Exam 5: Other Corporate Tax Levies

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.

The accumulated earnings tax does not apply to corporations that

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?

When using the Bardahl formula, an increase in annual credit sales (while holding the average accounts receivable balance constant)has which of the following effects on the working capital requirements?

Which of following generally does not indicate an unreasonable earnings accumulation?

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

Eight individuals own Navy Corporation, a C corporation. Three shareholders make up the board of directors and own 51% of the stock. The corporation has a successful manufacturing business. It has accumulated $3 million of E&P and expects to accumulate another $200,000 of E&P annually. Annual dividend payments are $30,000. Demand for Navy's goods has been strong, but the company does not anticipate any expansion or repair of the current plant for three to five years. Management has invested $200,000 annually in growth stocks. Its current investment portfolio is $1.2 million. The portfolio is held as protection against a business slowdown. Loans to shareholder-employees currently are $400,000. As Navy's CPA, what tax issues should you have your client consider?

A corporation can change the amount and type of its income by adding "operating" activities to its business to decrease the proportion of passive or investment earning in its total income to avoid the PHC tax.

Identify which of the following statements is false.

Identify which of the following statements is true.

The personal holding company tax

Raptor Corporation is a PHC for 2019 and reports $200,000 of taxable income on its federal income tax return. What is Raptor's PHC tax, assuming that it does not pay any dividends?

Identify which of the following statements is false.

Church Corporation is a closely held C corporation. All of the stock is owned by Charles and Chanda Church. The corporation, in its second month of operation in its initial tax year, anticipates earning $150,000 of gross income in the current year. Gross income is expected to be approximately 40% dividends, 30% corporate bond interest, and 30% net real estate rentals (after interest, property taxes, and depreciation). Administrative expenses are expected to be $20,000. What special problems does the large amount of passive income that Church Corporation expects to earn present to you as their CPA?

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 income. 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?

When using the Bardahl formula, an increase in accounts payable (while holding purchases and operating expenses constant)has which of the following effects on the working capital requirements?

Which of the following actions cannot be used to eliminate a potential accumulated earnings tax liability situation involving a corporation owned by a mother and a father?

Identify which of the following statements is true.

A personal holding company cannot take a dividends-paid deduction for

Identify which of the following statements is true.