Exam 17: Corporations: Introduction and Operating Rules

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2012.Ostrich also has taxable income from other sources of $1 million.Prior years' transactions included the following:

Beige Corporation, a C corporation, purchases a warehouse on August 1, 1996, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2012, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

Ed, an individual, incorporates two separate businesses that he owns by establishing two new corporations.Each corporation generates taxable income of $50,000.Each corporation will have a tax liability of $7,500.

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2012. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2012 is incorrect?

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income. However, an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

On December 31, 2012, Lavender, Inc., an accrual basis C corporation, accrues a $90,000 bonus to Barry, its vice president and a 70% shareholder.Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 15, 2013.Lavender can deduct the bonus in 2013, the year in which it is included in Barry's gross income.

Briefly describe the charitable contribution deduction rules applicable to C corporations.

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

Francisco is the sole owner of Rose Company. For 2012, the only income of Rose was a long-term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco's marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect?

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year.Bronze Corporation pays Copper a dividend of $150,000.What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income)?

Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year.Blue pays Red a dividend of $40,000.Red takes a dividends received deduction of $28,000.Which of the following statements is correct?

Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2012, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120) by filing Form 7004 by March 15, 2013.

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Compare the basic tax and nontax factors of doing business as a partnership, an S corporation, and a C corporation. Circle the correct answers.

Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

Canary Corporation, which sustained a $5,000 net capital loss during the year, will enter $5,000 as a addition item on Schedule M-1.

Compare the taxation of C corporations with that of individual taxpayers. Provide several examples of similarities and differences in your discussion.

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?