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Exam 13: Corporate Formations and Operations

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Question 21

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Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Antoine's tax basis in the stock received in the exchange?

A) $600
B) $550
C) $500
D) $450

E) A) and B)
F) B) and D)

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Question 22

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The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city. What is the tax basis of the land to Fenway Company?

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Explanation: Contributio...

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Question 23

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Schedule M-1 reconciles from book income to the taxable income that is applied to the tax rates to determine the corporation's gross tax liability.

TireShop, Inc. owns 85 percent of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

AB Inc. received a dividend from CD Corporation and is able to claim the dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account) assuming its ordinary marginal tax rate is 34%?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs) ?

Which of the following statements regarding dividends and/or the dividends received deduction (DRD) is true?

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

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Net operating losses generally create permanent book-tax differences.

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference.

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

The corporate tax form is Form 1065.

Which of the following statements is false regarding consolidated tax returns?

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

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

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.

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under section 351?

A corporation may carry a net capital loss back three years and forward five years.

Keegan incorporated his 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. $\begin{array} { | l | r | r | } \hline & \text { FMV } & \text { Tax Basis } \\\hline \text { Inventory } & \$ 30,000 & \$ 10,000 \\\hline \text { Building } & 130,000 & 80,000 \\\hline \text { Land } & \underline { 50,000 } & \underline { 100,000 } \\\hline \text { Total } & \$ 210,000 & \$ 190,000 \\\hline\end{array}$ The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. Assuming the gain or loss realized in the previous problem is deferred under section 351, what is Keegan's basis in the stock he receives in his corporation?