Question & Answer

Carole, Karmen, and Cyrus formed ABC Corporation. Carole received 60 percent of the stock in ABC Corporation in exchange for appreciated property, Karmen received 30 percent of the stock in ABC Corporation in exchange for legal services, and Cyrus received 10 percent of the stock ABC Corporation in exchange for cash.

a. Must Carole recognize the gain she realized on her transfer of the appreciated property?

b. Suppose that, instead of receiving the entire 30 percent of the ABC Corporation stock in exchange for legal services, Karmen received 10 percent of the ABC Corporation stock in exchange for her legal services and she received 20 percent of the ABC Corporation stock in exchange for cash (i.e., she transferred both services and property to ABC Corporation). Must Carole recognize gain on her transfer of appreciated property?

Betty joined Jin in forming DBJ Corp. Betty contributed appreciated land for 90 percent of the stock in DBJ. Jin received 10 percent of the DBJ stock valued at $15,000.  Determine Jin's tax consequences in each of the following alternative scenarios. 

a. Jin received the stock in exchange for providing computer-related services for the corporation. What amount of income or gain does Jin recognize on the exchange?  What is Jin's basis in the stock he received in the exchange? 

b. Jin contributed the rights to a patent he owned to DBJ in exchange for the DBJ stock. The patent was worth $15,000 and Jin's basis in the patent was $8,000. How much gain does Jin recognize on the exchange?  What is Jin's basis in the DBJ stock?

Describe the annualized income method for determining a corporation’s required estimated tax payments.  What advantages does this method have over other methods?

How does a corporation determine the minimum amount of estimated tax payments it must make to avoid underpayment penalties?  How do these rules differ for large corporations.

What is the due date for the corporation tax return Form 1120?  Is it possible to extend the due date?  Explain.

How is the Schedule M-1 similar to and different from a Schedule M-3?  How does a corporation determine whether it must complete Schedule M-1 or Schedule M-3 when it completes its tax return? 

How many tax brackets are there in the corporate tax rate schedule?

What limitations apply to the amount of the allowable dividends-received deduction?

How does a corporation determine the percentage for its dividends-received deduction?  Explain.

Why does Congress provide the dividends-received deduction for corporations receiving dividends?

What are common book-tax differences relating to corporate charitable contributions?  Are these differences favorable or unfavorable?

For tax purposes, what happens to a corporation’s charitable contributions that are not deducted in the current year because of the taxable income limitation?

Which limitations might restrict a corporation’s deduction for a cash charitable contribution?  Explain how to determine the amount of the limitation.

Compare and contrast the general rule for determining the amount of the charitable contribution if the corporation contributes capital gain property versus ordinary income property.

A corporation commissioned an accounting firm to recalculate the way it accounted for leasing transactions.  With the new calculations, the corporation was able to file amended tax returns for the past few years that increased the corporation’s net operating loss carryover from $3,000,000 to $5,000,000. Was the corporation wise to pay the accountants for their work that led to the increase in the NOL carryover? What factors should be considered in making this determination?

When a corporation has NOL carryovers arising in different years, can it choose which NOL carryover to deduct first in a given year? Explain.

Distinguish the tax treatment of an NOL incurred in 2017 and an NOL incurred in 2024. 

What are the carryover and carryback periods for a net operating loss? Does a corporation have the option to choose the years to which it carries back a NOL? Explain. 

What are the common book-tax differences relating to accounting for capital gains and losses?  Do these differences create favorable or unfavorable book-to-tax adjustments? 

How do corporations account for capital gains and losses for tax purposes?  How is this different from the way individuals account for capital gains and losses?

Describe the book-tax differences that arise from nonqualified stock options.

Describe the book-tax differences that arise from incentive stock options.

Describe how purchased goodwill leads to temporary book-tax differences.

Describe the relation between the book-tax differences associated with depreciation expense and the book-tax differences associated with gain or loss on disposition of depreciable assets. 

Why is it important to be able to determine whether a particular book-tax difference is permanent or temporary?