tonias midterm

1. Sage, Inc., a closely held corporation that is not a PSC, has a $110,000 passive loss, $90,000 of active income, and $25,000 of portfolio income during the year. How much of the passive loss can Sage deduct in the current year? (Points : 5)

$0.

$25,000.

$90,000.

$110,000.

2. During the current year, Kingbird Corporation (a calendar year C corporation) had the following income and expenses:Income from operations $135,000Expenses from operations 99,000Dividends received (40% ownership) 9,000Domestic production activities deduction 2,700On October 1, Kingbird Corporation made a contribution to a qualified charitable organization of $6,300 in cash (not included in any of the above items). Determine Kingbird's charitable contribution deduction for the current year. (Points : 5)

$0.

$4,230.

$4,500.

$6,300.

3. Sarah and Emily form Red Corporation with the following investments: Sarah transfers computers worth $200,000 (basis of $80,000), while Emily transfers real estate worth $180,000 (basis of $40,000) and services (worth $20,000) rendered in organizing the corporation. Each is issued 600 shares in Red Corporation. With respect to the transfers: (Points : 5)

Sarah has no recognized gain; Emily recognizes income/gain of $160,000.

Neither Sarah nor Emily recognizes gain or income.

Red Corporation has a basis of $60,000 in the real estate.

Emily has a basis of $60,000 in the shares of Red Corporation.

4. Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value of $180,000) while Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 of cash. Each receives 50% of Tan's stock. As a result of these transfers: (Points : 5)

Hunter has a recognized loss of $30,000; Warren has a recognized gain of $135,000.

Neither Hunter nor Warren has any recognized gain or loss.

Hunter has no recognized loss; Warren has a recognized gain of $30,000.

Tan Corporation has a basis in the land of $45,000.

5. Hippo, Inc., a calendar year C corporation, manufactures golf gloves. For 2010, Hippo had taxable income (before DPAD) of $800,000, qualified domestic production activities income of $950,000, and W-2 wages related to qualified production activities income of $130,000. Hippo's domestic production activities deduction for 2010 is: (Points : 5)

0 981468389 MultipleChoice 6




$0.

$65,000.

$72,000.

$85,500.

6. Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is a subtraction on Schedule M-1. (Points : 5)

Book depreciation in excess of allowable tax depreciation.

Federal income tax per books.

Premiums paid on life insurance policy on key employee.

Tax-exempt interest.

7. In order to induce Parakeet Corporation to build a new manufacturing facility in Oxford, Mississippi, the city donates land (fair market value of $250,000) and cash of $50,000 to the corporation. Within several months of the donation, Parakeet Corporation spends $350,000 (which includes the $50,000 received from Oxford) on the construction of a new plant located on the donated land. (Points : 5)

Parakeet recognizes income of $50,000 as to the donation.

Parakeet has a zero basis in the land and a basis of $350,000 in the plant.

Parakeet recognizes income of $300,000 as to the donation.

Parakeet has a zero basis in the land and a basis of $300,000 in the plant.

8. Hazel transferred the following assets to Starling Corporation.Adjusted Basis Fair Market ValueCash $120,000 $120,000Machinery 48,000 36,000Land 108,000 144,000In exchange, Hazel received 50% of Starling Corporation's only class of stock outstanding. The stock has no established value. However, all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred. The only other shareholder, Rick, formed Starling Corporation five years ago. (Points : 5)

Hazel has no gain or loss on the transfer.

Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land.

Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.

Hazel has a basis of $276,000 in the stock of Starling Corporation.

9. Orange Corporation distributes property worth $300,000, basis of $340,000, to a shareholder in a distribution that is a qualifying stock redemption. The property is subject to a liability of $110,000, which the shareholder assumes. The basis of the property to the shareholder is: (Points : 5)

$190,000.

$230,000.





$300,000.

$340,000.

10. Ten years ago, Connie purchased 4,000 shares in Platinum Corporation for $40,000. In the current year, Connie receives a nontaxable stock dividend of 40 shares of Platinum preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Connie's basis is: (Points : 5)

$40,000 in the common and $16,000 in the preferred.



$39,600 in the common and $400 in the preferred.

11. Which of the following statements regarding constructive dividends is not correct? (Points : 5)

Constructive dividends do not need to be formally declared or designated as a dividend.

Constructive dividends need not be paid pro rata to the shareholders.

Corporations that receive constructive dividends may not use the dividends received deduction.

Constructive dividends are taxable as dividends only to the extent of earnings and profits.

12. Beige Corporation (a calendar year taxpayer) has taxable income of $150,000, and its financial records reflect the following for the year. Federal income taxes paid $75,000Net operating loss carryforward deducted currently 35,000Gain recognized this year on an installment sale from a prior year 22,000Depreciation deducted on tax return (ADS depreciation would have been $5,000) 20,000Interest income on Iowa state bonds 4,000Beige Corporation's current Eis: (Points : 5)

$68,000.

$77,000.

$103,000.

$107,000.

13. Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $900,000) as follows: Hazel, 250 shares; Emily, 250 shares; and Frank, 1,000 shares. Wren redeems 400 of Frank's shares (basis of $40,000) for $200,000. With respect to the distribution in redemption of the stock: (Points : 5)

Frank has a capital gain of $200,000.

Frank has dividend income of $200,000.

Frank has dividend income of $160,000.

Frank has a capital gain of $160,000.

14. Red Corporation, a calendar year taxpayer, has taxable income of $600,000. Among its transactions for






the year are the following:Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value) $10,000Realized gain (not recognized) on an involuntary conversion 5,000Nondeductible fines and penalties 35,000Disregarding any provision for Federal income taxes, Red Corporation's current Eis: (Points : 5)

$565,000.

$575,000.

$580,000.

$650,000.

15. Wendy receives a proportionate nonliquidating distribution from the WXY Partnership. The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000. Immediately before the distribution, Wendy's adjusted basis for her partnership interest is $90,000. Wendy's basis in the noncash property received is: (Points : 5)

$0.

$15,000.

$20,000.

$25,000.

16. Identify a disadvantage of an S corporation. (Points : 5)

Generally, trusts cannot be shareholders.

Losses flow through to the shareholders.

The AMT on corporations is avoided.

Tax-exempt income flows through to the shareholders.

17. On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt company has a $60,000 loss for a non-leap year. On the 219th day of the year, Bobby sells his one-half of the stock to his son, Paul. How much of the $60,000 loss, if any, is allocated to Bobby? (Points : 5)

$0.

$18,000.

$36,000.

$60,000.

18. The stock of Brown Corporation (E & P of $680,000) is owned as follows: 95% by Black Corporation (basis of $380,000), and 5% by Susanna (basis of $20,000). Both shareholders purchased their shares in Brown five years ago. In the current year, Brown Corporation liquidates and distributes land (fair market value of $950,000, basis of $550,000) to Black Corporation, and securities (fair market value of $50,000, basis of $35,000) to Susanna. Which of the following statements is incorrect with respect to the tax consequences resulting from these distributions? (Points : 5)

Susanna recognizes a $30,000 gain and has a $35,000 basis in the securities.





Brown recognizes no gain on the distribution of the land.

Black recognizes no gain and has a $550,000 basis in the land.

Brown recognizes a $15,000 gain on the distribution of the securities.

19. René is a partner in the RST Partnership, which is not publicly traded. Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000). René has a $40,000 adjusted basis (outside basis) for her interest in RST (before deduction of any of the passive losses). Her amount "at risk" under § 465 is $30,000 (before deduction of any of the passive losses). She also has $25,000 of passive income from other sources. How much of her ($60,000) allocable loss can René deduct on her current year's tax return? (Points : 5)

$25,000.

$30,000.

$40,000.

$60,000.

20. Marcie is a 40% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $140,000 before payment of guaranteed payments and distributions to partners. The partnership made an ordinary cash distribution of $10,000 to Marcie, and paid guaranteed payments to partners Marcie, Alice, and Pat of $20,000 each ($60,000 total). How much will Marcie's adjusted gross income increase as a result of the above items? (Points : 5)

$32,000

$52,000

$56,000

$76,000

21. Beginning in 2010, the AAA of Amit, Inc., an S corporation, has a balance of $725,000. During the year, the following items occur.Operating income $472,000 Interest income 6,500 Dividend income 14,050 Municipal bond interest income 6,000 Long-term capital loss from sale of investment land 7,400 Charitable contributions 19,000 Cash distributions to shareholders 57,000 Amit's ending AAA balance is: (Points : 5)

$1,153,150.

$1,134,150.

$1,127,650.

$1,126,750.

22. Which of the following statements best describes Congress's rationale for limiting the taxable years a partnership may use? (Points : 5)

The partnership's tax year should generally be as close as possible to the partners' tax year ends to avoid deferral of time between when the partnership income is reported and when the partners report it





on their tax returns.

The partnership tax year must correspond to the partnership's natural business cycle.

The partners should select a tax year that is as close as possible to the partnership's tax year to avoid deferral of time between when the partners and the partnership report the income.

The partnership tax year must provide for a three month average deferral between the partners' year end and the partnership's year end so that there is sufficient time between the dates the partnership and the partners file their tax returns.

23. The stock in Lark Corporation is owned equally by Olaf and his son Pete. In a liquidation of the corporation, Lark Corporation distributes to Olaf land that it had purchased three years ago for $550,000. The property has a fair market value on the date of distribution of $400,000. Later, Olaf sells the land for $420,000. What loss will Lark Corporation recognize with respect to the distribution of the land? (Points : 5)

$0.

$20,000.

$130,000.

$150,000.

24. Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date, when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true? (Points : 5)

If the cash distribution occurred two months after the property contribution, the IRS may treat the transaction as a disguised sale.

If the transaction is treated as a disguised sale, Tom's basis in the partnership interest will be $20,000.

If Tom would have made the property contribution anyway, even if he knew that the partnership would probably not have any cash to distribute to him, the IRS would not likely contend the transaction was a disguised sale.

If the IRS treated the transaction as a disguised sale, the partnership's basis in the property would be $50,000.

25. Canary Corporation has 1,000 shares of stock outstanding. It redeems in a qualifying stock redemption 200 shares for $200,000 at a time when it has paid-in capital of $100,000 and E & P of $800,000. What would be the charge to Canary's E & P as a result of the redemption? (Points : 5)

$0.

$20,000.

$160,000.

$200,000.

Time Remaining:





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tonias midterm

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