Who pays tax on the income of an S corporation?

Corresponds to CLO 7(a)

Who pays tax on the income of an S corporation?

The S corporation

The shareholders

The customers

There is no tax imposed on S corporation income

Question 2

Corresponds to CLO 7(b)

To become an S corporation, a corporation must:

have once been a C corporation.

elect to be treated as such.

have at least 100 shareholders.

Only c and b.

All of the above.

Question 3

Corresponds to CLO 5(a)

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

insurance companies

S corporations

car manufacturing corporation

foreign corporations

Question 4

Corresponds to CLO 9(b)

Tammie contributes $50,000 cash in exchange for a 25% interest in the profi ts and capital of the XYZ Partnership. The partnership has $300,000 of recourse debt and $100,000 of nonqualifi ed nonrecourse debt. The partnership has a loss of $800,000 for the year. How much of the loss will Tammie be able to deduct, assuming she is allocated 25% of the liabilities and the partnership is not a passive activity?

$0.

$50,000.

$125,000.

$150,000.

$200,000

Question 5

Corresponds to CLO 7(d)

A calendar year corporation wishes to elect to be taxed as an S corporation. What is the last day that the corporation can file an election to be effective for 2011?

December 31, 2010.

March 15, 2011.

April 15, 2011.

December 31, 2011.

Question 6

Corresponds to CLO 7(b)

S corporation will be treated as having one class of stock if:

all of its outstanding shares of stock confer identical rights to distribution and liquidation proceeds.

there is no differences in voting rights.

there is no differences in the timing of distributions.

All of the above

Question 7

Corresponds to CLO 5(b)

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Cardinal's income will be included in the consolidated return ? (Assume all months have 30 days.)

100%

50%

0%

none of the above

Question 8

Corresponds to CLO 3(b)

Rachael and Ray form an equal partnership, R&R, on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $100,000. Ray's adjusted basis in the land is $30,000. Which of the following statements is accurate with respect to this exchange?

Neither Rachael, Ray, nor R&R recognize any gain or loss on the transfer.

Ray recognizes $70,000 gain on the transfer.

R&R recognizes $70,000 gain on the transfer.

b. and c.

Question 9

Corresponds to CLO 1(d)

Which of the following entities may select any tax period (calendar or fiscal)?

sole partnership

partnership

S corporations

trusts

corporations other than S corporations.

Question 10

Corresponds to CLO 2(c)

Comic Books Corporation, a calendar year corporation, had a net operating loss of $50,000 for 2011. Comic Books made a proper election to forgo the carryback period. For 2012, Comic Books correctly deducted $40,000 of the 2011 loss. Comic Books will lose the remaining $10,000 if it cannot be deducted by the end of which tax year?

2018

2021

2026

2031

Question 11

Corresponds to CLO 6(a)

Tugboats Corporation, a calendar year corporation that began doing business on January 1, 2005, had $35,000 in accumulated earnings and profits on January 1, 2011. Tugboats had an operating loss of $60,000 for the fi rst six months of 2011, but had $10,000 in earnings for the entire year. Tugboats made a distribution of $25,000 cash to its stockholders on April 1, 2011. What is the amount of Tugboat's accumulated earnings and profits on January 1, 2012?

$0

$10,000

$20,000

$45,000

Question 12

Corresponds to CLO 3(b)

Rachael and Ray form an equal partnership, R&R, on January 1, 20X1. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $170,000, which is subject to a $70,000 debt, which R&R assumes. Ray's adjusted basis in the land is $30,000. Which of the following statements is accurate with respect to this exchange?

Ray does not recognize any gain or loss on the exchange and his tax basis in R&R is $30,000.

Ray does not recognize gain on the exchange and his tax basis in R&R is $100,000. *. Ray recognizes $5,000 gain on the exchange and his tax basis in R&R is $0. d. Ray recognizes $70,000 gain on the exchange and his tax basis in R&R is $100,000.

Question 13

Corresponds to CLO 8(a)

Which of the following would not increase the basis of a shareholder's stock in an S corporation:

All separately stated income items of the S corporation, including tax- exempt income.

Any non=separately stated income of the S corporation.

Capital gains tax paid by the shareholder.

The amount of deductions for depletion that is more than the basis of the property being depleted.

Question 14

Corresponds to CLO 1(a)

Which of the following is an advantage of a sole proprietorship over other business forms?

tax-exempt treatment of fringe benefits

the deduction for compensation paid to the owner

low tax rates on dividends

ease of formation

Question 15

Corresponds to CLO 9(c)

Krause Corporation makes an S election, believing that it has no current or accumulated E&P. However, after an IRS audit, Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years. The IRS will

automatically terminate the election and Krause cannot reelect for a 5-year time period.

retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect.

treat the error as such and allow the election to continue unbroken.

likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.

Question 16

Corresponds to CLO 1(c)

The following entities are not subject to double taxation except:

partnership

sole proprietorship

C corporation

S corporation

all are subject to double taxation

none are subject to double taxation

Question 17

Corresponds to CLO 8(c)

An S corporation incurs an operating loss of $80,000 in 20X5 and makes no distributions to its shareholders during the year. Before considering the current year operating loss, Abe, a shareholder that owns 50 percent of the S corporation stock, has a basis in his shares of S corporation stock of $30,000 and a $20,000 basis in a note from the corporation. How much of the $80,000 loss can he deduct on his 20X5 individual tax return?

$0.

$20,000.

$30,000.

$40,000.

Question 18

Corresponds to CLO 2(b)

Can Co.'s gross income from operations was $1,000,000 and its expenses from operations were $1,500,000. It also received a $600,000 dividend from a 10%-owned corporation. What is Can Co.'s dividends-received deduction?

$0

$70,000

$320,000

$420,000

Question 19

Corresponds to CLO 4(b)

Ellen is a 25 percent partner in Heartland Partners. Her tax basis in her partnership interest is $18,000. She received a non-liquidating distribution of land with a tax basis of $23,000 and a fair market value of $45,000. The partnership has no liabilities. What will be Ellen's tax basis in the land received in the non-liquidating distribution?

$18,000

$23,000

$45,000

zero

none of the above

Question 20

Corresponds to CLO 9(b)

Phil Justin and Mark Tyme are equal partners in the Justin Tyme partership. On December 15, 2010, Phil Justin transferred land with a fair market value of $100,000 to the Justin Tyme partnership. Phil had a basis in the land of $70,000. On June 1, 2011, Phil withdrew cash of $50,000 from the Justin Tyme partnership. An IRS agent is currently reviewing Phil's 2010 and 2011 income tax returns.

Phil should not be concerned because the contribution was a nontaxable event under section 721 and the distribution is tax free since he has sufficient basis in the partnership.

The IRS agent will likely assert that the transaction was a disguised sale and that Phil should have reported $15,000 gain on the sale.

The IRS agent will be unable to assert the transaction was a disguised sale since the transfer of the land and the distribution of the cash were in different years.

The IRS agent will be unable to assert the transaction was a disguised sale since these rules do not apply to a partnership and a 50 percent or more partner

Question 21

Corresponds to CLO 6(b)

A tract of land is distributed to Martha Moore as a dividend. Its basis immediately prior to the distribution was $40,000, its value is $80,000, and it is subject to a mortgage of $55,000. The following statements concerning the distribution are all false except:

E&P is increased by $15,000 (liability less basis), decreased by $40,000 and increased by the liability.

The net adjustment to the E&P account is $40,000, the amount of the realized gain.

The distributing corporation's realized gain of $40,000 is recognized to the extent of the $15,000.

The shareholder's basis in the land is $80,000, its fair market value.

Question 22

Corresponds to CLO 5(c)

Blue and Gold Corporations are members of the Blue-Gold affiliated group, which filed a consolidated tax return for last year, reporting a $200,000 consolidated NOL. Small taxable income amounts were reported by Blue and Gold in separate tax returns filed in years prior to last year. Early in the current year, 100% of Blue's stock is purchased by Robert Martin who contributes additional funds to Blue Corporation sufficient to acquire all of Green Corporation's stock. For the current year, the affiliated group reports the following results (excluding the consolidated NOL deduction):
Blue Corp Taxable Income = $150,000; Gold Taxable Income = $(25,000); Green (since acquisition) Taxable Income = $100,000.
Which of the following statements is correct?

Last year's NOL cannot be carried back.

The portion of last year's NOL that is not used as a carryback can be carried over the current year but is only used against Blue's taxable income.

The portion of last year's NOL that is not used as a carryback can be carried over against the current consolidated taxable income, but is subject to the Sec. 382 limitation.

The portion of last year's NOL that is not used as a carryback can be carried over, but is used only against the Blue's and Gold's taxable income.

Question 23

Corresponds to CLO 4(a)

Ten years ago, Lisa Bara acquired a one-third interest in Dee Associates, a partnership. This year, when Lisa's entire interest in the partnership was liquidated, Dee's assets consisted of the following: cash, $20,000; tangible property with a basis of $46,000, and a fair market value of $40,000. Dee had no liabilities. Lisa's adjusted basis for her one-third interest was $22,000. Lisa received cash of $20,000 in complete liquidation of her entire interest. How much loss will Lisa recognize upon receipt of the liquidating distribution?

$0

$2,000 short-term capital loss

$2,000 long-term capital loss

$2,000 ordinary loss

Question 24

Corresponds to CLO 1(b)

When comparing corporate and individual taxation the following statements are true, except:

Individuals have exemptions and a standard deduction, corporations do not.

Both types of taxpayers have percentage limitations on the charitable contribution deduction, coupled with a carryover of the excess contribution.

All taxpayers may carry net operating losses back two years, forward 20.

Both corporate and individual taxpayers may have a long-term capital loss carry-forward.

Question 25

Corresponds to CLO 3(a)

Which of the following do not decrease a partner's basis in the partnership interest?

A decrease in the partner's share of partnership liabilities.

A distribution made by the partnership to the partner.

The partner's distributive share of nondeductible items that are not capital in nature.

The partner's distributive share of partnership losses.

All of the above decrease a partner's basis in the partnership interest.

Question 26

Corresponds to CLO 9(c)

A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end. The C corporation wants to make an S election for its tax year beginning in the current year. The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS).

June 30 of the current year

September 15 of the current year

June 30 of the next year

September 15 of the next year

Question 27

Corresponds to CLO 4(a)

Martin has a tax basis in his one-fi fth interest in Gateway Partners of $45,000. The partnership has no liabilities and no hot assets. Martin receives a distribution of $33,000 cash in complete liquidation of his interest in the partnership. How much gain or loss will Martin recognize on receipt of the liquidating cash distribution?

zero

$33,000 gain

($12,000) loss

$12,000 gain

none of the above

Question 28

Corresponds to CLO 3(c)

The AB general partnership agreement provides for guaranteed payments for services rendered of $50,000 and $80,000 for Andrew and Brenda, respectively. The services rendered are of a nature that the amount is deductible by AB in computing its ordinary income. After the guaranteed payments are deducted, the partnership agreement calls for sharing of profits and losses as follows: Andrew 45 percent; Brenda 55 percent. If AB's ordinary income before taking the guaranteed payments into consideration is $200,000, what amount of total ordinary income from the partnership should each partner report on his or her individual income tax return?

Andrew $81,500; Brenda $118,500.

Andrew $69,500; Brenda $130,500.

Andrew $50,000; Brenda $80,000.

Andrew $140,000; Brenda $190,000.

Andrew $119,500; Brenda $210,500.

Question 29

Corresponds to CLO 2(c)

The following statements about the corporate income tax computation are all false, except:

Corporations are subject to a fl at 34 percent tax on net capital gains, including net Code Sec. 1231 gains.

The corporate tax rate on a long-term capital gain may be as low as 15 percent.

A corporation is subject to a 39 percent tax on all taxable income in excess of $100,000.

The AMT can never apply to personal service corporations taxed at a fl at 34 percent.

Question 30

Corresponds to CLO 8(d)

On January 1, 20X6, an S corporation has accumulated E&P of $55,000 from its years as a C corporation and has a positive AAA balance of $15,000. The corporation's sole shareholder, Betty, has a basis in her S corporation stock of $30,000. During 20X6, the corporation reports ordinary income of $10,000 and a $20,000 long-term capital gain. During 20X6, the corporation distributes $65,000 to Betty. The amount of the distribution that represents a taxable dividend is:

$0.

$20,000.

$50,000.

$55,000.

Question 31

Corresponds to CLO 6(c)

In 2011, pursuant to a plan of complete liquidation, Woods Corp. distributed all of its property to its shareholders. Among the property distributed was cash of $200,000, and land that had been held as an investment that had a basis of $100,000, and a fair market value of $160,000. The land was subject to a mortgage of $170,000 which the shareholders assumed. What amount of gain must Woods Corp. recognize as a result of its liquidating distributions?

$0

$10,000

$60,000

$70,000

Question 32

Corresponds to CLO 5(b)

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Ajak, Tech, Utech, and Baxter Corporations are an affiliated group.

Ajak, Tech, and Baxter Corporations are an affiliated group.

Ajak, Tech, and Utech Corporations are an affiliated group.

None of the above are correct.

Question 33

Corresponds to CLO 3(c)

The partnership of Bond and Felton has been permitted to retain its fiscal year ending March 31. John Bond files his tax return on a calendar year basis. The partnership paid Bond a guaranteed salary of $1,000 per month during the calendar year 2010 and $1,500 per month during the calendar year 2011. After deducting this salary the partnership realized ordinary income of $80,000 for the year ended March 31, 2011, and $90,000 for the year ended March 31, 2012. Bond's share of the profits is the salary paid to him plus 40 percent of the ordinary income after deducting his salary. For 2011, what amount should Bond report as his taxable income from the partnership?

$36,500

$44,000

$45,500

$50,0

Question 34

Corresponds to CLO 3(d)

Bob Barker contributed a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 subject to a mortgage of $120,000 in exchange for a 30 percent interest in the Alpha Partnership. Alpha will assume the mortgage on the building. What is Alpha's basis in the building?

$0

$30,000

$50,000

$84,000

Question 35

Corresponds to CLO 5(c)

The Alto-Baxter affiliated group filed a consolidated return for the first time last year. The group does not come under the "large" corporation rules. For last year, the group reports a tax liability of $60,000. Cooper Corporation has a $30,000 tax liability last year. This year, the Alto-Baxter affiliated group purchased all of the Cooper stock. This year, the Alto-Baxter-Cooper group reports an $110,000 consolidated tax liability. To avoid penalties for the current year, the group must make timely estimated tax payments of how much during the year?

$60,000

$90,000

$110,000

No estimated tax payments are required.

Question 36

Corresponds to CLO 2(a)

Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $310,000, and dividends received from a 45 percent-owned domestic corporation of $120,000. Hoover's tax position for the year is:

$8,000 taxable income

$56,000 net operating loss

$40,000 taxable income

$80,000 net operating loss

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