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Exam 20: Corporations and Partnerships

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Question 31

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After years of successful business, Mega Corporation recently stopped operating.The shareholders are going to pivot the business strategy into a new direction but are awaiting a new capital injection.As a result, the corporation sat idle for the entire tax year and generated no taxable income.Mega does not need to file a Federal income tax return.

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Question 32

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Jean is a shareholder in Parrot Corporation, a calendar year S corporation.During the year, Jean's share of the pass- through from Parrot is: $\begin{array} { l r } \text { - Dividend distribution by Parrot } & \$ 30,000 \\\text { - Long-term capital gain } & 5,000 \\\text { - Operating loss } & 20,000 \\\text { - Tax-exempt interest income } & 10,000\end{array}$ If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is:

A) $45,000.
B) $55,000.
C) $65,000.
D) $95,000.

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Question 33

Multiple Choice

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Which, if any, of the following costs cannot be expensed or amortized as organizational expenses?

Both individuals and corporations can carry over excess charitable contributions indefinitely.

Skinner Corporation, a calendar year C corporation, had the following transactions during 2020: $\begin{array} { l r } \text { Income from operations } & \$ 800,000 \\\text { Expenses from operations } & 900,000 \\\text { Dividends from Siskin Corporation (20\% ownership) } & 200,000\end{array}$ Skinner's taxable income (or NOL) for 2020 is:

The amount of the dividends received deduction is affected by the percentage of ownership held by the recipient corporation in the paying corporation.

Mega Corporation has been operating successfully for a number of years and needs additional capital to meets its expansion strategy.Warren Tuffett, a wealthy businessman, contributes $100 million of cash in exchange for shares in Mega.Mega recognizes gross income for the contribution.

A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.

A city donates land to a corporation in return for the corporation's construction of an assembly plant on the site.The fair market value of the land is taxed to the corporation as income.

Using the legend provided, classify each statement accordingly. -A shareholder cannot have a negative basis in his or her stock investment.

Using the legend provided, classify each statement accordingly. -A deduction for organizational expenditures is allowed.

Organizational expenditures are deducted by a C corporation in the year the business begins.

Matching Using the legend provided, classify each statement accordingly. -Estimated tax payments may have to be made.

The choice of entity decision is typically made many years after the business is formed.

Snipe Corporation, a calendar year taxpayer, has total E & P of $800,000.During the current year, Snipe makes property distributions to Tracy (the sole shareholder) as follows. $\begin{array} { l r r } & \text { Adjusted Basis } & \text { Fair Market Value } \\\text { Stock investment } & \$ 100,000 & \$ 90,000 \\\text { Land } & 270,000 & 300,000\end{array}$ As a result of these distributions:

If the basis of a partnership interest is exhausted, a partner can use loans made to the partnership to absorb excess losses.

Federal corporate income tax rates are progressive, but the lower brackets are phased out at higher taxable income levels.

An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000.The distribution will result in a $1,000 negative basis in the stock.

Which, if any, of the following transactions incurred by an S corporation is not a separately stated item?

Property distributions to shareholders can result in the distributing corporation recognizing gains and losses.