Exam 5: Other Corporate Tax Levies

The accumulated earnings tax does not apply to corporations that

What is a personal holding company?

The accumulated earnings tax is imposed at what rate?

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

In determining accumulated taxable income for the purpose of the accumulated earnings tax, which one of the following is allowed as a deduction?

Identify which of the following statements is true.

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?

Khuns Corporation, a personal holding company, reports the following: Calculate Khuns Corporation's adjusted income from rents (AIR).

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 penalty tax rate is

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?

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.

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?

Lawrence Corporation reports the following results during the current year: No dividends were paid in the throwback period. A long- term capital gain of $50,000 is included in taxable inco The statutory accumulated earnings tax exemption has been used up in prior years. An additional earnings accumulation of $60,000 for the current year can be justified as meeting the reasonable needs of the business. What is Lawrence Corporation's accumulated earnings tax liability?

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

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

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

Mullins Corporation is classified as a PHC for the current year, reporting $263,000 of taxable income on its feder income tax return: 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.

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

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?