Exam 17: Corporations: Introduction and Operating Rules

During the current year, Owl Corporation (a C corporation), a retailer of children's apparel, made the following donations to qualified charitable organizations. How much qualifies for the charitable contribution deduction?

Luis is the sole shareholder of a C corporation, and Eduardo owns a sole proprietorship. Both businesses were started in 2012, and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is incorrect?

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

Black Corporation, an accrual basis taxpayer, was formed and began operations on February 1, 2012. During its first year of operations (February 1 - December 31, 2012), Black incurred the following expenses: fee paid to state of incorporation of $2,000, accounting and legal services incident to organization of $9,000, and expenses related to the printing and sale of stock certificates of $10,000. Black has $11,000 of qualified organizational expenditures that it may elect to amortize.

Heron Corporation, a calendar year C corporation, had an excess charitable contribution for 2011 of $5,000. In 2012, Heron made a further charitable contribution of $20,000. Heron's 2012 deduction is limited to $15,000 (10% of taxable income). The current year's contribution must be applied first against the $15,000 limitation.

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as salary instead of dividend.

During the current year, Shrike Company had $220,000 net profit from operations. Carlos, the sole owner of Shrike, is in the 35% marginal tax bracket.Determine the combined tax burden for Shrike and Carlos under the following two independent situations. (Ignore any employment taxes.)

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Thrush Corporation files Form 1120, which reports taxable income of $200,000.The corporation's tax is $56,250.

Erin Corporation, a personal service corporation, had $230,000 of active income, $40,000 of portfolio income, and a $250,000 passive loss during the year. How much is Erin's taxable income?

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income.Which of the following items is an addition on Schedule M-1?

Bear Corporation has a net short-term capital gain of $35,000 and a net long-term capital loss of $200,000 during 2012.Bear Corporation has taxable income from other sources of $600,000.Prior years' transactions included the following: Compute the amount of Bear's capital loss carryover to 2013.

During the current year, Lavender Corporation, a C corporation in the business of manufacturing tangible research equipment, made charitable contributions to qualified organizations as follows: Lavender Corporation's taxable income (before any charitable contribution deduction) is $2.5 million.

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 ´ 15%).

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?

The corporate marginal income tax rates range from 10% to 35%, while the individual marginal income tax rates range from 15% to 39%.

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2012. The following expenses were incurred during its first year of operations (March 1 - December 31, 2012):

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

Adrian is the president and sole shareholder of Pigeon Corporation.He also lends money and rents a building to the corporation.Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

The due date (not including extensions) for filing a 2012 Federal income tax return for a calendar year C corporation (Form 1120) is April 15, 2013.