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Exam 13: Corporate Formations and Operations

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Question 61

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Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

A) True
B) False

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Question 62

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The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city.The land was valued at $500,000 at the time of the contribution.What gain, if any, does Fenway recognize on the contribution and what is Fenway's basis in the land?

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$500,000 income.$500,000 basis...

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Question 63

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Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2019 of $64,000.It had net capital gains of $21,500 in 2018, $45,000 in 2017, $0 in 2016, and $8,000 of net capital gain in 2015.What is the net capital gain in 2018 after the carryback is applied?

Jazz Corporation owns 10 percent of Favors Corp.'s stock.Favors distributed a $10,000 dividend to Jazz Corporation.Jazz Corp.'s taxable income (loss) before the dividend was ($6,000) .What is the amount of Jazz's dividends received deduction on the dividend it received from Favors Corp.?

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

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.

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

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 meal expense.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?

Netgate Corporation's gross regular tax liability for the year was $95,375.What was its taxable income? Note: New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.

Which of the following statements regarding capital gains and losses is false?

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. $\begin{array}{c}\begin{array}{lll}\\ \text {Inveritory}\\ \text {Building}\\ \text {Land}\\ \text {Total}\end{array}\begin{array}{l}\text { FMV } \\\$ \quad 20,000 \\70,000 \\\underline{150,000}\\\$ \quad 240,000 \end{array}\begin{array}{rr}\text { Tax Basis } \\\$ \quad 14,00 \\50,000 \\\underline{100,000} \\ \$ 164,00 \end{array}\end{array}$ 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?

The definition of property as it relates to a section 351 transaction includes money.

Jazz Corporation owns 50 percent of Williams Corp.'s stock.Williams distributed a $10,000 dividend to Jazz Corporation.Jazz Corp.'s taxable income before the dividend was $100,000.What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Bingo Corporation incurred a net operating loss in 2017.A portion of the loss carried over to 2019.Bingo can offset up to 100 percent of the corporation's taxable income in 2019.

The dividends received deduction cannot cause a net operating loss.The deduction can reduce income to zero but not below zero.

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year.What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

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?

In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.