x-1041-inst - Ordinary Domestic Corporations

Here we will cover rules for ordinary domestic corporations. Examples of businesses taxed as corporations are businesses formed under a federal or state law that refers to it as a corporation, body corporate, or body politic, a business formed under a state law that refers to it as a joint-stock company or joint-stock association, an insurance company, certain banks and businesses owned by state or local governments.

Student Instructions:

Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online.

Instructions to submit quiz online successfully: Step-by-Step check list

Answer Sheet            Quiz Online

Most forms are in Adobe Acrobat PDF format. You will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.

 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. The Morrison Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true?

A. Trust income can consist of interest and dividends only.
B. There were no other distributions of corpus in the current year.
C. All beneficiaries must be U.S. citizens or resident aliens.
D. All of the above.

2. Christopher wants to create a revocable grantor trust that will own all of his stocks and rental properties. Which statement regarding income of the trust is true?

A. Christopher will be taxed only income that is distributed to him.
B. Christopher will be taxed on all income of the trust, regardless of distributions.
C. State law will determine who much of the trust income is taxable to Christopher.
D. If the rental income is passive, it will not be taxable to him.

3. Trust A is a simple trust with two equal beneficiaries, Jim and Randy. In 2008, the trust had $30,000 of distributable net income, all from taxable interest. During the year, the trust distributed $5,000 to Jim and $10,000 to Randy. Based on this information, the trustee should issue K-1's as follows:

A. Jim $5,000; Randy $10,000.
B. Jim $15,000; Randy $15,000.
C. Jim $10,000; Randy $20,000.
D. Jim $30,000; Randy $30,000.

4. Trust Y has taxable interest and dividends of $9,000 and tax exempt interest of $1,000. The only expense the trust incurred was a trustee fee of $500. Bases on this information, what amount of adjusted tax-exempt interest is included in the trust's distributable net income?

A. $8,550.
B. $500.
C. $950.
D. $1,000.

5. The Large Trust is a simple trust. Bert Little is the sole beneficiary of the trust. Capital gains are allocable to corpus. Based on the following information, what is the trust's distribution deduction?

A. $1,000.
B. $1,500.
C. $2,000.
D. $3,000.

6. Trust B has distributable net income of $60,000, which includes $5,000 of tax-exempt income. The trustee distributed $75,000 to the trust's sole beneficiary. What amount will be shown as the distribution deduction on the trust's Form 1041?

A. $55,000.
B. $60,000.
C. $70,000.
D. $75,000.

7. The LMH trust is a simple trust. Given the following information, determine the trust's distribution deduction.

A. $10,000.
B. $12,000.
C. $13,000.
D. $15,000.

8. The Tom Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true?

A. Trust income can consist of interest and dividends only.
B. There were no distributions of corpus in the current year.
C. All beneficiaries must be U.S. citizens or resident aliens.
D. All of the above.

9. Which of the following statements regarding grantor trusts is true?

A. A grantor of a grantor trust does not report income from the trust unless distributions are made from the trust.
B. A grantor trust is a good way to shelter income.
C. Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed.
D. all of the statements are true.

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. 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. The corporation is an investment company.
B. You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors.
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. 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. January 31, 2009.
B. January 15, 2009.
C. March 15, 2009.
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. March 15, 2009.
B. March 30, 2009.
C. April 15, 2009.
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. 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, 2008. What is the due date, without extensions, for filing of the final corporate income tax return?

A. March 15, 2009.
B. December 31, 2008.
C. October 15, 2008.
D. October 9, 2008.

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.