1. (TCO 2) Alan owns a 60% interest in an S corporation that earned $150,000 during the 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 Alan, and the C corporation paid dividends of $30,000 to Alan. How much income must Alan report from these businesses?
$0 income from the S corporation, and $30,000 income from the C corporation
$90,000 income from the S corporation, and $30,000 income from the C corporation
$90,000 income from the S corporation, and $0 income from the C corporation
$30,000 income from the S corporation, and $30,000 of dividend income from the C corporation
None of the above
Question 2.2. (TCO 2) Which statement is incorrect regarding the taxation of C corporations?
The highest corporate marginal tax rate is 39%.
Taxable income of a personal service corporation is taxed at a flat rate of 35%.
A tax return must be filed, whether or not the corporation has taxable income.
Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation.
None of the above
Question 3.3. (TCO 1) Ilene and Frank form Happy Corporation. Ilene transfers equipment worth $475,000 (basis of $100,000) and $25,000 cash to Happy Corporation for 50% of its stock. Frank transfers a building and land worth $525,000 (basis of $200,000) for 50% of Happy's stock and $25,000 cash. Discuss the result of these transfers.
Ilene recognizes a gain of $375,000; Frank recognizes a gain of $325,000.
Ilene recognizes a gain of $25,000; Frank recognizes no gain.
Neither Ilene nor Frank recognizes gain.
Ilene recognizes no gain; Frank recognizes a gain of $25,000.
None of the above
Question 4.4. (TCO 1) Rachel and Robert, mother and son, form Brook Corporation with the following investments: cash by Rachel of $55,000 and land by Robert (basis of $35,000 and fair market value of $45,000). Brook Corporation issues 200 shares of stock, 100 each to Rachel and Robert. Thus, each receives stock in Brook Corp. worth $50,000.
§ 351 cannot apply, because Rachel should have received 110 shares instead of only 100.
As a result of the transfer, Robert recognizes a gain of $10,000.
Robert's basis in the stock of Brook Corporation is $50,000.
§ 351 may apply, because stock need not be issued to Rachel and Robert in proportion to the value of the property transferred.
None of the above
Question 5.5. (TCO 1) Marty and Debby form Blue Corporation. Marty transfers property ($200,000 and value of $1,600,000) for 50 shares in Blue Corporation. Debby transfers property (basis of $80,000 and value of $1,480,000) and agrees to serve as manager of Blue for 1 year; in return, Debby receives 50 shares of Blue. The value of Debby's services is $120,000. With respect to the transfers, _____. (Points : 5)
Debby will not recognize gain or income
Marty will recognize a gain of $1,400,000
Blue Corporation has a basis of $1,480,000 in the property it received from Debby
Blue will have a business deduction of $120,000 for the value of the services Debby will render
None of the above
Question 6.6. (TCO 11) Candace, a calendar-year taxpayer subject to a 35% marginal tax rate, claimed a charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000. Which is the applicable overvaluation penalty?
$17,500
$14,000
$3,500
$0
Question 7.7. (TCO 11) The penalty for substantial understatement of tax liability does not apply if _____.
the taxpayer has substantial authority for the treatment taken on the tax return
the relevant facts affecting the treatment are adequately disclosed in the return or on Form 8275
the IRS failed to meet its burden of proof in showing the taxpayer's error
All of the above
None of the above
Question 8.8. (TCO 2) Dodge Inc., has taxable income of $10 million this year. Which is the maximum DPAD tax savings for this C corporation?
$0
$204,000
$210,000
$306,000
$900,000
Question 9.9. (TCO 2) A corporation has the following items related to the AMT.
Alternative minimum tax base: $98,502,900
Regular tax: $11,201,520
Foreign AMT tax credit: $1,400,000
The corporation's AMT, if any, is _____.
$0
$7,099,060
$8,703,900
$18,300,580
None of the above
Question 10.10. (TCO 3) As of January 1, Boulder Corporation has a deficit in accumulated E&P of $37,500. For the tax year, current E&P (all of which accrued ratably) is $20,000 (prior to any distribution). On July 1, Boulder Corporation distributes $25,000 to its sole, noncorporate shareholder. The amount of the distribution that is a dividend is _____.
$0
$20,000
$25,000
$37,500
None of the above