Seminar 301 - Corporations

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 You will need IRS Publication 542, IRS Form 8832/Instructions and FTB Corporation Tax Booklet to complete this topic.

Please answer the following as accurately as possible.

1. ABC, an eligible entity, made an election by filing Form 8832, Entity Classification Election, on December 15, 2001, to be taxed as a partnership effective for January 1, 2002. Under the general rule, what is the earliest date ABC can elect to be taxed as a corporation by filing another Form 8832?

a. January 1, 2003.
b. January 1, 2007.
c. December 15, 2005.
d. December 15, 2007.

2. A domestic limited liability company that has two or more members (without making the elections) is generally treated as a corporation for federal income tax purposes.

True False

3. Whenever a shareholder (or group of shareholders) makes a Section 351 property exchange for stock in a corporation, a statement of all facts relevant to the exchange must be attached to the individual (s) tax returns as well as to the corporate tax return in the year of the exchange.

True False

4. The passive activity rules apply to the personal service corporations, closely held corporations and S corporations.

True False

5. Only cash distributed as part of a corporate liquidation should be reported on a Form 1099-Div.

True False

6. The corporation's deduction for dividends received from domestic corporations is generally subject to an aggregate limit of 70% or 80% of taxable income.

True False

7. Some corporations may meet the qualifications for electing to be S corporations.

True False

8. A corporation is a personal service corporation if

a. Its principal activity during the "testing period" is performing personal services.
b. Its employee-owners substantially perform the services in.
c. Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period.
d. All of the above.

9. The tentative minimum tax of a small corporation is zero. This means that a small corporation will not owe AMT.

True False

10.  If a corporation is required to use the Electronic Federal Tax Payment System (EFTPS) and fails to do so, it may be subject to a 10% penalty.

True False

11. Distributions of stock and stock rights are tax-free to shareholders. Even if a shareholder has a choice to receive cash instead of stock rights, as long as the shareholder chooses to receive stock rights, the distribution will be tax-free.

True False

12. ABC Corporation's tax year ends on October 31, 2007. When is ABC Corporation's income tax return required to be filed?

a. January 31, 2008.
b. January 15, 2008.
c. March 15, 2008.
d. March 31, 2008.

13. Abbot Corporation's tax year ends on June 30, 2007. If Abbot Corporation (a domestic Corporation) timely files a Form 7004 Extension of Time to File, what is the extended due date of Abbot Corporation's income tax return for tax year ended June 30, 2007?

a. March 15, 2008.
b. March 30, 2008.
c. April 15, 2008.
d. May 15, 2008.

14. A corporation can accumulate its earnings for a possible expansion or other bona fide business reasons. However, if a corporation allows earnings to accumulate beyond the reasonable needs of the business, it may be subject to an accumulated earnings tax of

a. 20%.
b. 25%.
c. 15%.
d. None of the above.

15. You must treat certain transactions that increase a shareholder's proportionate interest in the earnings and profits or assets of a corporation as if they were distributions of a stock or stock rights.

True False

16. If a corporation cancels a shareholder's debt without repayment by the shareholder, the amount canceled is

a. Not taxable by the shareholder.
b. Treated as a distribution to the shareholder.
c. Forgiven and not treated as a distribution.
d. Treated as a gift.

17. The amount of a distribution is generally the amount of any money paid to the shareholder plus the fair market value (FMV) of any property transferred to the shareholder. However, this amount is reduced (but not below zero) by

a. Any liability of the corporation the shareholder assumes in connection with the distribution.
b. Any liability to which the property is subject immediately before the distribution.
c. Any liability to which the property is subject immediately after the distribution.
d. All of the above.

18. Bob Moon Forms Moon Enterprises LLC (Limited Liability Company) during the year. What form must Moon Enterprises LLC file in order to elect to be taxed as a C corporation?

a. Form 1065 (U.S. Partnership Tax Return).
b. Form 8832 (Entity Classification Election).
c. Form 1120 (U.S. Corporation Income Tax Return).
d. Form 7004 (Application for Extension of time to file for Corporations).

19. ABC Corporation is dissolved on July 9, 2007. What is the due date, without extensions, for filing of the final corporate income tax return?

a. March 15, 2008.
b. December 31, 2007.
c. October 15, 2007.
d. October 9, 2007.

20. The corporation's basis of property contributed to capital by a shareholder is

a. Zero.
b. The same as the basis the shareholder had in the property.
c. Not taxable to the corporation.
d. None of the above.

21. Small business investment companies can deduct _____ of the dividends received form taxable domestic corporations.

a. 70%.
b. 80%.
c. 100%.
d. None of the above.

22. An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. The percentage is

a. 5% for stock preferred as to dividends.
b. 10% for other stock.
c. A or B above.
d. None of the above.

23. Corporations generally must make estimated tax payments if they expect their estimated tax (income tax less credits) to be equal to or more than:

a. $1.
b. $500.
c. $600.
d. $1,000.

24. A corporation is a qualified personal service corporation if

a. Substantially all the corporation's activities involve the performance of personal services.
b. At least 95% of the corporation's stock, by value, is owned, directly or indirectly, by employees performing the personal services.
c. At least 95% of the corporation's stock, by value, in owned, directly or indirectly, by an estate of the employee or retiree described above.
d. Any of the above.

25. You and John Moore buy property for $150,000. You both organize a corporation when the property has a fair market value of $450,000. You transfer the property to the corporation for all its authorized capital stock, which has a par value of $450,000. Gain is recognized by

a. You.
b. John.
c. The corporation.
d. None of the above.

26. A corporation that does not file its tax return by the due date, including extensions, may be penalized

a. 5% of the unpaid tax for each month or part of a month the return is late.
b. Up to a maximum of 25% of the unpaid tax.
c. Both A and B above.
d. None of the above.

27. A corporation that does not pay the tax when due may be penalized

a. 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid.
b. Up to a maximum of 25% of the unpaid tax.
c. Both A and B above.
d. None of the above.

28. To figure your estimated payment for the corporation you will generally use one of two methods to figure each required installment. To use Method 2

a. The corporation must have filed a return for the previous year.
b. The return must have been for a full 12 months.
c. The return must have shown a positive tax liability (not zero).  
d. All of the above. 

29. Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. If the corporation is charged a penalty, the amount of the penalty depends on

a. The amount of the underpayment.
b. The period during which the underpayment was due and unpaid.
c. The interest rate for the underpayments published quarterly by the IRS in the Internal Revenue Bulletin.
d. All of the above.

30. Even if the corporation does not owe a penalty, complete and attach Form 2220 to the corporation's tax return if

a. The annualized income installment method was held to figure any required installment.
b. The adjusted seasonal installment method was used to figure any required installment.
c. The corporation is a large corporation figuring its first required installment based on the prior year's tax.
d. Any of the above.

31. On or after January 1, 2005, corporations may elect to expense, under IRC Section 179, part or all of the cost of certain properties placed in service during the taxable year and used in the trade or business.

True False

32. ABC Corporation's tax year ends on October 31, 2007. When is ABC Corporation's California income tax return required to be filed?

a. January 31, 2008.
b. April 15, 2008.
c. March 15, 2008.
d. March 31, 2008.

33.  If an LLC elects to be taxed as a partnership for federal tax purposes, it must file Form 568, Limited Liability Company return of income.

True False

34. Any taxpayer subject to the apportionment and allocation provisions of the Corporation Tax Law is required to keep and maintain records and make available upon request

a. Any records needed to determine the correct treatment of items reported or the combined report for purposes of determining the income attributable to California.
b. Any records needed to determine the treatment of items as non-business or business income.
c. Any records needed to determine the apportionment factors. 
d. All of the above.

35. If a California corporation is required to use EFT and fails to do so, it may be subject to 10% penalty.

True False

36.  The extension of time to file a California corporation return is an extension of time for payment of tax. 

True False

37. The corporation purchases a conference table from a company in North Caroline. The Company ships the table from North Carolina to the corporation's address in California for the Corporation's used and does not charge California sales or use tax. The corporation

a. Did not collect California sales or use tax so it does not need to pay anything to California.
b. Does not owe use tax on the purchase to anyone.
c. Owes use tax on the purchase.
d. None of the above.

38. ABC Corporation is dissolved on July 9, 2007. What is the due date, without extensions, for filing of the final corporate income tax return?

a. March 15, 2008.
b. September 15, 2007.
c. October 15, 2007.
d. November 15, 2007.

39. The Minimum Franchise tax will not be assessed if a corporation

a. Is not incorporated under the laws of California.
b. Is not incorporated in California not qualified under the laws of California, or not doing business in California even though they derive income from California sources.
c. Is newly formed or qualified corporations filing an initial return for a taxable year beginning on or after January 1, 2000.
d. All of the above.

40. New corporations, which begin business on or after January 1, 2000, are

a. No longer required to prepay minimum franchise tax to the SOS.
b. Required to prepay the minimum franchise tax to the SOS.
c. Subject to $800 minimum tax.
d. None of the above.