Tax Assignment
A.)
1. In general, what is the filing deadline for a C corporation in 2016?
a. March 15
b. April 15
c. The 15th day of the 3rd month after year-end.
d. The 15th day of the 4th month after year-end.
2. Curley Co. is a calendar year C corporation. When is Curley's 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. June 15, 2017
d. October 15, 2017
3. Curley Co. is a C corporation with a fiscal year-end of September 30. When is Curley's 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. December 15, 2016
d. January 15, 2017
4. Identify which of the following cannot function as a pass-through entity for tax purposes.
a. Sole proprietorship
b. Limited liability company
c. Partnership
d. S corporation
5. The following chart shows ownership percentages of Glenn Corp. in X, Y and Z Corporations and dividends received by Glenn from these corporations in 2016.
Glenn's Ownership % Dividend Received
X Corp15%$100,000
Y Corp20% 120,000
Z Corp30% 200,000
Glenn is a calendar year corporation and received no other dividends in 2016. What amount of dividend income must be included by Drew on its 2016 corporate tax return?
a. $126,000
b. $114,000
c. $94,000
d. $106,000
6. Marco Corp. was organized as a calendar year corporation in January 2016, incurring $51,000 in qualified organizational expenses, and began business in March 2016. What is the maximum amount Marco may deduct for organizational expenditures on its 2016 corporate tax return?
a. $4,000
b. $6,611
c. $6,350
d. $7,133
7. When preparing Schedule M-1 of Form 1120, which of the following must be added to net income per books in order to compute taxable income?
a. 100% of meals and entertainment expense
b. Municipal bond interest
c. Excess of tax vs. book depreciation
d. Accrued bad debt expense
8. Regarding the Personal Holding Company (PHC) tax, which of the following statements is true?
a. The tax can be avoided on some undistributed PHC income is the PHC can demonstrate a business need for keeping the income.
b. Income from certain types of municipal bonds is included in personal holding company income for the purposes of the PHC tax.
c. The PHC tax cannot be imposed on an S corporation.
d. The PHC is a penalty tax that is only paid when the IRS assesses the tax during an audit.
9. Regarding the Accumulated Earnings Tax (AET), which of the following statements is true?
a. Corporations determine AET by filing Form 1120-AET along with the corporate tax return.
b. Paying the Personal Holding Company tax in a given tax year eliminates any need to pay AET for that year.
c. A domestic manufacturer with less than $2.5 million in gross receipts is automatically exempt from consideration for AET.
d. Loans to suppliers, customers and shareholders are considered reasonable business needs for the purpose of assessing AET.
10. Identify any item or items below which are added to Alternative Minimum Taxable Income (AMTI) in order to compute the Adjusted Current Earnings (ACE) adjustment.
I. Dividends-received deduction on dividends received from a 20%-owned corporation.
II. Municipal bond interest, excluding any municipal bond interest already included in AMTI.
III. Life insurance proceeds on the death of a key employee.
a. I and III only.
b. I, II and III.
c. I and II only.
d. II and III only.
11. Eva and Melissa formed Lewis Corporation by contributing property with a fair market value of $50,000 and $70,000 cash, respectively, each for a 50% ownership in the newly formed company. What is Eva's taxable gain in this situation if the adjusted basis in the property is $25,000 and the company is valued at $120,000?
a. $0
b. $10,000
c. $25,000
d. $35,000
12. Eva, Melissa, and Drew formed Lewis Corporation with the following contributions:
Eva$50,000 cash
Melissa$50,000 cash
DrewLegal services
Each was given a one-third ownership in Lewis Corporation. What amount of income will Drew recognize if the company is valued at $150,000 after formation?
a. $50,000
b. $33,333
c. $0
d. $40,000
13. Drew, Melissa, and Eva form Lewis Corporation with the following contributions:
Drew$25,000
Melissa$25,000
EvaLegal Services
After the formation, each has a one-third stake in the company. What amount of gain or income will they each record if the company is valued at $100,000?
DrewMelissaEva
a. $ 0$ 0$ 25,000
b. 8,333 8,333 33,333
c. 0 0 33,333
d. 25,00025,000 25,000
14. Eva and Melissa create Lewis Corporation by contributing property with a fair market value of $50,000 and cash of $70,000, respectively. Each receives a 50% share in the company, which is valued at $150,000 immediately after the formation. The property has an adjusted basis of $25,000 and is subject to a $10,000 mortgage, which is assumed by the company. What gain will Eva recognize in this situation?
a. $0
b. $10,000
c. $15,000
d. $25,000
15. Benjamin, a single individual, formed a corporation in year 1 by way of a qualifying Section 351 tax-free asset transfer, in which he transferred property having an adjusted basis of $250,000 and a fair market value of $220,000 and received a Section 1244 small business corporation stock in exchange. In year 3 Benjamin sold all of the stock for $210,000. What is the amount and character of loss that Benjamin must recognize as a result of selling the stock in year 3?
Ordinary LossCapital Loss
a. $ 0$40,000
b. 10,000 30,000
c. 40,000 0
d. 10,000 0
B.)
Two paragraphs of writing are required at a minimum for each question. Four paragraphs is the maximum.
1. What is a tax-deferred transaction? Please state an example of one by referring to its governing Code Section(s). What is the mechanism that makes the transaction tax deferred?
2. What is the wherewithal to pay concept? How does it factor in to tax deferred transactions?
3. What are the hallmarks of a good system of taxation?
4. What is the Tax Gap and how does complexity in the Tax Code impact it?
C.)
One paragraph each
How does the Tax Code define a dividend?
How does the Tax Code define earnings and profits?
Explain how a corporate distribution to a shareholder is impacted in the following cases:
• The distributing corporation has sufficient current and accumulated earnings and profits to cover the distribution amount.
• The distributing corporation has sufficient current and accumulated earnings and profits to cover one-half of the distribution amount.
• The distributing corporation has no current and accumulated earnings and profits to cover any of the distribution amount and the distribution amount exceeds the shareholders stock basis.
D.)
1. Moe Corporation is a calendar year taxpayer. At the beginning of the current year, Moe has accumulated E & P of $33,000. The corporation incurs a deficit in current E & P of $46,000 that accrues ratably throughout the year. On June 30, Moe distributes $20,000 to its sole shareholder, Larry. If Larry's stock has a basis of $4,000, how is he taxed on the distribution?
2. At the beginning of the year, Kathryn Corporation had accumulated E & P of $225,000. On March 30, Kathryn sold an asset at a loss of $225,000. For the calendar year, Kathryn incurred a deficit in current E & P of $305,000, which includes the $225,000 loss on the sale of the asset. If Kathryn made a distribution of $50,000 to its sole shareholder Gramps on April 1, how will Gramps be taxed?