Exam 5: Other Corporate Tax Levies

Identify which of the following statements is false.

Wind Corporation is a personal holding company. Its taxable income for this year is $100,000. The corporation's charitable contributions are $5,000 greater than its income tax charitable contribution deduction limitation. Wind's UPHCI is $95,000, assuming no other adjustments must be made.

Eight individuals own Navy Corporation, a C corporation. Three shareholders make up the board of directors and own 51% of the stock. The corporation has a successful manufacturing business. It has accumulated $3 million of E&P and expects to accumulate another $200,000 of E&P annually. Annual dividend payments are $30,000. Demand for Navy's goods has been strong, but the company does not anticipate any expansion or repair of the current plant for three to five years. Management has invested $200,000 annually in growth stocks. Its current investment portfolio is $1.2 million. The portfolio is held as protection against a business slowdown. Loans to shareholder-employees currently are $400,000. As Navy's CPA, what tax issues should you have your client consider?

A low tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings rather than paying them out as a dividend.

Identify which of the following statements is true.

Define personal holding company income.

Investors Corporation has ten unrelated individual shareholders who each own 10% of the outstanding stock. For their tax year ended December 31 of this year, Investors' gross income includes: Interest on federal government obligations $10,000 Dividends from savings and loan associations on passbook savings accounts $2,000 Interest earned on notes receivable $5,000 Net rental income $3,000 No dividends are paid during the tax year or during the 2-1/2 month throwback period. Deductible administrative expenses total $4,000 for the year. Rental income has been reduced by $1,000 of depreciation and $2,000 of interest expense. What is Investors' undistributed personal holding company income?

Which of the following actions cannot be used to eliminate a potential accumulated earnings tax liability situation involving a corporation owned by a mother and a father?

The personal holding company penalty tax rate is

A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.

In years beginning in 2018 through 2020, any minimum tax credit carryover from prior alternative minimum tax.years will be allowed to the extent of the regular tax liability plus 50% of the excess of the minimum tax credit over the amount credited against the regular tax.

Dragon Corporation reports a distribution on its return from the third previous year as a stock redemption producing a capital gain. When the return is audited during the current year, the distribution of the third previous year is characterized by the IRS as a dividend. This change causes Dragon Corporation to be classified as a personal holding company for the third previous year. Which of the following statements is correct?

Mullins Corporation is classified as a PHC for the current year, reporting $263,000 of taxable income on its federal income tax return: Operating profit $150,000 Long-term capital gain 20,000 Short-term capital gain 20,000 Dividends (from 25%-owned domestic corporation) 200,000 Interest 150,000 Gross income $540,000 Minus: general and administrative expenses ( 40,000) Minus: salaries ( 30,000) "Adjusted" taxable income $470,000 Minus: charitable contributions ( 47,000) Taxable income before special deductions $423,000 Minus: dividends-received deduction (130,000) Taxable income $293,000 Actual charitable contributions made by Mullins Corporation were $75,000. What are the federal income tax due and the personal holding company (PHC) tax liability? Discuss the methods (if any) by which payment of the PHC tax can be avoided.

Foster Corporation has gross income for regular tax purposes of $100,000, which includes a net Sec. 1231 gain of $10,000 and a net capital gain of $10,000. Ordinary gross income for personal holding company purposes is

A corporation cannot reasonably accumulate earnings to

How is the accumulated earnings tax liability computed?

A personal holding company cannot take a dividends-paid deduction for

Identify which of the following statements is true.

To avoid the accumulated earnings tax, a corporation needs to have a definite plan for expending the accumulated earnings.