x-1120-inst - 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.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. The Susan Corporation was required to use the Electronic Federal Tax Payment System (EFTPS) in 2007 for payment of its employment and corporation income taxes. In 2008, the total deposits of taxes by The Susan Corporation were $190,000. Which of the following is true?

A. The Susan Corporation is required to use EFTPS in 2008.
B. The Susan Corporation may deposit corporate income tax payments and estimated tax payments with Form 8109, Federal Deposit Coupon mailed to an authorized depository or mailed to Financial Agent, Federal Tax Deposit Processing in St. Louis, Missouri for tax year 2008.
C. The Susan Corporation may send deposits directly to an Internal Revenue Service Office for tax year 2008.
D. The Susan Corporation is not required to participate in EFTPS, but may participate voluntarily for tax year 2008.

2. The Lux Corporation incurred $10,000 in start-up costs when it opened for business in 2008. What is the minimum period over which these expenses can be recovered?

A. 12 months.
B. 36 months.
C. 60 months.
D. 180 months.

3. In tax year 2008, Roberts Corporation made a charitable contribution to a qualified organization of $40,000 in cash plus a vehicle with a fair market value of $15,000. For tax year 2008 Roberts Corporation had $400,000 in total income, $100,000 in total expenses not including the above charitable contributions, and would have a reportable dividend received deduction of $50,000. How much of the charitable contribution can Roberts Corporation deduct for the 2008 tax year?

A. $15,000.
B. $25,000.
C. $40,000.
D. $55,000.

4. Maple Corporation had a net loss per its books for 2008 as follows:

xxxxx

Maple Corporation uses an accelerated method of depreciation for tax purposes, but not for book purposes. Maple Corporation's tax depreciation for 2008 will be $75,000. What is the taxable income for federal income tax purposes in 2008 for Maple Corporation?

A. $(5,000).
B. $(35,000).
C. $(25,000).
D. $(20,000).

5. ABC, Inc., a regular domestic corporation and calendar year taxpayer, had taxable income of $10,000 for the year 2008. Because the company's accountant was on vacation during the month of March 2009, the corporate income tax return was not filed in a timely manner and no exception was filed. The new accountant mailed the return on June 15, 2009. Disregarding any possible late payment penalty, and assuming no estimated tax payments were made, calculate the maximum failure to file penalty that could be assessed against ABC, Inc.

A. $1,000.
B. $350.
C. $225.
D. $270.

6. During 2008 the NOGO Corporation had the following items of income and expenses:

A. $74,000.
B. $63,000.
C. $82,000.
D. $90,000.

7. The following statements regarding qualified qualified personal service corporations are true EXCEPT:

1. A qualified personal service corporation is taxed at a flat rate of 35% on taxable income.
2. A qualified personal service corporation, it must meet two test: (a) one of performance of certain personal services, and (2) ownership directly or indirectly of at least 95% of the corporation's stock.
3. The passive activity rules may apply to a personal service corporation if the corporation is not an S Corporation and the employee-owner own 10% of the fair market value of the personal service corporation's outstanding stock on the last day of the current tax year.
4. Personal services are those performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.

A. 2 and 3.
B. 3 only.
C. 1 and 3.
D. 4 only.

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.