Exam 20: Corporations and Partnerships

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 -Like-kind exchange provisions apply.

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:

A partnership's ordinary income or loss is computed without considering any charitable contributions. This item is separately stated and passes through to the individual partners.

Drab Corporation, a calendar year and cash basis taxpayer, is formed in December 2017. In the same month, expenses are incurred as follows: ​ a.How much qualifies as organizational expenditures that can be deducted or amortized over a period of 180 months or more? b.Would it matter if some of these expenses were not paid until 2018?

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 -Recapture of depreciation on real property can be more severe.

In the current year, Auburn Corporation (a calendar year taxpayer), has the following income and expenses: ​ ​ Auburn Corporation owns 20% of the stock in Blond Corporation. The dividends received deduction for the current year is:

In determining whether an entity is to be recognized as a corporation for Federal income tax purposes, classification under state law is not conclusive.

In order to voluntarily revoke an S election, all of the shareholders must consent to the revocation.

Certain small business C corporations are not subject to the alternative minimum tax (AMT).

In order to obtain limited liability, a sole proprietor incorporates his business. Under the check-the-box Regulations, the entity can elect to be treated as a partnership.

In some situations, a partnership makes guaranteed payments to one or more of its partners. a.What are these payments? b.What are their tax effects to the partnership? c.What are the tax effects to the partner?

If the basis of a partnership interest is exhausted, a partner can use loans made to the partnership to absorb excess losses.

Ruby Company, a clothing retailer, donates children's clothing to Salvation Army (a qualified charity). The clothing is part of Ruby's inventory and has an adjusted basis of $100,000 and a fair market value of $180,000. What is the amount of Ruby's charitable donation if it is a: a.Partnership? b.Corporation?

Jean is a shareholder in Parrot Corporation, a calendar year S corporation. During the year, Jean's share of the pass-through from Parrot is: ​ If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is:

Madison, a calendar year individual taxpayer, has the following results for 2017: profit from operations of $200,000 and long-term capital loss from investments of $20,000. As to the capital loss, Madison may:

On January 1, 2017, Copper Corporation (a calendar year S corporation for many years) became a C corporation. A possible reason for this change in status is:

During 2017, Violet had the following capital gains and losses: ​ In 2016 Violet had a net long-term capital loss of $6,000 which could not be used. Assume all capital gains and losses result from the sale of securities held as investments. How are these transactions handled if Violet is: a.An individual? b.A C corporation?

A partner's basis in the partnership interest is increased by his or her share of the tax-exempt income received by the partnership.

During the current year, Scarlet had taxable income of $150,000 and the following capital asset transactions: ​ How are these transactions handled if Scarlet is: a.An individual? b.A C corporation?

John owns stock in Green Corporation, which, in turn, owns stock in IBM. When IBM earns income, it is subject to the corporate income tax (i.e., the first tax). When IBM pays a dividend, Green Corporation must pay a corporate income tax on its share (i.e., the second tax). When Green Corporation pays a dividend, John must pay an individual income tax on what he receives (i.e., the third tax). Thus, the same income is subject to triple taxation. a.How does the tax law mitigate the tax on Green Corporation? b.How does the tax law mitigate the tax imposed on John?