Exam 5: Other Corporate Tax Levies

Identify which of the following statements is false.

Identify which of the following statements is true.

When computing the accumulated earnings tax, which of the following is not a reduction to arrive at accumulated taxable income?

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.

The courts and the Treasury Regulations have mentioned a number of reasonable needs that allow a corporation to accrue earnings and avoid the accumulated earnings tax. What are these reasons?

When computing the accumulated earnings tax, the dividends- paid deduction is not available for

All of the following are recognized as reasons for accumulating earnings except

Given the following information about Jones Corporation, what are Jones's working capital needs using the Bard formula, assuming that federal income taxes are not an operating expense? Average inventory \ 33,000 Cost of goods sold 300,000 Purchases 250,000 Average accounts receivable balance 80,000 Average cre dit sales 320,000 Average accounts payable balance 30,000 Operating expense 400,000 Depreciation claimed as operating expense 50,000 Federal income taxes 25,000 Advances to suppliers 30,000

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

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

Identify which of the following statements is true.

The accumulated earnings tax does not apply to corporations that

Define personal holding company income.

Smartmoney, Inc. was formed by three wealthy dentists to pool their investment funds. They each invested $200,000 in the corporation, which was immediately used to purchase stocks to be held as investments. The first year, the corporation received dividends of $70,000 and filed a tax return paying a corporation tax in the amount of $7,350 [($70,000 dividends - $35,000 DRD) × .21 = $7,350]. The IRS audits this corporation and sends a tax bill in the amount of $12,530 ($62,650 UPHCI × 0.20 = $12,530) plus underpayment penalty and interest. What is this additional tax and what should the dentists do about it? What action(s) do you recommend the corporation take for the tax year in question and subsequent tax years?

Lake Corporation is a personal holding company. Lake reports the following results for the current year: Rental income \ 100,000 Operating profit 80,000 Dividend income 30,000 Interest income 20,000 Depreciation 30,000 Mortgage interest expense 18,000 Real estate taxes 8,000 Other expenses 20,000 No dividends are paid during the current year or the 2- and- one- half- month throwback period. The mortgage relates to the rental properties. Calculate the adjusted income from rents exclusion from personal holding company income.

Raptor Corporation is a PHC for 2009 and reports $200,000 of taxable income on its federal income tax return. Operating profit \ 100,000 Long- term capital gain 80,000 Dividends (20\%- owned corporation) 90,000 Interest 100,000 Gross income 370,000 Salaries expense (50,000) General and administrative expense (25,000) Dividends- received deduction (58,500) Taxable income \ 236,500 Regular tax liability \ 49,665 What is Raptor's PHC tax, assuming that it does not pay any dividends?

How is the accumulated earnings tax liability computed?

The personal holding company tax

Which of the following entities is subject to the accumulated earnings tax?

What is the effect of the two- pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?