Posted: October 20th, 2022

ACC Taxation of corporations and their shareholders (True or False)

1) Federal tax law always follows state law on the classification of an organization for income taxpurposes.A. TrueB. False2) A partnership will always be characterized as a partnership for tax purposes if the partnershipelects to be treated as a partnership by filing a partnership tax returnA. TrueB. False3) An election to take advantage of Subchapter S tax treatment must be made annually by theshareholders.A. TrueB. False4) Eligibility under Subchapter S is limited to so called small business corporations which thusrestricts the benefits of the election to those corporations with income, assets and net worth ofrelatively small size.A. TrueB. False5) A corporation computing taxable income on the cash-basis method may use the accrual methodfor computing earnings and profits.A. TrueB. False6) Generally, when a corporation makes a distribution of appreciated property to its shareholderswith respect to their stock, no gain is recognized by the corporation on account of suchappreciation.A. TrueB. False7) It is generally less advantageous for a distribution to a shareholder which is a corporation to becharacterized as a dividendA. TrueB. False8) The Accumulated Earnings tax may not be applies to publicly held corporations.A. TrueB. False9) Mr. A Owns 20% of the stock of X Corporation. Twenty other individuals not related to Mr. Aor to each other each own 4% of the stock. This year all of the income of X Corporation is fromdividends and interest. X corporations is a personal holdings company.A. TrueB. False10) A and B, as equal co-shareholders of X corporation, have entered into a binding buysell agreement with each agreeing to be obligated to buy the others shares in the event ofdeath, disability or retirement. Upon Bs retirement, his shares are redeemed by Xcorporations. There are not tax consequences to A due to this transaction.A. TrueB. False11) X Corporations distributes a boat to Mr. A in complete redemption of all of Mr. Asshares in X corporation. Mr. A has no further relationship of any kind with XCorporation and is not related to the remaining shareholders. X Corporations basis on theboat is $50,000 and its fair market value us $75,000. X corporation has a $25,000 gainrecognized on the account of the redemption.A. TrueB. False12) S Corporation, a wholly owned subsidiary of P Corporation, adopts a plan ofliquidation and then liquidates, distributing to P assets with a fair market value of$1,000,000 and an adjusted basis to S corporation of $600,000. P Corporation has paid$700,000 for its S corporation shares. S corporations must recognize $400,000 of gain onaccount of the liquidation.A. TrueB False13) In question 12, P Corporation must recognize $300, 000 of gain on the account ofliquidation.A. TrueB. False14) X Corporation is engaged in the music business. Its shareholders wish to recognizelosses resulting from Xs decreased value. In order to accomplish this result, XCorporation is liquidated and all of its assets are distributed to its shareholders.Thereafter, within several months, all former shareholders reconvey the assets distributedby X to newly formed Y Corporation. The shareholders may recognize their lossesresulting from the liquidation of X.A. TrueB. False15) Mr. A, X Corporations sole shareholder, causes X Corporation to adopt a plan ofliquidation. After the plan is adopted, but before the liquidation is completed, Mr. A gifts10% of his shares to his adult son. Mr. A has effectively shifter the gain, if any, on thegifted shares to his son.A. TrueB. False

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