Corporate Taxation Exam Practice Tests
Course Introduction
Corporate Taxation explores the principles and practices governing the taxation of corporations and their shareholders under federal tax laws. The course examines the formation, operation, and dissolution of corporations, emphasizing income recognition, deductions, and the tax consequences of distributions, mergers, acquisitions, and reorganizations. Key topics include taxable and tax-free transactions, corporate tax planning, corporate alternative minimum tax, and the interplay between corporate and shareholder-level taxation. Students will analyze current statutes, regulations, and significant case law to develop practical skills in identifying tax issues and advising corporate clients.
Recommended Textbook
McGraw Hills Taxation of Business Entities 2018 9th Edition by Brian C. Spilker
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14 Chapters
1506 Verified Questions
1506 Flashcards
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Chapter 1: Business Income,Deductions,and Accounting Methods
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99 Verified Questions
99 Flashcards
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Sample Questions
Q1) Rock Island Corporation generated taxable income (before the domestic production activities deduction)of $10 million this year.The total income included $4,500,000 of qualified production activities income.The company paid $500,000 in W-2 wages to generate the qualified production activity income.What is Rock Island's domestic production activities deduction for the year?
Answer: $250,000 = 1/2 × $500,000
The domestic production activities deduction is 9% of the lesser of taxable income of $10 million or QPAI of $4,500,000 ($405,000 = 9% × 4,500,000).The deduction is limited to 50% of domestic W-2 wages of $500,000 i.e.,$250,000.
Q2) When does the all-events test under the accrual method require the recognition of income from the sale of goods?
A) When the title of the goods passes to the buyer.
B) When the business receives payment.
C) When payment is due from the buyer.
D) The earliest of the above three dates.
E) None of the choices are correct.
Answer: D
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Page 3
Chapter 2: Property Acquisition and Cost Recovery
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) Olney LLC only purchased one asset this year.Olney LLC placed in service on July 19,2017 machinery and equipment (7-year property)with a basis of $850,000.Assume that Olney has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing,(but ignoring bonus expensing).(Use MACRS Table 1)(Round final answer to the nearest whole number)
Answer: $558,586.
The $510,000 §179 expense is not limited.The half year convention applies.The expense is $558,586 which is depreciation of $340,000 × 0.1429 = $48,586 plus $510,000 of §179 expense.
Q2) All taxpayers may use the §179 immediate expensing election on certain property.
A)True
B)False
Answer: False
Q3) Like financial accounting,most acquired business property must be capitalized for tax purposes.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Property Dispositions
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Kristi had a business building destroyed in an earthquake.The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken.Her insurance proceeds were $550,000.Although the replacement property was much larger and nicer than her old building,Kristi's new property qualified as replacement property.She acquired the new property 13 months after the earthquake for $620,000.What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?
Answer: $380,000 realized gain,$0 recognized gain,basis of $240,000. The realized gain is the amount realized ($550,000 insurance proceeds)less the $170,000 adjusted basis ($250,000 cost basis less $80,000 of depreciation).The recognized gain is the lesser of $380,000 realized gain or the amount not reinvested in qualified replacement property ($0 = $550,000 of insurance proceeds less $620,000 cost of new property).The basis of qualified replacement property in an involuntary conversion is a carryover basis ($170,000)increased by any new investment by the taxpayer ($70,000 = $620,000 purchase price less $550,000 insurance proceeds).
Q2) The amount realized is the sale proceeds less the adjusted basis.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Entities Overview
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) Cali Corp.(a C corporation)projects that it will have taxable income of $250,000 for the year before paying any fringe benefits.Stacey,Cali's sole shareholder,has a marginal tax rate of 33 percent on ordinary income and 15 percent on dividend income.Assume Cali's tax rate is 34 percent.
a.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.does not pay out any fringe benefits and distributes all of its after-tax earnings to Stacey?
b.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.pays Stacey's adoption expenses of $50,000 and the payment is considered to be a qualified fringe benefit? Cali Corp.distributes all of its after-tax earnings to Stacey.
c.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.pays Stacey's adoption expenses of $50,000 and the payment is considered to be a nonqualified fringe benefit? Cali Corp.distributes all of its after-tax earnings to Stacey.
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Chapter 5: Corporate Operations
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?
A) Temporary book-tax differences will reverse in future years whereas permanent differences will not.
B) Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns.
C) Both temporary book-tax differences will reverse in future years whereas permanent differences will not and certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns are reasons for why a corporation might distinguish between temporary and permanent differences.
D) Neither temporary nor permanent book-tax differences will reverse in future years nor are certain corporations required to disclose book-tax differences as permanent or temporary on their tax returns.
Q2) In 2017,Datasoft Inc.received $350,000 in dividends from CSLabs Inc.Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000.What is Datasoft's DRD assuming it owns 15% of the CSLabs Inc.stock?
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Page 7
Chapter 6: Accounting for Income Taxes
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100 Verified Questions
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Sample Questions
Q1) Swordfish Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,book depreciation exceeded tax depreciation by $100,000.In prior years,tax depreciation exceeded book depreciation by a cumulative amount of $500,000.Finally,Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income.Using a tax rate of 34%,Swordfish's deferred income tax expense or benefit would be:
A) $25,500 net deferred tax expense.
B) $25,500 net deferred tax benefit.
C) $42,500 net deferred tax benefit.
D) $42,500 net deferred tax expense.
Q2) Lafayette,Inc.completed its first year of operations with a pretax loss of $800,000.The tax return showed a net operating loss of $750,000,which the company will carryforward.The $50,000 book-tax difference results from a disallowed deduction for meals and entertainment.Management has determined that they should record a valuation allowance equal to the net deferred tax asset.Assuming a tax rate of 34%,prepare the journal entries to record the deferred tax provision and the valuation allowance.
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Chapter 7: Corporate Taxation: Nonliquidating Distributions
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Sample Questions
Q1) Viking Corporation is owned equally by Sven and his wife Olga,each of whom hold 100 shares in the company.Viking redeemed 75 shares of Sven's stock in the company on December 31,20X3.Viking paid Sven $2,000 per share.His income tax basis in each share is $1,000.Viking has total E&P of $500,000.What are the tax consequences to Sven because of the stock redemption?
A) $75,000 capital gain and a tax basis in each of his remaining shares of $1,000.
B) $75,000 capital gain and a tax basis in each of his remaining shares of $2,000.
C) $150,000 dividend and a tax basis in each of his remaining shares of $1,000.
D) $150,000 dividend and a tax basis in each of his remaining shares of $4,000.
Q2) Lansing Company is owned equally by Jennifer,her husband Dan,and DeWitt Corporation,which is owned 50 percent by Jennifer and her sister Jane.Each of the three shareholders holds 100 shares in the company.Under the §318 stock attribution rules,how many shares of Lansing stock is Jennifer deemed to own?
A) 100.
B) 200.
C) 250.
D) 300.
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Chapter 8: Corporate Formation, Neorganization, and Liquidation
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100 Verified Questions
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Sample Questions
Q1) Tax considerations are always the primary reason for structuring an acquisition. A)True
B)False
Q2) Which of the following statements best describes the concept of control as it applies to a section 351 transaction?
A) Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
B) Control is defined as the ownership of 80 percent or more of the fair market value of a corporation's stock.
C) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the fair market value of a corporation's stock.
D) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the total number of shares of each class of nonvoting stock.
Q3) Generally,before gain or loss is realized for tax purposes,the taxpayer must engage in a transaction.
A)True B)False
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Chapter 9: Forming and Operating Partnerships
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) On January 1,X9,Gerald received his 50% profits and capital interest in High Air,LLC in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage.High Air reported a $15,000 loss for its X9 calendar year.How much loss can Gerald deduct,and how much loss must he suspend if he only applies the tax basis loss limitation?
A) $0, $4,000.
B) $0, $7,500.
C) $0, $15,000.
D) $4,000, $0.
E) None of the choices are correct.
Q2) In what order should the tests to determine a partnership's year end be applied?
A) majority interest taxable year - least aggregate deferral - principal partners test.
B) principal partners test - majority interest taxable year - least aggregate deferral.
C) principal partners test - least aggregate deferral - majority interest taxable year.
D) majority interest taxable year - principal partners test - least aggregate deferral.
E) None of the choices are correct.
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11
Chapter 10: Dispositions of Partnership Interests and Partnership Distributions
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Sample Questions
Q1) Tyson,a one-quarter partner in the TF Partnership,receives a proportionate distribution to liquidate his partnership interest on January 1.The distribution consists of $70,000 cash and inventory with a fair value of $40,000 (inside basis is $22,000).Tyson's outside basis is $90,000 including his $10,000 share of TF's liabilities.What is the amount and character of Tyson's recognized gain or loss? What is Tyson's basis in the distributed inventory?
Q2) Brian is a 25% partner in the BC Partnership.On January 1,BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000)to Brian.BC has no liabilities at the date of the distribution.Brian's basis in BC is $16,000.What is the amount and character of Brian's gain or loss on the distribution?
A) $0.
B) $4,000 capital gain.
C) $12,000 capital gain.
D) $20,000 capital gain.
Q3) A partner's debt relief from the sale of a partnership interest will decrease his outside basis.
A)True
B)False
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Chapter 11: S Corporations
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Sample Questions
Q1) An S corporation shareholder calculates his initial basis upon formation of the corporation like a C corporation shareholder.
A)True
B)False
Q2) S corporations are not entitled to a dividends received deduction.
A)True
B)False
Q3) For S corporations without earnings and profits from prior C corporation years,the taxation of cash distributions to the shareholder is very similar to the rules for partnerships.
A)True
B)False
Q4) An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the Net Investment Income tax.
A)True
B)False
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Chapter 12: State and Local Taxes
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117 Flashcards
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Sample Questions
Q1) Which of the following regarding the state tax base is incorrect?
A) It is computed by making adjustments to federal taxable income.
B) It is divided into business and nonbusiness income.
C) It is a necessary step in the state income tax process.
D) It applies only to interstate businesses.
Q2) Public Law 86-272 protects solicitation from income taxation.Which of the following activities exceeds the solicitation threshold?
A) Any form of advertising.
B) Distribution of samples without charge.
C) Accepting a down payment.
D) Checking a customer's inventory.
Q3) Business income is allocated to the state of commercial domicile.
A)True
B)False
Q4) Which of the following is an income based tax?
A) Ohio Commercial Activity Tax.
B) Texas Margin Tax.
C) Washington Business & Occupation Tax.
D) Wisconsin Corporate Tax.
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Chapter 13: The Ustaxation of Multinational Transactions
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100 Verified Questions
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Sample Questions
Q1) The United States generally taxes U.S.sourced fixed and determinable,annual or periodic income (FDAP)earned by non-U.S.persons by applying a withholding tax to the gross amount of income.
A)True
B)False
Q2) Which of the following persons should not be treated as a "U.S.shareholder" of a controlled foreign corporation (CFC)for subpart F purposes?
A) A U.S. citizen owning 5 percent of the CFC.
B) A U.S. citizen owning 15 percent of the CFC.
C) A U.S. corporation owning 15 percent of the CFC.
D) All of the above named persons are U.S. shareholders for subpart F purposes.
Q3) Nicole is a citizen and resident of Australia.She has a full-time job in Australia and has lived there with her family for the past 10 years.In 2015,Nicole came to the United States on business and stayed for 180 days.She came to the United States again on business in 2016 and stayed for 150 days.In 2017 she came back to the United States on business and stayed for 100 days.Does Nicole meet the U.S.statutory definition of a resident alien in 2017 under the substantial presence test?
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Chapter 14: Transfer Taxes and Wealth Planning
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Sample Questions
Q1) This year,Brent by himself purchased season baseball tickets in the exclusive sky club.The price of the tickets was $60,000,and Brent divided the tickets equally with his two brothers (Brent gave one-third of the tickets to each brother).Has Brent made a taxable gift and,if so,in what amount?
A) Brent made a taxable gift of $46,000.
B) Brent made two taxable gifts of $17,000 each.
C) Brent transferred the tickets for love and affection so no gift tax is imposed.
D) Brent made two taxable gifts of $6,000.
E) None of the choices are correct.
Q2) A serial gift strategy consists of arranging a trust to maximize the value of the applicable credit.
A)True
B)False
Q3) The gift-splitting election only applies to gifts made by taxpayers who reside in community property states.
A)True
B)False
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