CPA Regulation (REG) : CPA Regulation (REG)
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Example Questions
Example Question #4 : Liquidating & Non Liquidating Distributions
Which is the usual result to the shareholders of a distribution in complete liquidation of a corporation?
Ordinary gain or loss
Capital gain or loss
Ordinary gain to the extent of cash received
No taxable effect
Capital gain or loss
Shareholders treat property received in complete liquidation of a corporation as full payment for their stock. Therefore, the shareholder must recognize capital gain or loss equal to the difference between the FMV and the basis.
Example Question #5 : Liquidating & Non Liquidating Distributions
At the beginning of the year, a C Corp had a $50,000 deficit in its earnings and profits account. For the year, the Corp had current earnings and profits of $10,000 and made a $30,000 cash distribution to its stockholders. What amount of the distribution is taxable s dividend income to its shareholders?
$10,000
$20,000
$30,000
$0
$10,000
Taxable dividend income is paid out of a corporation’s current or accumulated earnings and profits. Since the corp had a deficit, only the current earnings and profits of $10,000 are available for dividends.
Example Question #6 : Liquidating & Non Liquidating Distributions
Upon the dissolution of a partnership, the basis of any “in-kind” property distributed to a former partner will be the same as the partner’s _________ in the partnership.
Beginning adjusted basis
Cash account
Ending adjusted basis
Fair market value
Ending adjusted basis
Upon the dissolution of a partnership, the basis of any “in-kind” property distributed to a former partner will be the same as the partner’s adjusted basis in the partnership.
Example Question #141 : Cpa Regulation (Reg)
Presto Corp., a calendar year domestic C corporation, is not a personal holding company. For purposes of the accumulated earnings tax, Presto has accumulated taxable income for Year 3. Which step(s) can Presto take to eliminate or reduce any Year 3 accumulated earnings tax?
I. Demonstrate that the “reasonable needs” of its business require the retention of all or part of the Year 3 accumulated taxable income.
II. Pay dividends by April 15, Year 4.
Both I and II
I only
Neither I or II
II only
Both I and II
To minimize the impact of the accumulated earnings tax, a corporation can argue on the basis of “reasonable needs” of business before the IRS, and provide a specific, definite, and feasible plan for the use of such retained earnings. Additionally, dividends paid by the corporate tax return deadline which reduce accumulated earnings will also reduce or eliminate the tax on those earnings.
Example Question #142 : Cpa Regulation (Reg)
The accumulated earnings tax can be imposed:
Regardless of the number of stockholders in a corporation.
On personal holding companies.
On any entity with more than 100 shareholders.
Only on S corporations.
Regardless of the number of stockholders in a corporation.
The accumulated earnings tax is directed primarily at regular C corporations. The number of shareholders is irrelevant. Personal holding companies and S corporations are exempt from this tax.
Example Question #143 : Cpa Regulation (Reg)
The accumulated earnings tax is paid at which rate?
15%
21%
20%
35%
20%
The rate for the accumulated earnings tax is the same as the rate individual taxpayers pay on dividends, or 20%. This is because the accumulated earnings tax is directed at regular corporations who hold an excess of retained earnings instead of being distributed as dividends to shareholders.
Example Question #3 : Accumulated Earnings Tax
When a Subchapter S corporation does not have any _________, the amount distributed to a shareholder will decrease that shareholder’s basis in the stock.
Dividend income
Accumulated earnings and profits
Tax exempt earnings and profits
Capital gains income
Accumulated earnings and profits
When an S Corp does not have any accumulated E&P, the distribution to the shareholder will decrease its basis in the company stock.
Example Question #144 : Cpa Regulation (Reg)
Carrick Corp. met the stock ownership requirements of a personal holding company. What sources of income must Carrick consider to determine if the income requirements for a personal holding company have been met?
I. Interest earned on tax-exempt obligations
II. Dividends received from an unrelated domestic corporation
Both I and II
I only
II only
Neither I or II
II only
For personal holding companies (PHCs), income requirements only apply to rent, taxable interest, royalties, and/or dividends. Since interest on tax-exempt obligations is nontaxable, this would not apply to the income requirements.
Example Question #145 : Cpa Regulation (Reg)
Answer Corp. has two common stockholders. Answer derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its stockholders. Answer is a:
Regulated investment company.
Corporation subject to the accumulated earnings tax.
Personal holding company.
Corporation subject to tax only on income not distributed to stockholders.
Personal holding company.
Personal holding companies (PHCs) are defined as being more than 50% owned by five or fewer individuals, and having 60% of AGI consisting of: rent, taxable interest, royalties, and/or dividends.
Example Question #146 : Cpa Regulation (Reg)
Sleigh Corp. is a calendar year domestic personal holding company. Which deduction(s) must Sleigh make from Year 17 taxable income to determine undistributed personal holding company income prior to the dividend-paid deduction?
I. Federal income taxes
II. Net long-term capital gain (less related federal income taxes)
Neither I or II
I only
Both I and II
II only
Both I and II
To assess the 20% tax on undistributed net income, taxable income must first be reduced by federal income taxes and net long-term capital gains to determine the personal holding company income prior to the dividend paid deduction.
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