question 45

T/F

When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it is treated as a STCL whether or not it was short-term when sustained

Answer 45

TRUE

Question 46

T/F

When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it is treated as a LTCL whether or not it was long-term when sustained

Answer 46

FALSE

Question 47

T/F

When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it can be used to offset ordinary income up to the amount of the carryback or carryover

Answer 47

FALSE

Question 48

Given that deductions in a tax return exceed gross income, in computing the NOL, DRD’s are ____ (fully allowed/partially allowed/disallowed)

Answer 48

Fully Allowed

Question 49

Given that deductions in a tax return exceed gross income, in computing the NOL, NOL deduction carryovers are ____ (fully allowed/partially allowed/disallowed)

Answer 49

Disallowed

Question 50

T/F

The $100 floor and the 10% of AGI limitations for personal casualty losses also apply to business casualty losses

Answer 50

FALSE

If business property is completely destroyed, the amount of casualty loss deduction is the property’s adjusted basis immediately before the casualty

Question 51

If business property is completely destroyed, the amount of casualty loss deduction is the property’s _____ (FMV/adjusted basis) immediately before the casualty

Answer 51

Adjusted Basis

Question 52

For the first taxable year in which a corporation has qualifying R&D expenditures, the corporation has a choice of ______

Answer 52

Either

1) deducting such expenditures as current business expenses or
2) capitalizing these expenditures

Question 53

For two companies to qualify for the filing of consolidated returns, at least what percentage of one’s total voting power must the other own?

Answer 53

80%

Question 54

For two companies to qualify for the filing of consolidated returns, at least what percentage of one’s total value of stock must the other own?

Answer 54

80%

Question 55

T/F

A corporation cannot deduct a net capital loss

Answer 55

TRUE

Question 56

Distributions pay out a corporations ______ (positive/negative/both) AEP

Answer 56

Positive

Question 57

Distributions ______ (can create/do not create) a deficit of AEP

Answer 57

Do Not Create

Question 58

Distributions _____ (increase/decrease/do not affect) a deficit of AEP

Answer 58

Do not Affect

Question 59

Distributions are treated as a dividend to the extent of ______

Answer 59

Current & Accumulated Earnings & Profits

Question 60

When a company gives a cash distribution in excess of its accumulated earnings a profits this is treated as a ________ with any distribution in excess of a shareholder’s stock basis treated as ____

Answer 60

Nontaxable return of stock basis which reduces the shareholders’ adjusted basis in the stock

Capital Gain

Question 61

A corporation’s distributions to shareholders on their stock will be taxed as ______ to the extent of

Answer 61

Dividend Income

The corporation’s current and accumulated earnings and profits

Question 62

What is the amount of loss recognized by a corporation on a nonliquidating distribution of property to shareholders?

Answer 62

No loss can be recognized on nonliquidating corporate distributions to shareholders

Question 63

T/F

Like a loss, a gain would not be recognized on a nonliquidating distribution of property to shareholders

Answer 63

FALSE

A gain would be recognized and taxable

Question 64

Assume a corporation has a large deficit in Accumulated Earnings & Profits but a much smaller positive amount for Current Earnings & Profits, causing an overall deficit. If the corporation gives out a cash distribution, this ____ (is/is not) a taxable distribution to the extent of the smaller positive amount of CEP

Answer 64

IS

For example, even if AEP is -$50k and CEP is only $10k, so there is an overall deficit, the distributions for the current year will be taxable as dividend incme to the shareholders up to $10k

Question 65

When a corporation distributes appreciated property to shareholders they ____ (will/will not) recognize a gain to the extent that _____

Answer 65

WILL

FMV exceeds basis/cost

Question 66

When a corporation distributes appreciated property to shareholders, they will recognize gain to the extent that FMV exceeds basis/cost. This will _____ (increase/decrease/not affect) their AEP

Answer 66

Increase

Question 67

T/F

A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation entirely as a capital gain

Answer 67

TRUE

Question 68

T/F

A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation entirely as a dividend

Answer 68

FALSE

Question 69

T/F

A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation partly as capital gain and partly as a dividend

Answer 69

FALSE

Question 70

T/F

A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation as a tax-free transaction

Answer 70

FALSE

Question 71

A corporate stock redemption is treated as an ____

Answer 71

Exchange

Question 72

A corporate stock redemption is treated as an exchange which generally results in ______ as long as the redemption meets any one of 5 tests. If none of these five tests are met, the redemption proceeds are generally treated as ____

Answer 72

Capital gain/loss treatment

A dividend

Question 73

A corporate stock redemption is treated as an exchange which generally results in capital gain/loss treatment as long as the redemption meets any one of what 5 tests?

Answer 73

1) Redemption that is not essentially equivalent to a dividend
2) Redemption that is substantially disproportionate
3) A redemption that completely terminates a shareholder’s interest
4) A redemption of a noncorporate shareholder in a partial liquidation
5) A redemption to pay death taxes

Question 74

T/F

“Redemption that is not essentially equivalent to a dividend” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Answer 74

TRUE

Question 75

T/F

“Redemption that is substantially disproportionate” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Answer 75

TRUE

Question 76

T/F

“A redemption that 50% terminates a shareholder’s interest” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Answer 76

FALSE

“A redemption that COMPLETELY terminates a shareholder’s interest” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Question 77

T/F

“A redemption of a noncorporate shareholder in a full liquidation” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Answer 77

FALSE

“A redemption of a noncorporate shareholder in a PARTIAL liquidation” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Question 78

T/F

“A redemption to pay death taxes” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment

Answer 78

TRUE

Question 79

T/F

Generally, no deduction is allowed for any amount paid or incurred by a corporation in connection with the redemption of its stock

Answer 79

TRUE

Question 80

Generally, no deduction is allowed for any amount paid or incurred by a corporation in connection with the redemption of its stock except for ____

Answer 80

Interest expense on loans used to repurchase stock

Question 81

Legal and accounting fees incurred in connection with the repurchase of stock is _____ (Deductible/Not Deductible

Answer 81

Not Deductible

Question 82

General expenses incurred in the complete liquidation and dissolution of a corporation _____ (are/are not) deductible by the corporation

Answer 82

ARE

Question 83

General expenses incurred in the complete liquidation and dissolution of a corporation are deductible by the corporation as ____

Answer 83

Ordinary & Necessary Business Expenses

Question 84

General expenses incurred in the complete liquidation and dissolution of a corporation are deductible by the corporation as ordinary and necessary business expenses. Examples include:

Answer 84

Filing Fees

Professional Fees

Question 85

The usual result to the shareholders of a distribution in complete liquidation of a corporation is _____ (capital/ordinary) gain/loss.

Answer 85

Capital Gain/Loss

Question 86

T/F

When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily be subject to capital gains tax of the long-term gain

Answer 86

FALSE

Question 87

T/F

When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily be subject to ordinary income of the long-term gain

Answer 87

FALSE

Question 88

T/F

When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily not recognize gains or loss on the liquidating distributions, because they are a consolidated entity

Answer 88

TRUE