Exam 13: Comparative Forms of Doing Business

Arthur is the sole shareholder of Purple, Inc. Purple's taxable income before the payment of Arthur's salary is $300,000. Based on this information, Arthur has the corporation pay him a salary of $200,000 and a bonus of $100,000. A reasonable salary and bonus would be $175,000. Which of the following is correct?

Match the following statements: -Alternative minimum tax

Amber, Inc., has taxable income of $212,000. In addition, Amber accumulates the following information which may affect its AMT. ∙ ​ Depreciation on buildings placed in service in the early 1990s was $52,000. ADS would have been $41,000. ∙ ​ ​ The president of Amber exercised stock options on Amber stock. She paid $30,000 for the stock, which had a fair market value at exercise date of $49,000. At the end of the year, the stock was worth $54,000. ∙ ​ Amber deducted percentage depletion of $65,000. The adjusted basis of the natural resource at the beginning of the year was $39,000. ∙ ​ Amber contributed CSX stock worth $20,000 to the Red Cross. Amber purchased the stock four months ago for $19,000. What is Amber's AMTI?

Duck, Inc., is a C corporation that is not eligible for the small business exception to the AMT. Its adjusted current earnings (ACE) and unadjusted alternative minimum taxable income (unadjusted AMTI) for 2016 and 2017 are as follows: 2016 2017 \ 240,000 \ 255,000 Unadjusted AMTI 175,000 300,000 Calculate the amount of the ACE adjustment for 2016 and 2017.

List some techniques which can be used to avoid and/or reduce double taxation for a C corporation.

The accumulated earnings tax rate in 2016 is greater than the highest tax rate for a C corporation.

Match the following statements: -Technique for minimizing double taxation

What special adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form a. Sole proprietorship Form 1040-Schedule C b. Partnership Form 1065P c. C corporation Form 1120C d. LLC Form 1120S e. S corporation Form 1120

Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity. Trout's taxable loss for the current year is $250,000. During the year, Catfish receives a $60,000 cash distribution from Trout. Other relevant data for Catfish are as follows: Net income from operations \ 800,000 Dividend income 25,000 Rent income 20,000 How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?

Candace, who is in the 33% tax bracket, is establishing a business which could have potential environmental liability problems. Therefore, she is trying to decide between the C corporation form and the S corporation form. She projects that the business will generate earnings of about $75,000 each year. Advise Candace on the tax consequences of each tax form.

What tax rates apply for the AMT for an individual taxpayer and for a C corporation?

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Match the following attributes with the different forms. A particular attribute may apply to more than one entity form. -General partnership

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Why does stock redemption treatment for an individual shareholder produce more favorable tax consequences than a dividend?

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

If a business entity has a majority of corporate characteristics, it is taxed as a corporation.

Match the following statements: -Net capital loss

Included among the factors that influence the choice of the form of a business entity are the following: ∙ Capital formation. ∙ Limited liability. ∙ Estimated life of the business. ∙ Number of owners and their roles in the management of the business. ∙ Freedom of choice in transferring ownership interest. ∙ Organizational formality including the related cost and extent of governmental regulations. Evaluate the validity of the statement.