Exam 11: The Corporate Taxpayer

Calliwell Corporation is a Colorado corporation engaged in the manufacture and sale of computer components. In 2013, it earned $2 million of net income from this qualified activity. Before the domestic production activities deduction, its taxable income is $2,100,000 and compensation paid to its U.S. workforce is $670,000. Its 2013 taxable income is:

Which of the following statements about the calculation of alternative minimum taxable income is true?

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

The stock of Wheel Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Wheel owns 90 percent of the outstanding stock of Axle, Inc, also a U.S. company. Axle owns 100% of the outstanding stock of Tire Corporation, a German company. Wheel and Tire each own 50 percent of the outstanding stock of Bumper, Inc., a U.S. company. Wheel and Axle each own 50 percent of the outstanding stock of Trunk Corporation, a U.S. company. Which of these corporations form an affiliated group eligible to file a consolidated tax return?

New York, Inc. owns 100% of Brooklyn, Inc. and Queens, Inc. Taxable income for the three corporations for their first year was as follows: Which of the following statements is false?

Eagle, Inc. made a contribution to the Boy Scouts of $25,000 during its current tax year. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $25,000.

Dividends-received deductions generally are not allowed for dividends from foreign corporations.

Corporations report their taxable income and calculate the federal income tax on Form 1040.

Joanna has a 35% marginal tax rate and owns 100% of the stock of Loman Corporation. This year, Loman generated $400,000 of taxable income, paid $136,000 of corporate income tax, and paid a $50,000 dividend to Joanna. Suppose that the federal income tax system has been amended to allow shareholders to gross up dividend income by the corporate tax paid with respect to the dividend and credit this tax against their individual tax. Further assume that dividends-received by individuals are not eligible for a preferential tax rate. Calculate Joanna's reported dividend income and her tax due on the dividend.

Corporations with more than $1 million taxable income must pay 100% of their current federal income tax liability in the form of quarterly estimate payments to avoid an underpayment penalty.

Which of the following statements regarding the tax treatment of corporate dividends is true?

Harmon, Inc. was incorporated and began business on January 1, 2012. Its tax liability for 2012 was $36,000. Its tax liability for 2013 was $50,000. Which of the following is a correct statement concerning the payment of estimated taxes for 2013?

In terms of dispersal of ownership, corporations are classified as either closely held or publicly held.

Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. and 90% of the stock of Stock ownership of Bete, Inc. Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?

The rate schedule for determining the regular tax liability of a corporation includes rates ranging from 15% to 39%.

Wave Corporation owns 90% of the stock of Surf, Inc. Each corporation reports the following separate items for the current tax year: Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:

The corporate alternative minimum tax rate is 26% of AMTI in excess of the AMT exemption.

If a corporation's depreciation expense for regular tax purposes is $32,000 and its depreciation expense for alternative minimum tax purposes is $28,000, such corporation will have a negative (decrease) depreciation adjustment for alternative minimum taxable income.

Which of the following statements regarding Schedule M-3 is false?

Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.