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Exam 17: Corporations: Introduction and Operating Rules

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Question 21

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During the current year, Violet, Inc., a closely held corporation (not a PSC) , has $55,000 of passive activity loss, $80,000 of net active income, and $20,000 of portfolio income. How much is Violet's taxable income for the current year?

A) $20,000
B) $45,000
C) $80,000
D) $100,000
E) None of the above

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

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Question 22

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During the current year, Jay Corporation, a calendar year personal service C corporation, had operating income of income of $300,000, operating expenses of $200,000, a short-term capital gain of $5,000, and a long-term capital loss of $35,000. How much is Jay's income tax liability for the year?

A) $14,700.
B) $21,000.
C) $22,250.
D) $35,000.
E) None of the above.

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

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Question 23

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During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions: Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered? What compensation is included in the limit?

Explain the rules regarding the accounting periods available to corporate taxpayers.

In general, all corporations that maintain inventory for sale to customers are required to use the accrual method of accounting for all income and expense items.

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2018. Ostrich also has taxable income from other sources of $1 million. Prior years' transactions included the following: a. How are the capital gains and losses treated on Ostrich's 2018 tax return? b. Determine the amount of the 2018 net capital loss that is carried back to each of the previous years. c. Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried. d. If Ostrich were a proprietorship, how would Ellen, the owner, report these transactions on her 2018 tax return?

In tax planning for charitable contributions, a current year's contribution might have to be deferred to a later year in order to deduct a contribution carryover amount.

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) ?

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 35% of the stock, and Oscar owns the remaining 65%. During 2018, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2018, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2019, compute Ivory Corporation's 2018 deduction for the above amounts.

For tax years ending after 2017, which of the following statements is incorrect with respect to the treatment of a net operating loss by a calendar year C corporation?

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

On December 20, 2018, 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 11, 2019, may be claimed as a deduction for tax year 2018.

Thrush Corporation, a calendar year C corporation, files it's 2018 Form 1120, which reports taxable income of $200,000 for the year. The corporation's tax is $61,250.

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) ?

Katherine, the sole shareholder of Penguin Corporation, has the corporation pay her a salary of $300,000 in the current year. The Tax Court has held that $90,000 represents unreasonable compensation. Katherine has avoided double taxation only to the extent of $210,000 (the portion of the salary that is considered reasonable compensation).

The accumulated earnings and personal holding company taxes both can be avoided by distributing sufficient dividends.

How is the limitation on the deduction of business interest computed? Does it apply to all taxpayers? What happens to any business interest deduction disallowed by the limitation?

Copper Corporation, a C corporation, had gross receipts of $25 million in 2015, $26 million in 2016, and $23 million in 2017. Gold Corporation, a personal service corporation (PSC) , had gross receipts of $24 million in 2015, $27 million in 2016, and $25 million in 2017. Which of the corporations will be allowed to use the cash method of accounting in 2018?

Grackle Corporation, a personal service corporation, had $230,000 of net active income, $40,000 of portfolio income, and a $250,000 passive activity loss during the year. How much is Grackle's taxable income?