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1) Federal tax law always follows state law on the classification of an organization for income tax purposes. True B. False 2) A partnership will...

TRUE OR FALSE

Taxation of corporations and their shareholders

15 questions in total. Please see attachment for the questions.

1) Federal tax law always follows state law on the classification of an organization for income tax purposes. A. True B. False 2) A partnership will always be characterized as a partnership for tax purposes if the partnership elects to be treated as a partnership by filing a partnership tax return A. True B. False 3) An election to take advantage of Subchapter S tax treatment must be made annually by the shareholders. A. True B. False 4) Eligibility under Subchapter S is limited to so called small business corporations which thus restricts the benefits of the election to those corporations with income, assets and net worth of relatively small size. A. True B. False 5) A corporation computing taxable income on the cash-basis method may use the accrual method for computing earnings and profits. A. True B. False 6) Generally, when a corporation makes a distribution of appreciated property to its shareholders with respect to their stock, no gain is recognized by the corporation on account of such appreciation. A. True B. False 7) It is generally less advantageous for a distribution to a shareholder which is a corporation to be characterized as a dividend A. True B. False 8) The Accumulated Earnings tax may not be applies to publicly held corporations. A. True B. False 9) Mr. A Owns 20% of the stock of X Corporation. Twenty other individuals not related to Mr. A or to each other each own 4% of the stock. This year all of the income of X Corporation is from dividends and interest. X corporations is a personal holdings company. A. True B. False
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10) A and B, as equal co-shareholders of X corporation, have entered into a binding buy- sell agreement with each agreeing to be obligated to buy the others shares in the event of death, disability or retirement. Upon B’s retirement, his shares are redeemed by X corporations. There are not tax consequences to A due to this transaction. A. True B. False 11) X Corporations distributes a boat to Mr. A in complete redemption of all of Mr. A’s shares in X corporation. Mr. A has no further relationship of any kind with X Corporation and is not related to the remaining shareholders. X Corporations basis on the boat is $50,000 and its fair market value us $75,000. X corporation has a $25,000 gain recognized on the account of the redemption. A. True B. False 12) S Corporation, a wholly owned subsidiary of P Corporation, adopts a plan of liquidation and then liquidates, distributing to P assets with a fair market value of $1,000,000 and an adjusted basis to S corporation of $600,000. P Corporation has paid $700,000 for its S corporation shares. S corporations must recognize $400,000 of gain on account of the liquidation. A. True B False 13) In question 12, P Corporation must recognize $300, 000 of gain on the account of liquidation. A. True B. False 14) X Corporation is engaged in the music business. Its shareholders wish to recognize losses resulting from X’s decreased value. In order to accomplish this result, X Corporation is liquidated and all of its assets are distributed to its shareholders. Thereafter, within several months, all former shareholders reconvey the assets distributed by X to newly formed Y Corporation. The shareholders may recognize their losses resulting from the liquidation of X. A. True B. False 15) Mr. A, X Corporations sole shareholder, causes X Corporation to adopt a plan of liquidation. After the plan is adopted, but before the liquidation is completed, Mr. A gifts 10% of his shares to his adult son. Mr. A has effectively shifter the gain, if any, on the gifted shares to his son. A. True B. False
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1) Federal tax law always follows state law on the classification of an organization for income tax
purposes.
A. True
B. False
2) A partnership will always be characterized as a partnership for tax...

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