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Exam 2: Corporations: Introduction and Operating Rules

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Question 31

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Which of the following statements is incorrect regarding the taxation of C corporations?

A) Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation.
B) Taxable income of a personal service corporation is taxed at a flat rate of 35%.
C) A tax return must be filed whether or not the corporation has taxable income.
D) The highest corporate marginal tax rate is 39%.
E) None of the above.

F) A) and B)
G) C) and D)

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Question 32

True/False

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On December 19, 2014, the directors of Quail Corporation (an accrual basis, calendar year taxpayer) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity. The payment, which is made on April 10, 2015, may be claimed as a deduction for tax year 2014.

A) True
B) False

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Question 33

Multiple Choice

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In 2014, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long- term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income tax return for the year.

In the current year, Crimson, Inc., a calendar C corporation, has income from operations of $180,000 and operating deductions of $225,000. Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year?

During the current year, Kingbird Corporation (a calendar year C corporation) had the following income and expenses: On October 1, Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items). Determine Kingbird's charitable contribution deduction for the current year. a. $9,000 b. $7,500 c. $6,650 d. $6,450 e. None of the above

Income that is included in net income per books but not included in taxable income is a subtraction item on Schedule M-1.

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $1.2 million for 2011, 2012, and 2013, respectively. Almond's taxable income is $2 million for 2014. Compute the minimum estimated tax payments for 2014 for Almond Corporation.

During the current year, Gray Corporation, a C corporation in the financial services business, made charitable contributions to qualified organizations as follows: -Stock (basis of $20,000, fair market value of $45,000) in Drab Corporation, held for six months as an investment, to the Salvation Army. (Salvation Army plans on selling the stock.) -Painting (basis of $90,000, fair market value of $250,000), held for four years as an investment, to the Museum of Fine Arts. (The Museum plans on including the painting in its collection.) Gray Corporation's taxable income (before any charitable contribution deduction) is $1.8 million. a. What is the total amount of Gray's charitable contributions for the year? b. What is the amount of Gray's charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short­term capital loss on his individual tax return.

On December 26, 2014, the board of directors of Taupe Corporation, a calendar year, accrual method C corporation, authorized a contribution of land to a qualified charitable organization. The land (basis of $75,000, fair market value of $125,000) was acquired five years ago and held as an investment. For purposes of the taxable income limitation applicable to charitable deductions, Taupe has taxable income of $800,000 and $950,000 for 2014 and 2015, respectively. Describe the tax consequences to Taupe Corporation under the following independent situations. a. The donation is made on February 20, 2015. b. The donation is made on April 10, 2015.

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university (a qualified educational organization) . The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain. Pablo's marginal tax rate is 33%. Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain. Loon's marginal tax rate is 35%. What tax rates are applicable to these capital gains?