Question 1

What are the 4 legal characteristics of a corporation?

Accepted Answer

- Limited liability 
- Unlimited life
- Free transferability
- Centralized management

Question 2

Limited liability -

Accepted Answer

The right of corporate creditor extend only to corporate assets and not to the personal assets.

Question 3

Unlimited life -

Accepted Answer

One inherit the corporation after an owner dies.

Question 4

Free transferability of interest -

Accepted Answer

Investors can buy and sell the stocks with maximum convenience and with low transaction costs.

Question 5

What can be an example of free transferability?

Accepted Answer

One can buy and sell any of the Apple's stocks he or she wants, and one can pay at a cheaper transaction cost.

Question 6

Centralized management -

Accepted Answer

The board of directors make the managerial decisions.

Question 7

True or false - Centralized management is becoming MORE important today.

Accepted Answer

False

Question 8

A closely-held corporations, a buy-sell agreement may prevent ________.

Accepted Answer

transferability

Question 9

What does an affiliated group consist of?

Accepted Answer

- U.S. parent corporation that directly owns at least 80% of at least ONE domestic subsidiary and/ or all other domestic subsidiaries that are 80% owned within the group.

Question 10

True or false - A parent company owns 100% of a subsidiary in Sweden. This IS an affiliated group (Hint: It's not domestic).

Accepted Answer

False

Question 11

What does an affiliated group may elect to file which applies to all members of the group?

Accepted Answer

Consolidated tax return

Question 12

What is an advantage of a consolidated tax return?

Accepted Answer

Losses and profits of affiliated members offset each other.

Question 13

True or false - A parent company owns 80.5% of a subsidiary in Florida which also owns 80% of another domestic subsidiary in Louisiana. This IS an affiliated group.

Accepted Answer

True

Question 14

On corporate formation, for contribution of property for stock, tax is deferred when shareholders own at least _______ %.

Accepted Answer

80

Question 15

There's no tax on shareholder unless.. (List 2 things)

Accepted Answer

- Boot is received (trigger a gain)
- Substituted basis (from property)

Question 16

Since there's no tax on corporation, the corporation's basis equals the transferor (shareholder)'s basis. This is called ____________ basis.

Accepted Answer

Carryover

Question 17

True or false - A corporation IS taxes as a separate entity.

Accepted Answer

True

Question 18

What does page 1 of the Form 1120 resemble?

Accepted Answer

An income statement (or Schedule C of 1040)

Question 19

For special deductions, one can deduct charitable contributions up to ____% of Line 28 income BEFORE charitable deductions and dividends-received deduction.

Accepted Answer

10

Question 20

Schedules M-1 and M-3 reconcile book income to ________ income.

Accepted Answer

taxable

Question 21

The M-1 was used by all corporations until 2004 and can be used by small corporations with total assets LESS than $____ million.

Accepted Answer

10

Question 22

In 2004, the IRS developed the M-3 for ________ corporations, with assets greater than $10 million, to use.

Accepted Answer

large

Question 23

For dividends-received deduction, corporations receive dividends from other ________ _____ ______.

Accepted Answer

taxable domestic corporations

Question 24

If one owns less than 20% of stock, the person will have a  ____%  dividends-received deduction.

Accepted Answer

70

Question 25

If one owns greater or equal to 20% and less than 80% of the stocks, the person will have a ____% dividends-received deduction.

Accepted Answer

80

Question 26

If one owns greater or equal to 80% of the stocks, the person will have a _____% dividends-received deduction.

Accepted Answer

100

Question 27

What is the reasoning behind dividends-received deduction?

Accepted Answer

Dividends-received deduction can't create loss.

Question 28

True or false - For distributions to investors, interest payments (wages or rent) ARE deductible, but dividend payment ARE NOT deductible.

Accepted Answer

True

Question 29

Tax return is due 15th day of _____ month, may extend to 15th day of 9th month, but extension doesn't extend payment deadline.

Accepted Answer

4th

Question 30

One must pay ______% of tax due.

Accepted Answer

100%

Question 31

Small corporations with taxable income less than $1 million may use ____  _______ rule of paying 100% of prior year tax.

Accepted Answer

safe-harbor

Question 32

For domestic production activities deduction, one can deduct ____% of the lesser of net production income or taxable income before the deduction.

Accepted Answer

9

Question 33

The domestic production activities deduction is limited to _____% of US compensation expense.

Accepted Answer

50

Question 34

The domestic production activities deduction of 9% is approximately a ____% lower tax rate on domestic production income.

Accepted Answer

3

Question 35

What is the name of a federal tax system that's parallel to the regular income tax that is created to ensure that every corporation pays a "fair share" of taxes?

Accepted Answer

Alternative Minimum Tax

Question 36

True or false - Only firms with SMALL AMT adjustments and preferences pay AMT.

Accepted Answer

False

Question 37

To be eligible for AMT exemption, a new corporation is exempt on Year 1. However, a corporation is exempt in Year 2 if.......

Accepted Answer

The Year 1 sales is less than or equal to $5 million.

Question 38

To be eligible for AMT exemption, in Year 3, a corporation has to have an average sale in Years 1 and 2 to be less than or equal to $_______ million.

Accepted Answer

7.5

Question 39

To be eligible for AMT exemption, in subsequent years, a corporation needs to have an average sales for three prior years to be less than or equal to $______ million.

Accepted Answer

7.5

Question 40

What is the formula for AMT?

Accepted Answer

= Alternative minimum taxable income (AMTI) - Exemption 
= AMTI in excess of Exemption * 20% - Tentative minimum tax (TMT) - Regular tax

Question 41

How do you figure out the AMTI?

Accepted Answer

Regular taxable income + AMT preferences +/- AMT adjustments - AMT NOL - AMT exemption

Question 42

AMT preferences are ALWAYS ______ ________ to AMTI.

Accepted Answer

positive additions

Question 43

What are the 2 examples for AMT preferences?

Accepted Answer

- Tax-exempt interest income (municipal bonds issued to fund non-government activities [building a stadium])
- Percentage depletion in excess of cost basis

Question 44

What are the 3 examples of AMT adjustments?

Accepted Answer

- Differences between MACRS and ADS [Alternative Depreciation System] depreciation amounts
- Completed-contract method
- ACE [Adjusted Current Earnings] adjustents

Question 45

AMT NOL Deduction is limited to _____% of AMTI before the AMT NOL.

Accepted Answer

90

Question 46

In general, the amount for AMT exemption is $40,000. However, it phases out above AMTI of $150,000 and causes the reduction by 25%* (AMTI - $150,000). The exemption is gone when AMTI = $_________.

Accepted Answer

310,000

Question 47

For AMT Timing, corporate AMT ______ the payment of tax but isn't designed as permanent tax increase.

Accepted Answer

Accelerates

Taxation

Chapter 11 - Corporations

Question	Answer
What are the 4 legal characteristics of a corporation?	- Limited liability - Unlimited life - Free transferability - Centralized management
Limited liability -	The right of corporate creditor extend only to corporate assets and not to the personal assets.
Unlimited life -	One inherit the corporation after an owner dies.
Free transferability of interest -	Investors can buy and sell the stocks with maximum convenience and with low transaction costs.
What can be an example of free transferability?	One can buy and sell any of the Apple's stocks he or she wants, and one can pay at a cheaper transaction cost.
Centralized management -	The board of directors make the managerial decisions.
True or false - Centralized management is becoming MORE important today.	False
A closely-held corporations, a buy-sell agreement may prevent ________.	transferability
What does an affiliated group consist of?	- U.S. parent corporation that directly owns at least 80% of at least ONE domestic subsidiary and/ or all other domestic subsidiaries that are 80% owned within the group.
True or false - A parent company owns 100% of a subsidiary in Sweden. This IS an affiliated group (Hint: It's not domestic).	False
What does an affiliated group may elect to file which applies to all members of the group?	Consolidated tax return
What is an advantage of a consolidated tax return?	Losses and profits of affiliated members offset each other.
True or false - A parent company owns 80.5% of a subsidiary in Florida which also owns 80% of another domestic subsidiary in Louisiana. This IS an affiliated group.	True
On corporate formation, for contribution of property for stock, tax is deferred when shareholders own at least _______ %.	80
There's no tax on shareholder unless.. (List 2 things)	- Boot is received (trigger a gain) - Substituted basis (from property)
Since there's no tax on corporation, the corporation's basis equals the transferor (shareholder)'s basis. This is called ____________ basis.	Carryover
True or false - A corporation IS taxes as a separate entity.	True
What does page 1 of the Form 1120 resemble?	An income statement (or Schedule C of 1040)
For special deductions, one can deduct charitable contributions up to ____% of Line 28 income BEFORE charitable deductions and dividends-received deduction.	10
Schedules M-1 and M-3 reconcile book income to ________ income.	taxable
The M-1 was used by all corporations until 2004 and can be used by small corporations with total assets LESS than $____ million.	10
In 2004, the IRS developed the M-3 for ________ corporations, with assets greater than $10 million, to use.	large
For dividends-received deduction, corporations receive dividends from other ________ _____ ______.	taxable domestic corporations
If one owns less than 20% of stock, the person will have a ____% dividends-received deduction.	70
If one owns greater or equal to 20% and less than 80% of the stocks, the person will have a ____% dividends-received deduction.	80
If one owns greater or equal to 80% of the stocks, the person will have a _____% dividends-received deduction.	100
What is the reasoning behind dividends-received deduction?	Dividends-received deduction can't create loss.
True or false - For distributions to investors, interest payments (wages or rent) ARE deductible, but dividend payment ARE NOT deductible.	True
Tax return is due 15th day of _____ month, may extend to 15th day of 9th month, but extension doesn't extend payment deadline.	4th
One must pay ______% of tax due.	100%
Small corporations with taxable income less than $1 million may use ____ _______ rule of paying 100% of prior year tax.	safe-harbor
For domestic production activities deduction, one can deduct ____% of the lesser of net production income or taxable income before the deduction.	9
The domestic production activities deduction is limited to _____% of US compensation expense.	50
The domestic production activities deduction of 9% is approximately a ____% lower tax rate on domestic production income.	3
What is the name of a federal tax system that's parallel to the regular income tax that is created to ensure that every corporation pays a "fair share" of taxes?	Alternative Minimum Tax
True or false - Only firms with SMALL AMT adjustments and preferences pay AMT.	False
To be eligible for AMT exemption, a new corporation is exempt on Year 1. However, a corporation is exempt in Year 2 if.......	The Year 1 sales is less than or equal to $5 million.
To be eligible for AMT exemption, in Year 3, a corporation has to have an average sale in Years 1 and 2 to be less than or equal to $_______ million.	7.5
To be eligible for AMT exemption, in subsequent years, a corporation needs to have an average sales for three prior years to be less than or equal to $______ million.	7.5
What is the formula for AMT?	= Alternative minimum taxable income (AMTI) - Exemption = AMTI in excess of Exemption * 20% - Tentative minimum tax (TMT) - Regular tax
How do you figure out the AMTI?	Regular taxable income + AMT preferences +/- AMT adjustments - AMT NOL - AMT exemption
AMT preferences are ALWAYS ______ ________ to AMTI.	positive additions
What are the 2 examples for AMT preferences?	- Tax-exempt interest income (municipal bonds issued to fund non-government activities [building a stadium]) - Percentage depletion in excess of cost basis
What are the 3 examples of AMT adjustments?	- Differences between MACRS and ADS [Alternative Depreciation System] depreciation amounts - Completed-contract method - ACE [Adjusted Current Earnings] adjustents
AMT NOL Deduction is limited to _____% of AMTI before the AMT NOL.	90
In general, the amount for AMT exemption is $40,000. However, it phases out above AMTI of $150,000 and causes the reduction by 25%* (AMTI - $150,000). The exemption is gone when AMTI = $_________.	310,000
For AMT Timing, corporate AMT ______ the payment of tax but isn't designed as permanent tax increase.	Accelerates

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