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Exam 12: Corporations: Organization, Capital Structure, and Operating Rules

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Question 51

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Carol and Candace are equal partners in Peach Partnership.In the current year, Peach had a net profit of $75,000 $250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

A) True
B) False

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Question 52

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Orange Corporation, a calendar year C corporation, owns stock in White Corporation and has net operating income of $400,000 for the current year.White Corporation pays Orange a dividend of $60,000.What amount of dividends received deduction may Orange claim if it owns 45% of White stock assuming Orange's dividends received deduction is not limited by its taxable income) ?

A) $30,000
B) $39,000
C) $42,000
D) $60,000
E) None of the above

F) None of the above
G) A) and B)

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Question 53

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A calendar year personal service corporation with taxable income of $100,000 in the current year will have a tax liability of $21,000.

Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Seoyun and Nicole form Indigo Corporation with the following transfers: inventory from Seoyun basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole basis of $320,000 and fair market value of $375,000) .Nicole, an accountant, agrees to contribute her services worth $25,000) in organizing Indigo.The corporation's stock is distributed equally to Seoyun and Nicole.As a result of these transfers:

For purposes of the estimated tax payment rules, a "large corporation" is defined as a corporation that had taxable income of $1 million or more in any of the three preceding years.

Canary Corporation, a calendar year C corporation, received an $80,000 dividend from Stork Corporation.Canary owns 18% of the Stork Corporation stock.Assuming it is not subject to the taxable income limitation, Canary's dividends received deduction is $40,000.

A corporation's holding period for property received under § 351 includes the holding period of the transferor shareholder.

George an 80% shareholder) has made loans to Mountainview Corporation that become worthless in the current year.George is not employed by Mountainview.

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

When depreciable property is transferred to a controlled corporation under § 351, any recapture potential disappears and does not carry over to the corporation.

When Pheasant Corporation was formed under § 351, Kristen transferred property basis of $26,000 and fair market value of $22,500) for § 1244 stock.Kristen's basis in the Pheasant stock is $26,000.Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless.Kristen, who is single, owned the stock as an investment.Kristen's loss is:

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation.In the current year both businesses make a net profit of $60,000.Neither business distributes any funds to the owners in the year.For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

Earl and Mary form Crow Corporation.Earl transfers property, basis of $200,000 and value of $1,600,000, for 50 shares in Crow Corporation.Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year; in return Mary receives 50 shares of Crow.The value of Mary's services is $120,000.With respect to the transfers:

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the current year.In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:

For tax years beginning before 2018, the corporate marginal income tax rates ranged from 15% to 39%, while the individual marginal income tax rates ranged from 10% to 39.6%.

Copper Corporation, a calendar year C corporation, owns stock in Bronze Corporation and has net operating income of $900,000 for the current year.Bronze Corporation pays Copper a dividend of $150,000.What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock assuming Copper's dividends received deduction is not limited by its taxable income) ?

Which of the following statements is incorrect regarding the dividends received deduction?

Bjorn owns a 60% interest in an S corporation that earned $150,000 in the current year.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.In the current year, Robin earned net profit of $350,000 $520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.