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Exam 10: Taxation of Corporations

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Question 41

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_____ 17. The accumulated earnings tax and the personal holding company tax can both apply to a corporation in place of the regular corporate income tax.

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Question 42

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_____ 11. All corporations whose income tax liability is less than $1,000,000 in the current year can avoid an underpayment penalty if each of their estimated tax payments is 25 percent or more of their immediately preceding tax year's tax liability.

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Question 43

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Alpha Corporation's adjusted taxable income is $100,000 for 2017 and $200,000 for 2018. Alpha makes charitable contributions of $15,000 in 2017 and $19,000 in 2018. What are Alpha's charitable contribution deductions in determining its taxable income for 2017 and 2018, respectively?

Corporation A owns 50 percent of the voting stock of Corporation B. What is the minimum amount of stock that Corporation A must acquire in Corporation B to allow the two corporations to file a consolidated return.

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array}{ll}\text { Robert } & 100 \text { shares } \\\text { Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin) } & 100 \text { shares } \\\text { RMD, Inc. } & 100 \text { shares }\\\text { Total shares outstanding }& 400 \text { shares }\\\end{array}$ Robert owns 50% of RMD, Inc. stock. The rest of RMD, Inc. stock is owned by unrelated parties. Riccardo Corporation redeems 90 of Robert's shares of stock for $9,000 in the only redemption transaction this year. Robert's basis for his stock is $10 per share (100 shares @ $10 = $1,000) . Riccardo Corporation has $300,000 in E&P. How much capital gain or dividend income does Robert recognize as a result of this redemption?

Bamboo Corporation has $130,000 of operating income, a $20,000 long-term capital loss, a $10,000 dividend from a corporation in which it owns 5 percent of the shares, and a charitable contribution of $18,000. What is the corporation's taxable income and income tax? Identify any carryovers.

Badluck Corporation decided to liquidate due to the economy. It distributed its only two assets to its sole shareholder, Jason: a truck valued at $4,000 with a basis of $8,000 (original cost $24,000) and a unique machine valued at $50,000 that had a zero basis (original cost $40,000). Jason has a basis in his stock in Badluck that he purchased five years ago for $38,000. Explain the tax consequences to Badluck and Jason on the liquidation.

_____ 5. In 2017, a corporation's deduction for qualified U.S. production activities is 9% of qualified production activities income up to a maximum of 50% of applicable wages paid during the year.

The following shareholders own the outstanding stock of Garcia Corporation: $\begin{array}{ll}\text { Ryan } & 100 \text { shares } \\\text { Kayla (Ryan's wife) } & 100 \text { shares } \\\text { Nick (Ryan's brother) } & 100 \text { shares } \\\text { XYZ, Inc. } & 100 \text { shares } \\\text { RST, Inc. } & 100 \text { shares } \\\text { AG Partnership } & 100 \text { shares }\\\text { Total shares outstanding }& 600 \text { shares }\\\end{array}$ Ryan is a 25% partner in AG Partnership. Ryan also is a 55% shareholder in XYZ, Inc. and a 40% shareholder in RST, Inc. How many shares does Ryan constructively (directly and indirectly) own?

Xenon Corporation has $112,000 of regular taxable income, $68,000 of preference items, $98,000 of positive adjustments, and $36,000 of negative adjustments that affect its determination of alternative minimum taxable income. What is Xenon's alternative minimum tax?

What is JJ Corporation's balance in accumulated earnings and profits at the beginning of year 2 if in year 1 it made a $40,000 distribution to its shareholders, its current earnings and profits was $35,000, and its accumulated earnings and profits was $25,000 at the beginning of year 1?

What is the purpose of earnings and profits?

How does a corporation treat a net short-term capital loss realized in the current year?

A corporation has a July 30 year end. What is the last date it can file its return due for its July 30, 2017 year end if it files an extension?

_____ 9. The corporate alternative minimum tax is paid in addition to the regular corporate income tax.

Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following: $\begin{array}{lc}&P&S\\\text { Separate taxable income (loss) } & \$ 500,000 &(\$ 200,000\\\text { Capital gain (loss) } & (\$ 25,000) &\$ 50,000 \\\text { Charitable contributions } & \$ 20,000&\$ 10,000 \\\text { Dividend from S } & \$ 10,000\end{array}$ What is the consolidated return taxable income?

Soledad received one stock right for every two shares of stock she owned. She owned 100 shares that she purchased two years ago for $1,000. Each of the 50 rights that she received allows her to purchase one share of stock for $15. The stock is currently selling for $22 per share. What is her basis in the 50 stock rights?

What is a corporate redemption?

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array}{ll}\text { Robert } & 100 \text { shares } \\\text { Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin) } & 100 \text { shares } \\\text { RMD, Inc. } & 100 \text { shares }\\\text { Total shares outstanding }& 400 \text { shares }\\\end{array}$ Robert owns 50% of RMD, Inc. stock. The rest of RMD, Inc. stock is owned by unrelated parties. Riccardo Corporation redeems 90 of Robert's shares of stock for $9,000 in the only redemption transaction this year. Robert's basis for his stock is $10 per share (100 shares @ $10 = $1,000) . Riccardo Corporation has $300,000 in E&P. What is Robert's total basis in his remaining 10 shares of stock after the redemption?

_____ 3. Corporations are allowed a charitable contribution deduction equal to 10% of gross profit.