Exam 12: The Choice of Business Entity

For the current tax year, Cuddle Corporation's $500,000 of taxable income is all considered to be personal holding company income. The corporation did not pay dividends. Which of the following statements is true?

Ms. Alfred anticipates that her business will generate $500,000 taxable income. She can reduce the total tax burden imposed on this income if she spreads it among five separate corporations.

Which of the following statements regarding corporate controlled groups is false?

Which of the following statements concerning the differences in operating a business as a partnership or as an S corporation is true?

Which of the following would not be a successful means of avoiding double tax on the earnings of a closely-held corporation?

Which of the following statements regarding the accumulated earnings tax is true?

Glover, Inc. had $350,000 of taxable income, all of which was personal holding company income. The corporation paid a dividend of $350,000 in November. The corporation will owe a personal holding company tax for the year.

Mr. and Mrs. Maxwell and their two children (Alicia and Percy) are the four equal partners in MAP Partnership. This year, MAP generated $52,000 ordinary income. Compute the tax cost for the business if Mr. and Mrs. Maxwell's marginal rate is 35 percent, Alicia's marginal rate is 28 percent, and Percy's marginal rate is 15 percent. (Ignore SE tax consequences.)

Bryan Houlberg expects his C corporation to generate a profit of $200,000. What is Bryan's after-tax cash flow from the corporation if net income after corporate tax is distributed to him as a dividend and his marginal tax rate on ordinary income is 35%?

Mrs. Ford, who has a 35% marginal tax rate, is the sole shareholder and CEO of Fast Inc. She also holds a $1 million interest-bearing note issued by Fast. The corporation's current-year financial records show the following: Compute Fast's taxable income.

The progressive corporate tax rate schedule is applied once to the aggregate taxable income of a controlled group.

During a recent IRS audit, the revenue agent decided that Roger used his closely-held corporation, Dodger Inc., to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Dodger's taxable income for the year was $500,000 and it paid no dividends. Compute Dodger's accumulated earnings tax, assuming that it had accumulated $130,000 after-tax income in prior years.

The personal holding company tax is a penalty tax imposed in addition to the regular income tax.

Which of the following statements regarding the tax burden imposed on business entities is true?

Mrs. Fuente, who has a 35% marginal tax rate on ordinary income, is the sole shareholder and CEO of Furey Inc. She also holds a $1 million interest-bearing note issued by Furey. The corporation's current-year financial records show the following: Compute Mrs. Fuente's tax on her income from Furey.

The IRS agent who audited the Form 1120 filed by Alano Inc. concluded that $300,000 of the salary that Alano paid to its CEO and sole shareholder was a constructive dividend. As a result:

Mr. Eddy loaned his solely-owned corporation $3,000,000. The corporation paid a market rate of interest annually. Upon audit, the IRS reclassified some of the debt as equity. Which of the following statements is true?

Bart owns 100% of an S corporation that had a net operating loss in the current year. If there is sufficient basis in the stock, he will carry this loss back to reduce taxes in a prior S corporation tax year.

Parent-subsidiary and brother-sister controlled corporate groups are eligible to file consolidated income tax returns.

Kyrsten Haas expects her S corporation to generate a profit of $200,000. What is the effective tax rate on the $200,000 if no cash is distributed? Kyrsten's marginal tax rate on ordinary income is 35%.