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Exam 17: Corporations: Introduction and Operating Rules

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Question 51

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Heron Corporation, a calendar year C corporation, had an excess charitable contribution for 2011 of $5,000. In 2012, Heron made a further charitable contribution of $20,000. Heron's 2012 deduction is limited to $15,000 (10% of taxable income). The current year's contribution must be applied first against the $15,000 limitation.

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Question 52

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Mallard Corporation, a C corporation that is not a PSC, incorporated in December 2012 and expects to have substantial organizational expenditures. Discuss tax planning strategies that Mallard should consider in order to maximize the deduction for organizational expenditures.

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Mallard should incur all of its organiza...

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Question 53

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

Luis is the sole shareholder of a C corporation, and Eduardo owns a sole proprietorship. Both businesses were started in 2012, and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is incorrect?

In the current year, Amber, Inc., a calendar C corporation, has income from operations of $200,000 and operating deductions of $225,000. Amber also had $30,000 of dividends from a 25% stock ownership in a domestic corporation. Which of the following statements is incorrect with respect to Amber's net operating loss deduction?

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income. However, an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

Jessica, a cash basis individual, is a 60% shareholder of Crow Corporation, a regular corporation. On January 1, 2012, Jessica loaned Crow $300,000, with the principal due in 5 years and 6% interest due each January 1. Crow, an accrual method, calendar year taxpayer, accrued $18,000 of interest expense on the loan on December 31, 2012, and paid the $18,000 to Jessica on January 1, 2013. How much is Crow's deduction for interest on this loan for 2012? Would your answer change if Jessica was a 25% shareholder of Crow?

For a corporation in 2012, the domestic production activities deduction is equal to 9% of the higher 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.

Robin Corporation, a calendar year C corporation, had taxable income of $1.9 million, $1.2 million, and $900,000 for 2009, 2010, and 2011, respectively.Robin has taxable income of $1.5 million for 2012. The minimum 2012 estimated tax installment payments for Robin are:

Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Bear Corporation has a net short-term capital gain of $35,000 and a net long-term capital loss of $200,000 during 2012.Bear Corporation has taxable income from other sources of $600,000.Prior years' transactions included the following: Compute the amount of Bear's capital loss carryover to 2013.

Quail Corporation is a C corporation with net income of $125,000 during the current year.If Quail paid dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income.Shareholders must report the $25,000 of dividends as income.

Briefly describe the charitable contribution deduction rules applicable to C corporations.

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

Copper Corporation, a C corporation, had gross receipts of $5 million in 2009, $6 million in 2010, and $3 million in 2011.Gold Corporation, a personal service corporation (PSC) , had gross receipts of $4 million in 2009, $7 million in 2010, and $5 million in 2011.Which of the corporations will be allowed to use the cash method of accounting in 2012?

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?

During the current year, Violet, Inc., a closely held corporation (not a PSC) , has $130,000 of passive loss, $90,000 of active business income, and $70,000 of portfolio income. How much is Violet's taxable income for the current year?

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Katherine, the sole shareholder of Purple Corporation, a calendar year C corporation, has the corporation pay her a salary of $450,000 in the current year. The Tax Court has held that $150,000 represents unreasonable compensation. Purple Corporation's taxable income is unaffected by the Tax Court's determination.

Amber Company has $400,000 in net income in 2012 before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 35% marginal tax bracket. Discuss the tax aspects of each of the following independent arrangements. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.)