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Exam 13: Corporate Formations and Operations

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Question 71

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For corporations, which of the following regarding net capital losses is true?

A) A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss.
B) A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward.
C) Net capital loss carrybacks are deductible in determining a corporation's net operating loss.
D) Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

E) A) and C)
F) A) and B)

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Question 72

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A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

A) True
B) False

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Question 73

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Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

In 2019, Smith Traders Inc.reported a net operating loss of $100,000.In 2020, before the NOL deduction, it reported taxable income of $50,000.What is Smith Traders' 2020 taxable income after the NOL deduction and what is its NOL carryover to 2021?

Rapidpro Inc.had more than $1,000,000 of taxable income two years prior to the current year.It would like to use its prior-year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year.Which of the following statements is true?

Calendar-year corporations that request an extension for filing their tax returns will have an extended tax return due date of October 15.

Webtel Corporation donated $50,000 to a qualifying charity.For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover.What is Webtel Corp's charitable contribution deduction?

Net capital loss carryovers, but not carrybacks, are deductible against capital gains in determining a corporation's net operating loss for the year.

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax bases. $\begin{array}{c}\begin{array}{lll}\\\text {Inventory}\\\text {Building}\\\text {Land}\\\text {Total}\end{array}\begin{array}{rr}\text {FMV }\\\$ \quad 30,000 \\130,000 \\\underline{50,000}\\\underline{\$\quad 210,000} \end{array}\begin{array}{cc} \text { Tax Basis } \\\$ \quad 10,000 \\80,000 \\ \underline{100,00 }\\\underline{\$ \quad 190,000} \end{array}\end{array}$ The corporation also assumed a mortgage of $60,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $150,000. a.What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b.What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c.What is Francine's basis in the stock she receives in her corporation?

Which of the following does NOT create a permanent book-tax difference?

Which of the following statements regarding net operating losses is true?

During the year, AutoUSA Inc.received $4,600,000 of book income, including $20,000 of interest income from tax-exempt municipal bonds.AutoUSA reported $3,600,000 of regular business expenses.If it made $200,000 of estimated tax payments (prepayments)throughout the tax year, what is its tax due or tax refund when it files its return?

Which of the following statements regarding a corporation's overall accounting method is true?

AR Systems Inc.(AR)had $120,000 of tax liability last year.It anticipates a current-year tax liability of $500,000.Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.