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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.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. Which of the following statements about a controlled group of corporations is FALSE?

A. John Corporation owns 80% of the voting power and value of James Corporation stock. John Corporation and James Corporation are members of a controlled group.
B. Allen Corporation owns 80% of the voting power and value of Brown Corporation stock. Brown Corporation owns 80% of the voting power and value of Cole Corporation. Allen Corporation, Brown Corporation, and Cole Corporation are members of a controlled group.
C. Members of a controlled group are entitled to one $50,000, on $25,000, and two $9,925,000 taxable income bracket amounts.
D. Members of a controlled group may be either members of an affiliated group, or parent-subsidiary corporations, or brother-sister corporations.

2. Which of the following statements about a controlled group of corporations is true?

A. Members of a controlled group are treated as one group to figure the applicability of the additional 5% and the additional 3% tax.
B. A parent corporation and its 80% owned subsidiary make up a controlled group.
C. All members of a controlled group need not use the parent corporation's tax year.
D. All of the above.

3. The Dana Corporation has two subsidiary corporations. In order to determine that the subsidiary corporations are in a controlled corporate group, which of the following must be true?

A. Ten or fewer persons (individuals, estates, or trusts) own at least 80% of the voting stock or value of shares of each of two or more corporations.
B. Ten or fewer persons own more than 50% of the voting power or value of shares of each corporation, considering a particular person's stock only to the extent that it is owned identically with regard to each corporation.
C. A person's stock ownership is not taken into account for purposes of the 80% requirement unless that shareholder owns stock in all of the corporations considered to be in the group.
D. The subsidiaries must be located in the same state.

4. Lori's outside basis in the Briar Patch Partnership at January 1, 2008, was $11,000. She is a 50% partner and shares profits and losses in the same ratio. For 2008, the partnership's ordinary business income was $40,000, tax-exempt interest income $200. Lori received a cash distribution from the partnership of $700 in 2008. If the partnership were to liquidate on December 31, 2008, what would be Lori's basis for determining gain or loss?

A. $24,900.
B. $30,750.
C. $30,400.
D. $30,300.

5. To report its income, gain, losses, deductions, credit, and to figure its income tax liability a corporation generally must file

A. Form 1120.
B. Form 1040.
C. Form 2210.
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. It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997.
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. Both A and B above.
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. Form W-2.
B. Form 1099-DIV.
C. Form 1099-MISC.
D. Form 1099-INT.

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 performing personal services.
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. 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