Law question data bank

239. #1
Which statement is false?

a. The AMT is not limited to C corporations.
b. The DPAD is not limited to C corporations.
c. The penalty tax on PHCs is not dependent on the existence of a tax avoidance motive.
d. In the case of a sole proprietor, the DPAD is a deduction from adjusted gross income.
e. All are true.

240. #2
Staff, Inc., has taxable income of $14 million in 2011. What is the maximum DPAD tax savings for this C corporation?

a. None.
b. $204,000.
c. $210,000.
d. $428,400.
e. $441,000.

241. #3
Lemon, Inc., has taxable income of $15 million in 2011. What is the maximum DPAD tax savings for this C corporation?

a. $132,600.
b. $265,200.
c. $273,000.
d. $472,500.
e. None of the above.

242. #4
Which, if any, of the following is a characteristic of the DPAD?

a. Not applicable in situations involving S corporations.
b. Applicable only to manufactured goods that are exported from the U.S.
c. Can never apply when the rendition of personal services is involved.
d. Can sometimes apply when some of the components of a product are manufactured in foreign countries.
e. None of the above.

243. #5
In a sole proprietorship situation, a DPAD would be a:

a. Deduction from AGI.
b. Deduction for AGI.
c. Possible deduction from and deduction for.
d. 9% credit.
e. All of the above.

244. #6
Which statement is false?

a. The overall tax effect of a DPAD is a rate reduction or a tax credit.
b. For a flow-through entity, modified AGI is substituted for taxable income.
c. FASB requires the DPAD to be reported as a special charge.
d. MPGE refers to a merge, paid, gain, and expense.
e. All of the above are correct.

245. #7
Which formula is correct for DPAD?

a. Smaller of 9% of QPAI or 9% of modified AGI, not to exceed 50% of allocable wages.
b. Larger of 9% of QPAI or 9% of taxable income, not to exceed 50% of allocable wages.
c. Smaller of 9% of QPAI or 9% of taxable income, not to exceed 60% of allocable wages.
d. Larger of 9% of QPAI or 9% of alternative minimum tax, not to exceed 60% of allocable wages.
e. None of the above.

246. #8
Yvonne Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During tax year 2011, Yvonne had a U. S. profit of $1.2 million (QPAI) and a loss from the imported merchandise of $100,000. What is Yvonne’s DPAD?

a. $33,000.
b. $66,000.
c. $99,000.
d. $1,080,000.
e. None of the above.

247. #9
Tanweer, Inc., manufactures and sells glassware. The company also sells dinnerware that is purchased from unrelated foreign producers. During tax year 2011, Tanweer had a U.S. profit of $1.2 million (QPAI) and a loss from the imported dinnerware of $200,000. What is Tanweer’s DPAD?

a. None.
b. $33,000.
c. $66,000.
d. $99,000.
e. None of the above.

248. #10
May Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the tax year 2011, May had a U.S. profit of $1.2 million (QPAI) and a profit from the imported merchandise of $100,000. What is May’s DPAD?

a. $36,000.
b. $72,000.
c. $108,000.
d. $117,000.
e. None of the above.

249. #11
Bacon Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kershaw Corporation for $1,000 in 2011. Kershaw incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600. If Bacon and Kershaw corporations are members of an expanded affiliated group (EAG), their DPGR is:

a. $30.
b. $500.
c. $1,000.
d. $1,600.
e. None of the above.

250. #12
Boasso Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kirby Corporation for $1,000 in 2011. Kirby incurs TV advertising expenses of $300 and sells the machine by phone order for $1,700. If Boasso and Kirby corporations are members of an expanded affiliated group (EAG), their QPAI is:

a. $30.
b. $600.
c. $1,000.
d. $1,600.
e. None of the above.

251. #13
Bow Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kite Corporation for $1,000 in 2011. Kite incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600. If Bow and Kite corporations are members of an expanded affiliated group (EAG), their DPAD is:

a. $30.
b. $45.
c. $72.
d. $500.
e. None of the above.

252. #14
Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

a. Since the deduction is determined at the owner level, each owner must make the computation separately.
b. The entity allocates to each owner his or her share of any QPAI.
c. In the case of partnerships, guaranteed payments are regarded as W-2 wages.
d. A partner cannot be allocated any W-2 wages if the share of QPAI is zero.
e. None of the above.

253. #15
Which statement is false?

a. The stock ownership requirement for the EAG rules is 80%.
b. Members of an EAG are treated as a single taxpayer for purposes of the DPAD.
c. For an EAG, the DPAD is allocated among the members in proportion to each member’s respective amount of QPAI.
d. The DPAD of a consolidated group must be allocated to the group’s members in proportion to each member’s QPAI.
e. None of the above is false.

254. #16
Peggy’s sole proprietorship consists of a bakery and retail food sales. The bakery’s DPGR is $700,000, but after CGS, direct expenses, and a ratable portion of indirect expenses are deducted, QPAI is $100,000. W-2 wages related to DPGR are significant. The retail food sales have a loss of $1 million. If Peggy files a joint return and her modified AGI is $119,500, what is her allowable DPAD, if any, for 2011?

a. None.
b. $6,000.
c. $9,000.
d. $10,755.
e. Some other amount.

255. #17
Lee, Inc., an S corporation, has taxable income of $15 million in 2011. Assume there are two shareholders, each in the top individual tax bracket. What is the maximum total DPAD tax savings for the S corporation shareholders?

a. None.
b. $294,000.
c. $472,500.
d. $1,260,000.
e. None of the above.

256. #18
Which reason is unlikely to cause a regular corporation to have to pay AMT?

a. A service-type of company with little inventory.
b. A high level of investment in assets such as equipment and structures.
c. Low taxable income due to a cyclical downturn, strong international competition, a low-margin industry, or other factors.
d. Investment at low real interest rates, which increases the company’s deductions for depreciation relative to those for interest payments.
e. None of the above.

257. #19
Nickel Corporation has average gross receipts of $5.6 million, $4.6 million, and $4.7 million in 2009, 2010, and 2011, respectively. Nickel is:

a. Not subject to the corporate income tax.
b. A small corporation with respect to the AMT.
c. Subject to the AMT.
d. Not a small corporation with respect to the AMT.
e. None of the above.

258. #20
A corporation has the following items related to the AMT.

Alternative minimum tax base	$98,502,900
Regular tax	11,201,520
Foreign AMT tax credit	1,400,000

The corporation’s AMT, if any, is:

a. $0.
b. $7,099,060.
c. $8,703,900.
d. $18,300,580.
e. None of the above.

259. #21
Primeline, Inc., has the following items related to the AMT:

Alternative minimum tax base	$102,755,000
Regular corporate tax	11,125,000
Foreign AMT tax credit	2,300,000

The corporation’s AMT, if any, is:

a. $0.
b. $7,126,000.
c. $9,426,000.
d. $18,251,000.
e. None of the above.

260. #22
Which of the following would not be a positive tax preference item in 2010?

a. Accelerated depreciation on real property in excess of straight-line.
b. Intangible drilling costs.
c. Private activity bond interest income.
d. Percentage depletion in excess of adjusted basis.
e. None of the above.

261. #23
Which statement, if any, is false?

a. An S corporation is not subject to the corporate AMT.
b. A high level of investment in assets (e.g., equipment or structures) is a reason a company may be subject to the AMT.
c. Many of the adjustments that apply to individuals also apply to corporations.
d. The AMT is a separate tax system from the corporate income tax.
e. None of the above.

262. #24
Which AMT adjustment would only be negative?

a. Passive activity losses.
b. AMT NOL deduction.
c. DPAD.
d. Completed contract method.
e. None of the above.

263. #25
Which of the following items will be a deduction from unadjusted AMTI in arriving at ACE?

a. Federal income tax.
b. 80% dividends received deduction.
c. Penalties and fines.
d. Premiums paid on key employee insurance.
e. None of the above.

264. #26
Which of the following items will be an addition to AMTI in arriving at ACE?

a. Excess capital loss.
b. Federal income tax.
c. Tax-exempt income.
d. Excess charitable contributions.
e. None of the above.

265. #27
Which of the following has no effect in arriving at ACE?

a. Tax-exempt income (net of expenses).
b. Excess charitable contributions.
c. Key employee insurance proceeds.
d. Deferred gain on installment sales.
e. Premiums paid on key employee insurance.

266. #28
Which of the following is added in arriving at ACE?

a. Tax-exempt income (net of expenses).
b. Federal income tax.
c. Premiums paid on key employees insurance.
d. Loss on sale between related parties.
e. None of the above.

267. #29
Which statement is false?

a. The starting point for computing AMTI is taxable income.
b. A tax preference is added to taxable income.
c. The ACE adjustment can be a negative amount.
d. The starting point for computing ACE is taxable income.
e. None of the above.

268. #30
Which of the following items will have an effect (add or subtract) on unadjusted AMTI to arrive at ACE?

a. Federal income tax.
b. Tax-exempt interest income.
c. Excess capital losses.
d. 80% dividends received deduction.
e. None of the above.

269. #31
A small corporation with unused minimum tax credits may use what percentage of regular tax as a minimum credit in 2011?

a. 0.
b. 25%.
c. 50%.
d. 75%.
e. None of the above.

270. #32
Ford Corporation, a calendar year corporation, has alternative minimum taxable income (before any exemption) of $1.28 million for 2011. The company is not a small corporation. If the regular corporate tax is $211,050, Ford’s alternative minimum tax for 2011 is:

a. $44,950.
b. $209,000.
c. $256,000.
d. $1,280,000.
e. None of the above.