Research Problems
Research Problem 1. A personal service corporation (PSC) generally is limited to the calendar year for reporting purposes. One exception to this rule is when the PSC can demonstrate a business purpose for a fiscal year-end. Discuss the business purpose exception, including examples of when the standard is and is not satisfied. Support your research with proper citations of tax authority.
Research Problem 2. Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2013 has been land surveying services. In Tern’s state of incorporation, land surveying can be performed only by a licensed surveyor. Jessica, Tern’s only employee, is a licensed surveyor but is not a licensed engineer. Upon audit of Tern’s 2013 and 2014 tax returns, the IRS assessed tax deficiencies stemming from its conclusion that the corporation was a personal service corporation subject to the flat tax rate of 35%. Jessica believes that the IRS’s determination is incorrect, and she has asked you for advice on how to proceed. Evaluate the IRS’s position regarding the treatment of Tern
Corporation as a personal service corporation, and prepare a memo for the client files describing the results of your research.
Research Problem 3. A new client, John Dobson, recently formed John’s Premium
Steakhouse, Inc., to operate a new restaurant. The restaurant will be a first-time business venture for John, who recently retired after 30 years of military service. John transferred cash to the corporation in exchange for 100% of its stock, and the corporation is considering leasing a building and restaurant equipment. John has asked
See Appendix E for Comprehensive Tax Return Problems—Form 1120 you for guidance on the tax treatment of various expenses (e.g., licensing, training, advertising) he expects the corporation to incur during the restaurant’s pre-opening period. Research the tax treatment of startup expenditures, including the point at which a business begins for purposes of determining what expenses are included.
Prepare a memo for the client files describing the results of your research.
Research Problem 4. A client has asked you for guidance on selecting the best type of entity for her new business. Using the Internet as your sole research source, prepare an outline detailing the advantages and disadvantages of the entity forms available to a sole owner. Include both tax and nontax issues in your analysis.
Research Problem 5. A significant percentage of U.S. corporations are closely held corporations, with the stock of such corporations often owned predominantly or exclusively by family members. Using the Internet as your sole research source, prepare an outline describing the tax implications and planning opportunities unique to family-owned, closely held corporations.
Roger CPA Review Questions
1. In general, what is the filing deadline for a C corporation in 2016?
a. March 15
b. April 15
c. The 15th day of the 3rd month after year-end
d. The 15th day of the 4th month after year-end
2. Keckye Co. is a calendar year C corporation. When is Keckye’s 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. June 15, 2017
d. October 15, 2017
3. Keckye Co. is a C corporation with a fiscal year-end of September 30. When is
Keckye’s 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. December 15, 2016
d. January 15, 2017
4. Identify which of the following cannot function as a pass-through entity for tax purposes.
a. Sole proprietorship
b. Limited liability company
c. Partnership
d. S corporation
5. The following chart shows ownership percentages of Devon Corp. in X, Y, and Z
Corporations and dividends received by Devon from these corporations in 2016.
Devon’s Ownership Percentage Dividend Received
X Corp. 15 $100,000
Y Corp. 20 120,000
Z Corp. 30 200,000
Use the tax resources of the Internet to address the following questions. Do not restrict your search to the Web, but include a review of newsgroups and general reference materials, practitioner sites and resources, primary sources of the tax law, chat rooms and discussion groups, and other opportunities.
Internet
Activity
Devon is a calendar year corporation and received no other dividends in 2016. What amount of dividend income must be included by Devon on its 2016 corporate tax return?
a. $126,000
b. $114,000
c. $94,000
d. $106,000
6. Crimson Corp. was organized as a calendar year corporation in January 2016, incurring $51,000 in qualified organizational expenses, and began business in March
2016. What is the maximum amount Crimson may deduct for organizational expenditures on its 2016 corporate tax return?
a. $4,000
b. $6,611
c. $6,350
d. $7,133
7. When preparing Schedule M–1 of Form 1120, which of the following must be added to net income per books in order to compute taxable income?
a. 100% of meals and entertainment expense
b. Municipal bond interest
c. Excess of tax vs. book depreciation
d. Accrued bad debt expense
8. Orange, Inc., a calendar year C corporation, has $800,000 of qualified production activities income (QPAI) and $950,000 of total taxable income in 2016. All of the
QPAI was produced by Orange’s manufacturing plant, which relies mainly on a temporary employment agency for its workforce, employing only two W–2 employees who in aggregate earned $140,000 in 2016. Orange also has an office in Mexico, which is unrelated to its domestic manufacturing plant and which employs one W–2 employee, who earned $75,000 in 2016. What amount of domestic production activities deduction may Orange claim on its 2016 corporate tax return?
a. $73,350
b. $72,000
c. Depends on wages paid by employment agency
d. $70,000
9. Regarding the domestic production activities deduction (DPAD), which of the following statements is true?
a. For C corporations only, the DPAD cannot exceed 50% of allocable W–2 wages
b. Qualified production activities income (QPAI) is calculated by applying a percentage based on specific criteria to a company’s total taxable income
c. S Corporations are ineligible for the DPAD
d. For a sole proprietorship, the DPAD is limited to adjusted gross income (AGI)
Research Problem 1. A personal service corporation (PSC) generally is limited to the calendar year for reporting purposes. One exception to this rule is when the PSC can demonstrate a business purpose for a fiscal year-end. Discuss the business purpose exception, including examples of when the standard is and is not satisfied. Support your research with proper citations of tax authority.
Research Problem 2. Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2013 has been land surveying services. In Tern’s state of incorporation, land surveying can be performed only by a licensed surveyor. Jessica, Tern’s only employee, is a licensed surveyor but is not a licensed engineer. Upon audit of Tern’s 2013 and 2014 tax returns, the IRS assessed tax deficiencies stemming from its conclusion that the corporation was a personal service corporation subject to the flat tax rate of 35%. Jessica believes that the IRS’s determination is incorrect, and she has asked you for advice on how to proceed. Evaluate the IRS’s position regarding the treatment of Tern
Corporation as a personal service corporation, and prepare a memo for the client files describing the results of your research.
Research Problem 3. A new client, John Dobson, recently formed John’s Premium
Steakhouse, Inc., to operate a new restaurant. The restaurant will be a first-time business venture for John, who recently retired after 30 years of military service. John transferred cash to the corporation in exchange for 100% of its stock, and the corporation is considering leasing a building and restaurant equipment. John has asked
See Appendix E for Comprehensive Tax Return Problems—Form 1120 you for guidance on the tax treatment of various expenses (e.g., licensing, training, advertising) he expects the corporation to incur during the restaurant’s pre-opening period. Research the tax treatment of startup expenditures, including the point at which a business begins for purposes of determining what expenses are included.
Prepare a memo for the client files describing the results of your research.
Research Problem 4. A client has asked you for guidance on selecting the best type of entity for her new business. Using the Internet as your sole research source, prepare an outline detailing the advantages and disadvantages of the entity forms available to a sole owner. Include both tax and nontax issues in your analysis.
Research Problem 5. A significant percentage of U.S. corporations are closely held corporations, with the stock of such corporations often owned predominantly or exclusively by family members. Using the Internet as your sole research source, prepare an outline describing the tax implications and planning opportunities unique to family-owned, closely held corporations.
Roger CPA Review Questions
1. In general, what is the filing deadline for a C corporation in 2016?
a. March 15
b. April 15
c. The 15th day of the 3rd month after year-end
d. The 15th day of the 4th month after year-end
2. Keckye Co. is a calendar year C corporation. When is Keckye’s 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. June 15, 2017
d. October 15, 2017
3. Keckye Co. is a C corporation with a fiscal year-end of September 30. When is
Keckye’s 2016 tax return due?
a. March 15, 2017
b. April 15, 2017
c. December 15, 2016
d. January 15, 2017
4. Identify which of the following cannot function as a pass-through entity for tax purposes.
a. Sole proprietorship
b. Limited liability company
c. Partnership
d. S corporation
5. The following chart shows ownership percentages of Devon Corp. in X, Y, and Z
Corporations and dividends received by Devon from these corporations in 2016.
Devon’s Ownership Percentage Dividend Received
X Corp. 15 $100,000
Y Corp. 20 120,000
Z Corp. 30 200,000
Use the tax resources of the Internet to address the following questions. Do not restrict your search to the Web, but include a review of newsgroups and general reference materials, practitioner sites and resources, primary sources of the tax law, chat rooms and discussion groups, and other opportunities.
Internet
Activity
Devon is a calendar year corporation and received no other dividends in 2016. What amount of dividend income must be included by Devon on its 2016 corporate tax return?
a. $126,000
b. $114,000
c. $94,000
d. $106,000
6. Crimson Corp. was organized as a calendar year corporation in January 2016, incurring $51,000 in qualified organizational expenses, and began business in March
2016. What is the maximum amount Crimson may deduct for organizational expenditures on its 2016 corporate tax return?
a. $4,000
b. $6,611
c. $6,350
d. $7,133
7. When preparing Schedule M–1 of Form 1120, which of the following must be added to net income per books in order to compute taxable income?
a. 100% of meals and entertainment expense
b. Municipal bond interest
c. Excess of tax vs. book depreciation
d. Accrued bad debt expense
8. Orange, Inc., a calendar year C corporation, has $800,000 of qualified production activities income (QPAI) and $950,000 of total taxable income in 2016. All of the
QPAI was produced by Orange’s manufacturing plant, which relies mainly on a temporary employment agency for its workforce, employing only two W–2 employees who in aggregate earned $140,000 in 2016. Orange also has an office in Mexico, which is unrelated to its domestic manufacturing plant and which employs one W–2 employee, who earned $75,000 in 2016. What amount of domestic production activities deduction may Orange claim on its 2016 corporate tax return?
a. $73,350
b. $72,000
c. Depends on wages paid by employment agency
d. $70,000
9. Regarding the domestic production activities deduction (DPAD), which of the following statements is true?
a. For C corporations only, the DPAD cannot exceed 50% of allocable W–2 wages
b. Qualified production activities income (QPAI) is calculated by applying a percentage based on specific criteria to a company’s total taxable income
c. S Corporations are ineligible for the DPAD
d. For a sole proprietorship, the DPAD is limited to adjusted gross income (AGI)