Exam 20: Corporations and Partnerships

During the current year,Scarlet had taxable income of $150,000 and the following capital asset transactions: Long term: Gain $4,000 Loss 3,000 Short term: Gain $2,000 Loss 1,000 ​ How are these transactions handled if Scarlet is: a.An individual? b.A C corporation?

Nick and Ava each own a 20% interest in the Tanager Partnership.For the current year,one of the pass-through items is a charitable contribution.On their individual income tax returns,Nick can deduct his share of the charitable contribution but Ava cannot.What could cause the disparity in results?

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of C corporations. b.Applies only to the income taxation of S corporations. c.Applies to both the income taxation of C corporations and S corporations. d.Applies to neither the income taxation of C corporations nor of S corporations. -Cannot have a partnership as a shareholder.

Two unrelated,calendar year C corporations have the following taxable income for the current year: Olive Corporation Magenta Corporation Taxable income $70,000 $90,000 ​ Magenta Corporation is a qualified personal service corporation.Based on these facts,their corporate tax liability is:

When might an NOL carryback to prior years be ill-advised?

The domestic production activities deduction (DPAD)is handled differently for a partnership than for a C corporation.Explain

During the current year,Goose Corporation (a calendar year,cash basis taxpayer)receives cash dividends as follows: Source of Dividends Ownership Percentage Dividends Emu Corporation 90% $90,000 Robin Corporation 21% 60,000 Crane Corporation 10% 30,000 ​ Presuming the taxable income limitation does not apply,Goose Corporation's dividends received deduction for the current year is:

Like S corporations,partnerships serve as conduits for their owners.

Blue Corporation and Red Corporation are unrelated C corporations and hold as investments the same number of shares of stock in BP Corporation.As such,they each receive an equal amount of dividends from BP Corporation.If each claims a different dividends received deduction,what could cause the variation?

Under certain circumstances,an S corporation can have more than 100 shareholders.

Property distributions to shareholders can result in the distributing corporation recognizing gains and losses.

To improve its liquidity,the shareholders of Spoonbill Corporation make a capital contribution of $200,000 in cash.To facilitate the building of a manufacturing plant,the City of Wichita donates land (worth $800,000)to Spoonbill Corporation.As a result of these transactions,Spoonbill has:

In computing the taxable income (or loss)of an S corporation,a domestic production activities deduction (DPAD)is allowed.

A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.

As of January 1,2016,Crimson Corporation,a calendar year C corporation,has a deficit of $300,000 in accumulated E & P.For 2016,it has current E & P of $100,000,and during the year distributes $120,000 as a dividend to the shareholders.Comment on the following assumptions. a.The shareholders recognize no dividend income as Crimson still has negative E & P for the year of the distribution [($300,000)beginning deficit + $100,000 current E & P = ($200,000)ending deficit]. b.Crimson's accumulated E & P on January 1,2017,is ($320,000).

Citron Company is a wholesale distributor of children's clothing.During the year,it donates clothes (cost of $60,000;retail value of $100,000)to Clothes for Needy (a qualified charitable organization).Disregarding percentage limitations,Citron's charitable contribution deduction is:

A corporation whose major source of income is tax-exempt interest probably will not have much E & P.

Canary Corporation,a calendar year S corporation,issues some of its stock to a nonresident alien on March 4,2016.Canary becomes a C corporation as of March 5,2016.

If a partnership interest is received in exchange for services rendered,ordinary income must be recognized by the recipient of the capital interest.

Using the legend provided, classify each statement accordingly. a.Applies only to the income taxation of individuals b.Applies only to the income taxation of C corporations c.Applies to both the income taxation of individuals and of C corporations d.Applies to neither the income taxation of individuals nor of C corporations -Net long-term capital gains are subject to a preferential alternative tax rate.