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1. If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received
- [ ] a. A. A loan in exchange for a note that requires payment of interest at the applicable federal rate.
- [ ] b. B. An additional payment in an amount equal to the forgone interest.
- [ ] c. C. Both A and B above.
- [ ] d. D. None of the above.
2. A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Figure taxable income for this purpose without
- [ ] a. A. The deduction for charitable contributions.
- [ ] b. B. The dividends-received deduction.
- [ ] c. C. The domestic production activities deduction.
- [ ] d. D. Any of the above.
3. A corporation figures an NOL in the same way it figures taxable income. It starts with its gross income and subtracts its deductions. If its deductions are more than its gross income, the corporation has an NOL. However, the following rule for figuring the NOL applies.
- [ ] a. A. A corporation can increase its current year NOL by carrybacks or carryovers from other years.
- [ ] b. B. A corporation can use the domestic production activities deduction to create or increase its current year NOL, including any carryback or carryover.
- [ ] c. C. A corporation can take the deduction for dividend, received without regard to the aggregate limits that normally apply.
- [ ] d. D. A corporation cannot figure the deduction for dividends paid on certain preferred stock of public utilities.
4. A corporation can deduct capital losses only up to the amount of its capital gains. If a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. When carrying a capital loss from one year to another, the following applies.
- [ ] a. A. When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year.
- [ ] b. B. If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first.
- [ ] c. C. You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back.
- [ ] d. D. All of the above.
5. To report its income, gain, losses, deductions, credit, and to figure its income tax liability a corporation generally must file
- [ ] a. A. Form 1120.
- [ ] b. B. Form 1040.
- [ ] c. C. Form 2210.
- [ ] d. D. Form 7004.
6. A corporation is treated as a small corporation exempt from the AMT for its current tax year if that year is the corporation's first tax year in existence (regardless of its gross receipts for the year) or
- [ ] a. A. It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997.
- [ ] b. B. Its average annual gross receipts for the 3-tax-year period (or portion there of during which the corporation was in existence) ending before its current tax year did not exceed $7.5 million ($5 million if the corporation had only 1 prior tax year).
- [ ] c. C. Both A and B above.
- [ ] d. D. Use Form 4626 to figure the tentative minimum tax of a corporation.
7. For each shareholder to whom you have paid dividends and other distributions of stock of $10 or more during a calendar year, file
- [ ] a. A. Form W-2.
- [ ] b. B. Form 1099-DIV.
- [ ] c. C. Form 1099-MISC.
- [ ] d. D. Form 1099-INT.
8. A corporation is a personal service corporation if
- [ ] a. A. Its principal activity during the "testing period" is performing personal services.
- [ ] b. B. Its employee-owners substantially perform the services in performing personal services.
- [ ] c. 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. 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.
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.
11. If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. This rule applies both to individuals and to groups who transfer property to a corporation. It also applies whether the corporation is being formed or is already operating. However, it does not apply if
- [ ] a. A. The corporation is an investment company.
- [ ] b. B. You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors.
- [ ] c. C. The stock received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt.
- [ ] d. D. All of the above.
12. ABC Corporation's tax year ends on October 31, 2008. When is ABC Corporation's income tax return required to be filed?
- [ ] a. A. January 31, 2009.
- [ ] b. B. January 15, 2009.
- [ ] c. C. March 15, 2009.
- [ ] d. D. March 31, 2009.
13. Abbot Corporation's tax year ends on June 30, 2008. 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, 2008?
- [ ] a. A. March 15, 2009.
- [ ] b. B. March 30, 2009.
- [ ] c. C. April 15, 2009.
- [ ] d. D. May 15, 2009.
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. A. 20%.
- [ ] b. B. 25%.
- [ ] c. C. 15%.
- [ ] d. 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.
16. If a corporation cancels a shareholder's debt without repayment by the shareholder, the amount canceled is
- [ ] a. A. Not taxable by the shareholder.
- [ ] b. B. Treated as a distribution to the shareholder.
- [ ] c. C. Forgiven and not treated as a distribution.
- [ ] d. 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. A. Any liability of the corporation the shareholder assumes in connection with the distribution.
- [ ] b. B. Any liability to which the property is subject immediately before the distribution.
- [ ] c. C. Any liability to which the property is subject immediately after the distribution.
- [ ] d. 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. A. Form 1065 (U.S. Partnership Tax Return).
- [ ] b. B. Form 8832 (Entity Classification Election).
- [ ] c. C. Form 1120 (U.S. Corporation Income Tax Return).
- [ ] d. D. Form 7004 (Application for Extension of time to file for Corporations).
19. ABC Corporation is dissolved on July 9, 2008. What is the due date, without extensions, for filing of the final corporate income tax return?
- [ ] a. A. March 15, 2009.
- [ ] b. B. December 31, 2008.
- [ ] c. C. October 15, 2008.
- [ ] d. D. October 9, 2008.
20. The corporation's basis of property contributed to capital by a shareholder is
- [ ] a. A. Zero.
- [ ] b. B. The same as the basis the shareholder had in the property.
- [ ] c. C. Not taxable to the corporation.
- [ ] d. D. None of the above.
21. Small business investment companies can deduct _____ of the dividends received form taxable domestic corporations.
- [ ] a. A. 70%.
- [ ] b. B. 80%.
- [ ] c. C. 100%.
- [ ] d. 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. A. 5% for stock preferred as to dividends.
- [ ] b. B. 10% for other stock.
- [ ] c. C. Either A or B above.
- [ ] d. 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. A. $1.
- [ ] b. B. $500.
- [ ] c. C. $600.
- [ ] d. D. $1,000.
24. A corporation is a qualified personal service corporation if
- [ ] a. A. Substantially all the corporation's activities involve the performance of personal services.
- [ ] b. B. At least 95% of the corporation's stock, by value, is owned, directly or indirectly, by employees performing the personal services.
- [ ] c. 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. 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. A. You.
- [ ] b. B. John.
- [ ] c. C. The corporation.
- [ ] d. 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. A. 5% of the unpaid tax for each month or part of a month the return is late.
- [ ] b. B. Up to a maximum of 25% of the unpaid tax.
- [ ] c. C. Both A and B above.
- [ ] d. D. None of the above.
27. A corporation that does not pay the tax when due may be penalized
- [ ] a. A. 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid.
- [ ] b. B. Up to a maximum of 25% of the unpaid tax.
- [ ] c. C. Both A and B above.
- [ ] d. D. If the corporation can show that the failure to pay on time was due to a reasonable cause.
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. A. The corporation must have filed a return for the previous year.
- [ ] b. B. The return must have been for a full 12 months.
- [ ] c. C. The return must have shown a positive tax liability (not zero).
- [ ] d. 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. A. The amount of the underpayment.
- [ ] b. B. The period during which the underpayment was due and unpaid.
- [ ] c. C. The interest rate for the underpayments published quarterly by the IRS in the Internal Revenue Bulletin.
- [ ] d. 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. A. The annualized income installment method was held to figure any required installment.
- [ ] b. B. The adjusted seasonal installment method was used to figure any required installment.
- [ ] c. C. The corporation is a large corporation figuring its first required installment based on the prior year's tax.
- [ ] d. D. Any of the above.