Exam 13: Corporate Formations and Operations

Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year.

For corporations, which of the following regarding net capital losses is true?

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence.

Which of the following does NOT create a permanent book-tax difference?

Bingo Corporation incurred a net operating loss in 2016. If it carries the loss back, it must first carry the loss back to offset its 2015 taxable income and then it carries any remaining loss back to offset its 2014 taxable income.

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Maria defers $100 of gain realized in a section 351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

The tax rate for the corporate alternative minimum tax is a flat 26%.

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

Together, Kurt and Esmeralda own 60 percent of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?

Keegan incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax bases. FMV Tax Basis Inventory \ 20,000 \ 14,000 Building 70,000 50,000 Land 150,000 100,000 Total \ 240,000 \ 164,000 The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum taxable income (AMTI)?

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters). What is Omnidata's annual estimated taxable income as of the end of the third quarter?

A nonqualified stock option will create a permanent book-tax difference in the year it is exercised if the bargain element is different from the estimated value of the option for financial accounting purposes when it was issued.

The dividends received deduction is subject to a limitation based on income.

US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 of meals and entertainment expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

Jazz Corporation owns 10% of Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp's charitable contribution deduction?