Civil Law Questions

Smithville Corp. is a calendar year corporation with zero accumulated E & P on January 1, 2018. During 2018, Smithville has taxable income of $200,000. Based on the additional 2018 information pertaining to Smithville below, calculate the corporation's 2018 ending E & P balance.Tax-exempt income$10,000Current excess capital loss$5,000Current charitable contributions in excess of 10% limitation$8,000Federal income tax expense$61,250Dividends received deduction$3,000MACRS tax depreciation$18,000ADS Depreciation$12,000Deferred gain on a like-kind-exchange$11,000Nondeductible portion of meals expenses$4,000a)$140,750b)$151,750c)$144,750d)$156,750

Which of the following statements is false regarding qualified dividends?a)In order to qualify for the lower qualified dividends rates, the stock owner must have held the stock more than 60 days during the 121 day period which begins 60 days before the ex-dividend date.b)For individual taxpayers, qualified dividends are subject to a minimum 0% tax rate and a maximum 20% tax rate.c)In order for foreign corporation dividends to be considered qualified dividends, the foreign corporation must be traded on a U.S. stock exchange.d)Corporations treat dividends as ordinary income and may be able to claim a dividends received deduction.

JoJo Co., a calendar year C-corp., has a beginning of year accumulated E & P deficit balance of $30,000 and current year E & P of $10,000. On June 30, the corporation makes an $8,000 distribution to its sole shareholder. How much of this distribution is considered a dividend to the shareholder?a)$5,000b)$8,000c)$0d)$10,000

Which of the following is an example of a constructive dividend to a shareholder?a)The corporation sells an asset to a shareholder at a price below fair market value.b)The corporation pays the shareholder an unreasonably low amount of compensation for the services provided to the corporation.c)The corporation uses the shareholder's personal property without paying any rent.d)The corporation makes a loan to a shareholder and charges an above market interest rate on the loan.

Stock attribution rules do not apply to which one of the following types of stock redemptions?a)Disproportionate distribution redemptionsb)Not essentially equivalent to a dividend redemptionsc)Complete termination redemptionsd)Partial liquidation redemptions

To qualify under the "not essentially equivalent to a dividend redemption" type, there must be a meaningful reduction in the shareholder's interest in the redeeming corporation, which is a subjective test. However, in the IRS's opinion, a meaningful reduction has definitely not occurred when a shareholder's interest after the redemption isa)more than 20%.b)less than 50%.c)equal to 50%.d)more than 50%.

JSM Corporation has 100 shares of common stock outstanding owned by the following individual shareholders: Joe (30), Sal (40), & Murry (30). Sal is Joe's grandfather, and Murry is not related to either Sal or Joe. The Corporation redeems 20 of Joe's stock for $50,000. Joe paid $1,000 per share for his stock three years ago. The Corporation's E & P was $450,000 on the date of the redemption. Assume that this will not qualify as a "not essentially equivalent to a dividend redemption". Which of the following statements is true?a)Joe will have a basis of $30,000 in his remaining 10 shares of stock.b)Joe will have long term capital gain of $30,000.c)This will not qualify as a disproportionate distribution redemption.d)Joe will have $50,000 of dividend income.

Which of the following would support the IRS's claim that debt is really equity?a)Debt amounts are not proportionate to stock holdingsb)Payments are contingent on earningsc)Debt is not subordinated to other liabilitiesd)Debt is repaid timely

Under a Section 351 transaction, which of the following statements is false regarding holding periods?a)The holding period of stock received in exchange for Section 1231 property begins on the day after the exchange.b)The holding period of stock received in exchange for a capital asset includes the holding period of the property transferred to the corporation.c)The holding period of stock received in exchange for inventory begins on the day after the exchange.d)The corporation's holding period for property acquired in the transfer is the holding period of the transferor.

If boot is received by a transferor in a Section 351 transaction:a)Gain must be recognized by the transferor up to the greater of boot received or realized gain.b)The corporation's basis in property received is increased by the amount of boot received.c)The shareholder's basis in stock received is decreased by the amount of boot received.d)Gain or loss may be recognized by the transferor.

Under a qualifying Section 351 transaction, Sam receives stock worth $400,000 and corporate debt of $100,000 in exchange for his property ($500,000 fair market value, $430,000 tax basis). What is Sam's recognized gain?a)$70,000b)$100,000c)$400,000d)$0

What is the basis of boot received by a shareholder under a Section 351 transaction?a)Carryover basisb)Carryover basis, adjusted for any recognized gainc)Its fair market value, adjusted for any recognized gaind)Its fair market value

Ron, John, & Mary have discussed and arranged forming a business together. Ron and Mary exchange the following for stock on Oct. 10; John makes his exchange on Nov. 1. Their ultimate ownership is as follows:Ownership Asset Basis Fair Market Value Ron (furniture)20%$15,000$40,000John (services)25%$0$50,000Mary (building)55%$40,000$110,000Total100%$55,000$200,000How much income/gain must be recognized by Ron, John, and Mary, respectively?a)$0, $0, $0b)$0, $50,000, $0c)$25,000, $50,000, $70,000d)$25,000, $0, $70,000

During the current year, Smalty Corp. had the following income and expenses:Income from operations$500,000Expenses from operations$400,000NOL carryover from prior year $10,000Charitable contributions$15,000What is Smalty Corp.'s taxable income?a)$80,000b)$81,000c)$85,000d)$75,000

In a Section 351 transaction, Thomas transferred the following assets to Harp Corp. in exchange for all of its stock:Assets Basis ValueEquipment$60,000$50,000Building$200,000$180,000Land$50,000$100,000Assuming no special election has been made, what is Harp Corp.'s basis in the equipment?a)$60,000b)$50,000c)$53,030d)$63,030

In a qualifying Section 351 transaction, Sarah transferred a building to Handle Co. in exchange for 100% of its stock. At the date of transfer, the building had a basis of $200,000, a fair market value of $225,000, and was subject to a liability of $210,000, which the corporation assumed. How much gain does Sarah recognize, and what is her basis in the shares of stock that she received?a)$10,000 recognized gain; $210,000 stock basisb)$25,000 recognized gain; $0 stock basisc)$10,000 recognized gain; $0 stock basisd)$0 recognized gain; $200,000 stock basis

Jen & John each own 50% of JJ, Inc. (100 shares each). Jen contributes $40,000 of additional appreciated property (tax basis of $25,000) in exchange for an additional 20 shares. John contributes $75,000 of additional appreciated property (tax basis of $55,000) in exchange for an additional 30 shares and a car worth $15,000 ($10,000 basis in the hands of the corporation). What is John's basis in the 30 shares and the car he received?a)$60,000 stock basis; $10,000 car basisb)$60,000 stock basis; $15,000 car basisc)$55,000 stock basis; $10,000 car basisd)$55,000 stock basis; $15,000 car basis

Based on the following 2018 information, calculate Tom Inc.'s dividends received deduction (DRD).Gross income from operations$320,000Expenses from operations$340,000Dividends received from domestic corporation (30% ownership)$200,000a)$117,000b)$200,000c)$100,000d)$130,000

At the beginning of 2015, Tate Corp. has E & P of $30,000. During 2015 the corporation generates $10,000 of additional E & P. On the last day of the tax year, the corporate distributes $35,000 to its sole shareholder, Tom, whose stock basis is $15,000 before the distribution. Which of the following statements is true?a)John recognizes $30,000 of dividend income.b)John's stock basis is now $0.c)Tate Corp.'s E & P balance is now $5,000.d)John recognizes a taxable gain of $20,000.

Tops Corp., a C-corporation, donated inventory of clothing to a homeless shelter. The inventory was worth $50,000 and had an adjusted basis of $10,000. Ignoring the possible 10% limitation, how much is Tops Corp.'s allowable charitable contribution deduction?a)$10,000b)$20,000c)$30,000d)$50,000