x-709inst - Domestic Corporations

Here we will cover rules for ordinary domestic corporations. Examples of businesses taxed as corporations are businesses formed under a federal or state law that refers to it as a corporation, body corporate, or body politic, a business formed under a state law that refers to it as a joint-stock company or joint-stock association, an insurance company, certain banks and businesses owned by state or local governments.

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 You will need IRS Publication 542 to complete this topic.

Please answer the following as accurately as possible.

1. The annual gift tax exclusion amount is allowed on which of the following gifts:

A. $30,000 cash to Friend A.
B. $30,000 car to Friend B.
C. $30,000 remainder interest to Friend C.
D. Both A and B.

2. John made several transfers during 2008. In January, he paid $6,000 of tuition directly to State University for his friend, Sam. He gave his niece, Sally, $5,000 for her school tuition. In addition, in May, he also gave the following graduation gifts:

He gave no other gifts during the year. From the information above, must John file a gift tax return, and why?

A. No, total gifts to any one individual during the year do not exceed $12,000.
B. No,  each transfer was under $12,000.
C. Yes, total gifts given during the year exceed $12,000.
D. Yes, total gifts to Sam exceed $12,000.

3. Tom, who is married, gave a vase worth $40,000 to his sister, Julie. Tom's basis in the vase is $10,000. What amount will Tom report as the value of the gift on Form 709?

A. $10,000.
B. $20,000.
C. $30,000.
D. $40,000.

4. Andrew gave several taxable gifts to friends and relatives during 2008. He also gave $50,000 to his favorite charity, a qualified 50% organization. When he files his 2008 Form 709, what amount will Andrew pay tax on for his contribution.

A. $0.
B. $25,000.
C. $39,000.
D. $50,000.

5. Edwin gave his grandson Todd $30,000. Todd is 15 years old and lives with his parents. Which of the following statements regarding the generation-skipping transfer tax is true?

A. Because the gift is subject to the generation-skipping transfer tax, it is not subject to the regular gift tax.
B. The gift is subject to both the regular gift tax and the generation-skipping transfer tax.
C. The gift is not subject to the generation-skipping transfer tax because Todd's parents are still alive.
D. If Edwin had transferred the funds into a trust solely for his grandson's benefit, the gift would not be subject to the generation-skipping transfer tax.

6. Which of the following statements regarding gift splitting is correct?

A. The couple must have been married at the time the gift was given, but either or both spouses may be remarried during the year.
B. The couple must have been married at the time the gift was given and the spouse who gave the gift may not be remarried during the year.
C. The couple need not be married at the time of the gift, but must be married by the end of the year.
D. The couple must be married at all times during the year.

7. Alberta, who had not given taxable gifts in any prior year, gave her five children the following gifts in 2008.

A. $0.
B. $1,000.
C. $2,000.
D. $41,000.

8. Cassy, a single individual, has not been required to file a gift tax return in any prior year. In 2008, Cassy paid $12,000 tuition directly to State University for her sister, Andrea. She gave her brother $8,000 to pay medical bills for his daughter. She also donated $20,000 to the United Way. Must Cassy file a gift tax return?

A. No.
B. Yes, because the gift to her sister exceeded $10,000.
C. Yes, because the United Way donation exceeded $10,000.
D. Yes, because the total gifts she gave during the year exceeded $10,000.

9. The tentative minimum tax of a small corporation is zero. This means that a small corporation will not owe AMT.

True False

10. If a corporation is required to use the Electronic Federal Tax Payment System (EFTPS) and fails to do so, it may be subject to a 10% penalty.

True False

11. If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. This rule applies both to individuals and to groups who transfer property to a corporation. It also applies whether the corporation is being formed or is already operating. However, it does not apply if

A. The corporation is an investment company.
B. You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors.
C. The stock received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt.
D. All of the above.

12. ABC Corporation's tax year ends on October 31, 2008. When is ABC Corporation's income tax return required to be filed?

A. January 31, 2009.
B. January 15, 2009.
C. March 15, 2009.
D. March 31, 2009.

13. Abbot Corporation's tax year ends on June 30, 2008. If Abbot Corporation (a domestic Corporation) timely files a Form 7004 Extension of Time to File, what is the extended due date of Abbot Corporation's income tax return for tax year ended June 30, 2008?

A. March 15, 2009.
B. March 30, 2009.
C. April 15, 2009.
D. May 15, 2009.

14. A corporation can accumulate its earnings for a possible expansion or other bona fide business reasons. However, if a corporation allows earnings to accumulate beyond the reasonable needs of the business, it may be subject to an accumulated earnings tax of

A. 20%.
B. 25%.
C. 15%.
D. None of the above.

15. You must treat certain transactions that increase a shareholder's proportionate interest in the earnings and profits or assets of a corporation as if they were distributions of a stock or stock rights.

True False

16. If a corporation cancels a shareholder's debt without repayment by the shareholder, the amount canceled is

A. Not taxable by the shareholder.
B. Treated as a distribution to the shareholder.
C. Forgiven and not treated as a distribution.
D. Treated as a gift.

17. The amount of a distribution is generally the amount of any money paid to the shareholder plus the fair market value (FMV) of any property transferred to the shareholder. However, this amount is reduced (but not below zero) by

A. Any liability of the corporation the shareholder assumes in connection with the distribution.
B. Any liability to which the property is subject immediately before the distribution.
C. Any liability to which the property is subject immediately after the distribution.
D. All of the above.

18. Bob Moon Forms Moon Enterprises LLC (Limited Liability Company) during the year. What form must Moon Enterprises LLC file in order to elect to be taxed as a C corporation?

A. Form 1065 (U.S. Partnership Tax Return).
B. Form 8832 (Entity Classification Election).
C. Form 1120 (U.S. Corporation Income Tax Return).
D. Form 7004 (Application for Extension of time to file for Corporations).

19. ABC Corporation is dissolved on July 9, 2008. What is the due date, without extensions, for filing of the final corporate income tax return?

A. March 15, 2009.
B. December 31, 2008.
C. October 15, 2008.
D. October 9, 2008.

20. The corporation's basis of property contributed to capital by a shareholder is

A. Zero.
B. The same as the basis the shareholder had in the property.
C. Not taxable to the corporation.
D. None of the above.