FTax IRGTB ch19 p001-018

In certain cases loss is equal to fair market value

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Unformatted text preview: ing income on the contribution. (See p. 19-37.) 13. 14. 15. 16. 17. 18. 19. 20. Multiple Choice 21. 22. 23. b. Limited liability is one of the principal reasons for choosing the corporate form. (See p. 19-2 and Reg. 301.7701-2.) c. Corporations have no itemized deductions. (See p. 19-5.) a. The corporation's dividends-received deduction is computed as follows: Gross income Business expenses Taxable income before dividends-received deduction Less: Lower of 70 percent of this taxable income, or 70 percent of $100,000 qualifying dividends Dividends-received deduction (See Exhibit 19-3 and pp. 19-6 through 19-10.) $ 200,000 (110,000) $ 90,000 70% $ 63,000 Solutions to Test Bank 19-13 24. d. The 70 percent dividends-received deduction under 243(a) results in a deduction of $24,500 ($35,000 qualifying dividends 70%), but 246(b)(1) limits the deduction to 70 percent of taxable income computed without the dividends-received deduction [i.e., $15,400 (70% $22,000)] unless the taxpayer has a net operating loss before the deduction, or will have a net operating loss as a result of the regular 243(a) deduction. Net loss from operations($205,000 $218,000) Plus qualifying dividends Taxable income before dividends-received deduction Less regular 243(a) deduction (70% $35,000) Net operating loss for the year (See Exhibit 19-3 and pp. 19-6 through 19-10.) $(13,000) 35,000 $ 22,000 (24,500)* $ (2,500) 25. 26. c. Since the dividend deduction will create an NOL if unlimited, the corporation is entitled to the full 70 percent deduction. [See Exhibit 19.3, pp. 19-6 through 19-10, and 246(b)(1).] d. All of the expenses except the printing cost for stock certificates qualify as organizational expenses ($750 $100 $250 $300 $400 $1,800 total). Since the total is less than $5,000, it can be expensed. (See Example 7 and pp. 19-10 and 19-11.) d. Because the fiscal year ending June 30, 2012, has 12 full months, the allowed amortization is $240 [($8,600 5,000/180) 12 months] to this you add the $5000 expensing option. It is only important in this context that the organizational expenses were incurred. It does not matter whether they are paid or unpaid at the time the initial return is filed. (See pp. 19-10 and 19-11.) b. Underwriter's fees are considered stock issue costs and are treated as selling expenses. (Seep. 19-10.) c. K Corporation's net operating loss is $55,000, computed as follows: Gross profit from operations Dividends received Gross income Less ordinary deductions Dividends-received deduction ($50,000 70%) Net operating loss $ 180,000 50,000 $ 230,000 (250,000) (35,000)* $ (55,000) 27. 28. 29. *Recall that a corporation's dividends-received deduction is not subject to the taxable income limitation if it adds to, or creates, a net operating loss for the year. (See Exhibit 19.3 and p. 19-9.) 30. d. Corporations are subject to 291, regarding depreciation recapture, while individuals are not. Corporations are more limited in their charitable contribution deductions than individuals, and cannot offset any ordinary income with capital losses. [See pp....
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