x-559 - Rules for 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.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. ABC Trust had the following income and deductions:

The trust had no tax exempt income for the year. Per the trust instrument, capital gains are NOT allocated to corpus. What is the distributable net income (DNI)?

A. $6,700.
B. $6,300.
C. $5,300.
D. $4,700.

2. XYZ Trust is a complex trust. What is the trust's distribution deduction based on the following information (capital gains are allocated to income, there is no interest income, and there is no charitable contribution):

A. $10,000.
B. $5,000.
C. $0.
D. $8,000.

3. DUG Partnership operates a business. Its tax year ends on December 31, 2008. A partner dies on August 20th. The deceased partner's (and his or her estate's) distributive share of partnership income for the year of death is $18,000. The partner's share of self-employment income from the partnership is:

A. $18,000.
B. $11,500.
C. $12,000.
D. $9,000.

4. John, a self-employed carpenter, died on January 8, 2008. Which of the following, if allowable, could be deducted on John's final Form 1040?

A. Unused net operating loss carryover from 2007.
B. The full amount of his personal exemption (with-out pro-ration).
C. Medical expenses paid by the estate within one year of death.
D. All of the above.

5. A calendar year estate came into existence November 12, 2007. It had a tax balance due of $15,000 on the 2007 return. The estate executor expects to have a $10,000 balance due on the 2008 tax return. The estate will not be finalized until 2009. Income is received evenly throughout the year, and there is not withholding. The executor is required to make estimated payments on:

A. April 15, 2008; June 15, 2008; September 15, 2008, January 15, 2009.
B. December 31, 2008 if the return is filed on or before February 28, 2009.
C. Either A or B.
D. No estimated payments are required.

6. The John Q estate fiscal tax year run form April 1, 2007 to March 31, 2008. The estate made distributions to beneficiaries on December 12, 2007 and March 15, 2008. Assuming the estate has taxable income, in what year will its beneficiaries be required to report taxable distributions?

A. 2007.
B. 2008.
C. Both 2007 and 2008.
D. Neither 2007 nor 2008.

7. All of the following items can be claimed as deductions against a decedent's estate except:

A. Specific bequest to son.
B. Executor's fees.
C. Legal fees to settle estate.
D. Charitable bequests.

8. Which of the following amounts paid may be claimed as a credit on the estate tax return:

A. Charitable contributions.
B. Generations-skipping transfer tax.
C. State death taxes paid.
D. Earned income credit.

9. The Bordman Trust, an ongoing trust, was created in 1996. It has a net operating loss in 2008. Which of the following statements is or are true regarding the trustee's choices for claiming the loss?

A. Carry the NOL back to 1996.
B. Waive the five year carryback and carry the NOL back two years.
C. Waive both the two year and the five year carryback periods and pass the NOL through to beneficiaries.
D. NOL carryback is not available to trusts.

10. The Emerson estate has distributable net income (DNI) of $20,000 on its 2008 return. The only distribution the executor made during the year was $10,000, paid to the decedent's son, Sam. The distribution was made to fulfill a bequest stated in the decedent's will, which required that one payment of $10,000 be paid to Sam within six months of Mr. Emerson's death. Which of the following statements is true regarding who will pay tax on the estate's income:

A. Sam must pay tax on $10,000.
B. Sam must pay tax on $20,000.
C. Sam is not required to pay tax on the distribution.
D. None of the above.

11. Laura's gross estate equals $2,000,000. Given the following information, determine Laura's taxable estate:

A. $1,870,000.
B. $1,880,000.
C. $1,890,000.
D. $2,000,000.

12. Bill, a partner in Williams-Sonic is a calendar-year taxpayer. William-Sonic's partnership year ends on June 30. For the partnership year ending June 30, 2008, Bill's distributive share of partnership profits is $4,000. On August 20, 2008. Bill dies and his estate succeeds to his partnership interest. For the partnership year ending June 30, 2009, Bill and his estate's distributive share is $6,000. What is Bill's self-employment income on Schedule E (Form 1040) for 2008?

A. $4,000.
B. $5,000.
C. $10,000.
D. $7,000.

13. Which of the following is not an example of income in respect of a decedent?

A. Wages earned before death, but unpaid at the time of death.
B. A dividend check that was received by the decedent, but cashed after death.
C. The taxable portion of an inherited IRA.
D. The taxable portion of payments received on an inherited installment obligation.

14. Mark died on December 22, 2006. The executor of his estate chose a calendar year. In 2007, the estate had a tax liability of $2,000. It is expected that the estate will have an adjusted gross income of $43,000 and a tax liability of $3,000 in 2008. All of the income is from interest and dividends from which no tax was withheld. Which of the following statements regarding estimated tax payments for this estate are true?

A. The executor does not need to make estimated tax payments because the estate is only in its third year of existence.
B. The executor should make equal estimated payments totaling at least $2,000 (last year's tax liability) to avoid a penalty for underpayment of tax.
C. The executor should make equal estimated payments totaling at least $3,000 to avoid the penalty for underpayment of tax.
D. Because the 2001 tax liability is no more than $1,000 greater than the prior-year liability, no estimated tax payments are required.

15. On December 15, 2007, Kyle received a $10,000 distribution from his father's estate. On March 30, 2008 Kyle was issued Schedule K-1 for the estate's first fiscal year (February 1, 2007, through January 31, 2008). The Schedule K-1 from the estate showed taxable interest income of $200 and had no other entries. Based on the information above, which of the following statements are true?

A. Kyle must report income of $10,000 on his 2008 return.
B. Kyle must report $200 interest income on his 2008 return.
C. Kyle may claim a deduction on Schedule A for a pro rata share of the estate tax that was paid by the estate.
D. Both B and C.

16. Which of the following items are included in a decedent's gross estate?

A. All of the assets are included in the decedent's estate.
B. The IRA and checking account are included in the decedent's estate.
C. The IRA and the assets in the revocable grantor trust are included in the decedent's estate.
D. None of the assets are included in the decedent's estate.

17. Which of the following items is not an allowable deduction on a decedent's estate tax return?

A. Bequest to a surviving ex-spouse.
B. Property taxes accrued before death but not paid until after death.
C. Executor's fees for administering the estate.
D. None of the items is allowed as a deduction against the decedent's estate.

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.