x-950 - 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.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. Generally, in which of the following scenarios must a gift tax return be filed?

A. You gave gifts to an individual (other than your spouse) totaling more than $12,000.
B. You gave a gift of a future interest that interest that was less than $12,000.
C. You wish to split gifts with your spouse.
D. All of the above.

2. Which of the following statements regarding the annual exclusion for gift taxes is true?

A. The gift of a present interest to more than 1 donee as joint tenants qualifies for only 1 annual exclusion.
B. A gift of a future interest cannot be excluded under the annual exclusion.
C. The annual exclusion amount for 2008 is $12,000.
D. None of the above.

3. Jack, a single individual, made the following gifts in 2008.

xxxx

What is the gross amount of gifts that Jack must include on his 2008 Form 709, United States Gift Tax Return?

A. $80,000.
B. $40,000.
C. $65,000.
D. $55,000.

4. George and Helen are husband and wife. During 2008, George gave $30,000 to his brother and Helen gave $22,000 to her niece. George and Helen both agree to split the gifts they made during the year. What is the taxable amount of gifts, after the annual exclusion, each must report on Form 709?

A. George and Helen each have taxable gifts of $15,000.
B. George has a taxable gift of $18,000 and Helen has a taxable gift of $10,000.
C. George and Helen each have taxable gifts of $3,000.
D. George has a taxable gift of $6,000 and Helen has a taxable gift of zero.

5. Lace gave the following gifts during the year:

Based on this information, what is the amount of taxable gifts given?

A. $0.
B. $4,000.
C. $8,000.
D. $11,000.

6. Margaret's 2008 Form 709, page 1 has the following entries:

Based on this information, what is the balance due on Margaret's Form 709 Gift Tax Return this year?

A. $0.
B. $179,450.
C. $200,000.
D. $379,450.

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.