Exam 5: Other Corporate Tax Levies

A high 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.

Which of the following is not permitted an accumulated earnings credit based on reasonable needs of the business?

Church Corporation is a closely held C corporation. All of the stock is owned by Charles and Chanda Church. The corporation, in its second month of operation in its initial tax year, anticipates earning $150,000 of gross income in the current year. Gross income is expected to be approximately 40% dividends, 30% corporate bond interest, and 30% net real estate rentals (after interest, property taxes, and depreciation). Administrative expenses are expected to be $20,000. What special problems does the large amount of passive income that Church Corporation expects to earn present to you as their CPA?

A manufacturing corporation has accumulated E&P of $210,000 and current E&P of $65,000. Accumulated taxable income, before reduction for the accumulated earnings credit, is $90,000 for the current year. No dividends were paid during the year. The corporation has an increase in reasonable business needs of $35,000. If the corporation is not a service corporation and has reported no long- term capital gains, what is the amount of earnings subject to the accumulated earnings tax?

The personal holding company penalty tax rate is

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.

The personal holding company tax might be imposed

What is a personal holding company?

Which of following generally does not indicate an unreasonable earnings accumulation?

Investors Corporation has ten unrelated individual shareholders who each own 10% of the outstanding stock. Fo tax year ended December 31 of this year, Investors' gross income includes: Interest on federal government obligations $\quad$$\quad \$ 10,000$ Dividends from savings and loan as sociations on passbook savings accounts $\quad$$\quad$$\$ 2,000$ Interest earned on notes receivable $\quad$$\quad$$\$ 5,000$ Net rental income $\quad$$\quad \$ 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?

Identify which of the following statements is false.

Mullins Corporation is classified as a PHC for the current year, reporting $263,000 of taxable income on its feder income tax return: Operating profit \ 150,000 Long- term capital gain 20,000 Short- term capital gain 20,000 Dividends (from 25\% - ow ned 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 personal holding company (PHC) tax liability? Discuss the methods (if any) by which payment of the PHC tax ca avoided.

Identify which of the following statements is false.

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

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?

When using the Bardahl formula, an increase in accounts payable (while holding purchases and operating expenses constant) has which of the following effects on the working capital requirements?

Which of the following is not an adjustment to taxable income when computing the personal holding company tax?

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.

Identify which of the following statements is true.