Question 1

Explain the wages limitation that applies under the domestic production activities deduction (DPAD).

Accepted Answer

The DPAD is limited by 50% of an employe

Question 2

Dennis, an advertising executive, pays a contractor to build a lodge on property he owns in Colorado. If Dennis sells the lodge, the proceeds (less the cost of the land) will be DPGR.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

Accepted Answer

A) Since the deduction is determined at the owner level, each owner must make the computation separately. 
B) The entity allocates to each owner his or her share of any QPAI. 
C) In the case of partnerships, guaranteed payments are regarded as W-2 wages. 
D) A partner cannot be allocated any W-2 wages if the share of QPAI is zero. 
E) None of the above. 
A) Since the deduction is determined at the owner level, each owner must make the computation separately. 
B) The entity allocates to each owner his or her share of any QPAI. 
C) In the case of partnerships, guaranteed payments are regarded as W-2 wages. 
D) A partner cannot be allocated any W-2 wages if the share of QPAI is zero. 
E) None of the above.

Question 4

Fewer corporations are subject to the AMT than to the domestic production activities deduction.

Accepted Answer

A) True 
 B)False

Question 5

Under some circumstances, the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.

Accepted Answer

A) True 
 B)False

Question 6

Which statement is false?

Accepted Answer

A) The overall tax effect of a DPAD is a rate reduction or a tax credit. 
B) For a flow-through entity, modified AGI is substituted for taxable income. 
C) FASB requires the DPAD to be reported as a special charge. 
D) MPGE refers to a merge, paid, gain, and expense. 
E) All of the above are correct. 
A) The overall tax effect of a DPAD is a rate reduction or a tax credit. 
B) For a flow-through entity, modified AGI is substituted for taxable income. 
C) FASB requires the DPAD to be reported as a special charge. 
D) MPGE refers to a merge, paid, gain, and expense. 
E) All of the above are correct.

Question 7

The overall effect of the domestic production activities deduction is similar to a deduction.

Accepted Answer

A) True 
 B)False

Question 8

The domestic production activities deduction is limited to corporations.

Accepted Answer

A) True 
 B)False

Question 9

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Accepted Answer

A) True 
 B)False

Question 10

Lemon, Inc., has the following items related to the AMT: $$\begin{array} { l l } 
\text {Alternative minimum tax base}& \$ 10,275,500\
\text {Regular corporate tax }& 1,112,500\
\text {Foreign AMT tax credit }& 187,020\
\text {Cost of goods sold }& 2,260,020\
\end{array}$$ The corporation's AMT, if any, is:

Accepted Answer

A) $0. 
B) $755,580. 
C) $1,868,080. 
D) $2,055,100. 
E) None of the above. 
A) $0. 
B) $755,580. 
C) $1,868,080. 
D) $2,055,100. 
E) None of the above.

Question 11

Some of the meals a food service company prepares for its chain of restaurants is frozen and shipped to supermarkets for resale. The proceeds from such sales will qualify as DPGR.

Accepted Answer

A) True 
 B)False

Question 12

Ohio Corporation, a calendar year taxpayer, has a beginning balance in accumulated E & P of $3.5 million and current earnings of $1 million. If Ohio can justify accumulations for the needs of the business of $4.1 million, its accumulated earnings credit for ATI purposes is:

Accepted Answer

A) $0. 
B) $200,000. 
C) $600,000. 
D) $4.1 million. 
E) None of the above. 
A) $0. 
B) $200,000. 
C) $600,000. 
D) $4.1 million. 
E) None of the above.

Question 13

Netting refers to the process of AMT adjustments reversing themselves and then being deducted from taxable income to arrive at AMTI.

Accepted Answer

A) True 
 B)False

Question 14

Passive activity losses of certain closely held corporations and personal service corporations are not tax preferences.

Accepted Answer

A) True 
 B)False

Question 15

The percentage applicable for computing the DPAD will ultimately increase to 12%.

Accepted Answer

A) True 
 B)False

Question 16

A negative ACE adjustment is beneficial to a corporation.

Accepted Answer

A) True 
 B)False

Question 17

In 2016, May Corporation (a calendar year taxpayer) had the following transactions: $\begin{array}{lr}
\text { Taxable income } & \$ 4,000,000 \
\text { Mining exploration costs claimed } & 1,000,000 \
\text { Percentage depletion claimed (the property had a zero adjusted basis) } & 2,400,000\
 \text {Donation of stock held since 1988 as investment (basis of \( \$ 100,000 $   } &\
 \text { and fair market value of $ \$ 400,000 $ ) to a qualified charity } &400,000\
 \text { Costs of goods sold } &960,000\

\end{array}\) For 2016, May Corporation's AMTI is:

Accepted Answer

A) $6,300,000. 
B) $7,150,000. 
C) $7,250,000. 
D) $7,300,000. 
E) None of the above. 
A) $6,300,000. 
B) $7,150,000. 
C) $7,250,000. 
D) $7,300,000. 
E) None of the above.

Question 18

In connection with the construction of a housing project, a contractor pays an architect to design the homes being built. The architect's fee is not an embedded service that qualifies as DPGR.

Accepted Answer

A) True 
 B)False

Question 19

Why is the DPAD benefit somewhat unique?

Accepted Answer

The domestic production activities deduc

Question 20

The formula in determining the DPAD for individual taxpayers is the same as that applicable to corporations.

Accepted Answer

A) True 
 B)False

Explain the wages limitation that applies under the domestic production activities deduction (DPAD).

Dennis, an advertising executive, pays a contractor to build a lodge on property he owns in Colorado. If Dennis sells the lodge, the proceeds (less the cost of the land) will be DPGR.

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

Fewer corporations are subject to the AMT than to the domestic production activities deduction.

Under some circumstances, the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.

Which statement is false?

The overall effect of the domestic production activities deduction is similar to a deduction.

The domestic production activities deduction is limited to corporations.

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Lemon, Inc., has the following items related to the AMT: Alternative minimum tax base \ 10,275,500 Regular corporate tax 1,112,500 Foreign AMT tax credit 187,020 Cost of goods sold 2,260,020 The corporation's AMT, if any, is:

Some of the meals a food service company prepares for its chain of restaurants is frozen and shipped to supermarkets for resale. The proceeds from such sales will qualify as DPGR.

Ohio Corporation, a calendar year taxpayer, has a beginning balance in accumulated E & P of $3.5 million and current earnings of $1 million. If Ohio can justify accumulations for the needs of the business of $4.1 million, its accumulated earnings credit for ATI purposes is:

Netting refers to the process of AMT adjustments reversing themselves and then being deducted from taxable income to arrive at AMTI.

Passive activity losses of certain closely held corporations and personal service corporations are not tax preferences.

The percentage applicable for computing the DPAD will ultimately increase to 12%.

A negative ACE adjustment is beneficial to a corporation.

In connection with the construction of a housing project, a contractor pays an architect to design the homes being built. The architect's fee is not an embedded service that qualifies as DPGR.

Why is the DPAD benefit somewhat unique?

The formula in determining the DPAD for individual taxpayers is the same as that applicable to corporations.

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 3: Corporations Special Situations

Explain the wages limitation that applies under the domestic production activities deduction (DPAD).

Dennis, an advertising executive, pays a contractor to build a lodge on property he owns in Colorado. If Dennis sells the lodge, the proceeds (less the cost of the land) will be DPGR.

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

Fewer corporations are subject to the AMT than to the domestic production activities deduction.

Under some circumstances, the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.

Which statement is false?

The overall effect of the domestic production activities deduction is similar to a deduction.

The domestic production activities deduction is limited to corporations.

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Lemon, Inc., has the following items related to the AMT: Alternative minimum tax base \ 10,275,500 Regular corporate tax 1,112,500 Foreign AMT tax credit 187,020 Cost of goods sold 2,260,020 The corporation's AMT, if any, is:

Some of the meals a food service company prepares for its chain of restaurants is frozen and shipped to supermarkets for resale. The proceeds from such sales will qualify as DPGR.

Ohio Corporation, a calendar year taxpayer, has a beginning balance in accumulated E & P of $3.5 million and current earnings of $1 million. If Ohio can justify accumulations for the needs of the business of $4.1 million, its accumulated earnings credit for ATI purposes is:

Netting refers to the process of AMT adjustments reversing themselves and then being deducted from taxable income to arrive at AMTI.

Passive activity losses of certain closely held corporations and personal service corporations are not tax preferences.

The percentage applicable for computing the DPAD will ultimately increase to 12%.

A negative ACE adjustment is beneficial to a corporation.

In connection with the construction of a housing project, a contractor pays an architect to design the homes being built. The architect's fee is not an embedded service that qualifies as DPGR.

Why is the DPAD benefit somewhat unique?

The formula in determining the DPAD for individual taxpayers is the same as that applicable to corporations.

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters