Exam 13: Corporate Formations and Operations

Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A corporation may carry a net capital loss back two years and forward 20 years.

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while NOL and capital loss carrybacks are not.

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction. The assumed liability will, as a general rule, be treated as boot received by Jane.

In 2013, Smith Traders Inc. reported taxable income of $100,000. In 2014, it reported taxable income of $15,000. In 2015, it reported taxable income of $95,000. In 2016, Smith Traders experienced a net operating loss of $25,000. What amount of refund can Smith Traders receive if it does not elect to forgo the carryback (see the corporate income tax schedule)?

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created for that year?

QDP Corporation's AMTI is $569,000. Its regular tax liability is $110,000. What is its AMT?

A corporation with an AMTI of $400,000 will have all of its AMT exemption phased-out.

Which of the following statements regarding book-tax differences is true?

On January 1, 2013, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2014, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000 and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2015, the goodwill was not impaired. In 2016, goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book-tax difference associated with the purchased goodwill in 2014, 2015, and 2016? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

Phillip 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 Building 180,000 150,000 Land Total \ 600,000 \ 650,000 The fair market value of the corporation's stock received in the exchange was $400,000. The transaction met the requirements to be tax-deferred under section 351. a. What amount of net gain or loss does Phillip realize on the transfer of the property to his corporation? b. What amount of gain or loss does Phillip recognize on the transfer of the property to his corporation?

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost-recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

Which of the following statements best describes the impact of receiving boot in a section 351 transaction?

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total) on December 31, 2015. The options vest entirely on December 31, 2016. The options were all exercised in 2016 with a bargain element on each option of $3. What is the 2016 book-tax difference associated with the stock options?