Exam 2: Corporations: Introduction and Operating Rules

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Patrick, an attorney, is the sole shareholder of Gander Corporation, a C corporation. Gander is a personal service corporation with a fiscal year ending November 30 (pursuant to a § 444 election). The corporation paid Patrick a salary of $180,000 during its fiscal year ending November 30, 2015. How much salary must Gander pay Patrick during the period December 1 through December 31, 2015, to permit the corporation to continue to use its fiscal year without negative tax effects?

Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?

Pink, Inc., a calendar year C corporation, manufactures golf gloves. For the current year, Pink had taxable income (before DPAD) of $900,000, qualified domestic production activities income of $750,000, and W-2 wages related to qualified production activities income of $140,000. Pink's domestic production activities deduction for the current year is:

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's tax liability for the year?

Grackle Corporation, a personal service corporation, had $230,000 of net active income, $40,000 of portfolio income, and a $250,000 passive activity loss during the year. How much is Grackle's taxable income?

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university (a qualified educational organization). The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation)?

Emerald Corporation, a calendar year C corporation, was formed and began operations on April 1, 2015. The following expenses were incurred during the first tax year (April 1 through December 31, 2015) of operations. Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2015?

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income tax return for the year.

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

In the current year, Sunset Corporation (a C corporation) had operating income of $200,000 and operating expenses of $175,000. In addition, Sunset had a $30,000 long-term capital gain, a $52,000 short-term capital loss, and $5,000 tax-exempt interest income. What is Sunset Corporation's taxable income for the year?

Briefly describe the accounting methods available for adoption by a C corporation.

During the current year, Owl Corporation (a C corporation), a retailer of children's apparel, made the following donations to qualified charitable organizations. How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation)?

If a C corporation uses straight-line depreciation on real estate (§ 1250 property), no portion of a gain on the sale of the property will be recaptured as ordinary income.

A corporate net operating loss can be carried back 2 years and forward 20 years to offset taxable income for those years.

Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

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

Nancy is a 40% shareholder and president of Robin Corporation, a regular corporation. The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the year based on her outstanding performance. The directors want to pay the $75,000 as salary, but Nancy would prefer to have it paid as a dividend. If Robin Corporation is in the 34% marginal tax bracket and Nancy is in the 33% marginal tax bracket irrespective of the treatment of the bonus, discuss which form of payment would be most beneficial for each party. (Ignore any employment tax considerations.)

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $1.2 million for 2012, 2013, and 2014, respectively. Almond's taxable income is $2 million for 2015. Compute the minimum estimated tax payments for 2015 for Almond Corporation.