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Exam 17: Corporations: Introduction and Operating Rules

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Question 41

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Adrian is the president and sole shareholder of Pigeon Corporation.He also lends money and rents a building to the corporation.Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation.What limitations are there on the use of such relationships?

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As president of Pigeon Corporation,Adria...

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Question 42

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No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

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Question 43

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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 2017,Ivory paid a salary of $100,000 to each shareholder.On December 31,2017,Ivory accrued a bonus of $25,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 2,2018,compute Ivory Corporation's 2017 deduction for the above amounts.

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.

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

Albatross,a C corporation,had $140,000 net income from operations and a $25,000 short-term capital loss in the current year.Albatross Corporation's taxable income is $140,000.

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

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

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?

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:

Tonya,an actuary,is the sole shareholder of Shrike Corporation,a professional corporation.The corporation paid Tonya a salary of $360,000 during its fiscal year ending September 30,2017. a.​​​How much salary must Shrike Corporation pay Tonya during the period October 1 through December 31, 2017, to enable the corporation to continue to use its fiscal year without negative tax effects? b.​If Shrike Corporation had taxable income of $75,000 for the year ending September 30, 2017, what is its tax liability?

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?

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

On December 20,2017,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 11,2018,may be claimed as a deduction for tax year 2017.

For a corporation,the domestic production activities deduction is equal to 9% of the lesser of (1) qualified production activities income or (2) taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

On December 28,2017,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 2017 and 2018,respectively.Describe the tax consequences to Taupe Corporation under the following independent situations. a.The donation is made on February 16, 2018. b.The donation is made on May 11, 2018.

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

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?

Grebe Corporation,a closely held corporation that is not a PSC,had $75,000 of net active income,$60,000 of portfolio income,and a $105,000 passive activity loss during the year.How much of the passive activity loss can Grebe deduct in the current year?