1
D557 Section 2 Questions with Correct
Answers | Updated (100% Correct Answers)
What are the similarities between corporate and individual tax
treatment? Answer: Gains and losses from property are handled
similarly. Business deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ? Answer:
Corporations have a flat tax rate, while individuals have progressive
tax rates. Corporate taxable income is simply gross income minus
deductions.
What accounting periods can corporations choose? Answer:
Corporations can elect either a calendar year or a fiscal year.
What are Personal Service Corporations (PSCs)? Answer: Formed to
provide personal services (health, law, etc.). Services are substantially
performed by shareholder-employees. More than 10% of stock is
owned by shareholder-employees.
What tax year must S corporations and PSCs use? Answer: S Corps
& PSCs must use a fiscal year, unless a PSC makes a business
purpose election or 444 election.
© 2025 All rights reserved
, 2
When is the cash method of accounting unavailable for
corporations? Answer: Corporations cannot use cash accounting,
except for:
S Corps
Farming corporations
Qualified PSCs
Corporations with <$29 million in annual gross receipts
How do related-party accruals affect tax deductions? Answer:
Corporations cannot deduct accruals until the related party reports
the amount as income.
How must accrual basis taxpayers recognize gross income? Answer:
Must recognize gross income no later than when it is included in
financial statements.
How are capital gains taxed for corporations? Answer: Corporations
do not receive favorable tax rates on long-term capital gains. Capital
gains are taxed at the normal corporate tax rate.
Can corporations deduct net capital losses? Answer: Corporations
cannot deduct net capital losses against ordinary income. Capital
losses can be carried back 3 years and forward 5 years.
© 2025 All rights reserved
D557 Section 2 Questions with Correct
Answers | Updated (100% Correct Answers)
What are the similarities between corporate and individual tax
treatment? Answer: Gains and losses from property are handled
similarly. Business deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ? Answer:
Corporations have a flat tax rate, while individuals have progressive
tax rates. Corporate taxable income is simply gross income minus
deductions.
What accounting periods can corporations choose? Answer:
Corporations can elect either a calendar year or a fiscal year.
What are Personal Service Corporations (PSCs)? Answer: Formed to
provide personal services (health, law, etc.). Services are substantially
performed by shareholder-employees. More than 10% of stock is
owned by shareholder-employees.
What tax year must S corporations and PSCs use? Answer: S Corps
& PSCs must use a fiscal year, unless a PSC makes a business
purpose election or 444 election.
© 2025 All rights reserved
, 2
When is the cash method of accounting unavailable for
corporations? Answer: Corporations cannot use cash accounting,
except for:
S Corps
Farming corporations
Qualified PSCs
Corporations with <$29 million in annual gross receipts
How do related-party accruals affect tax deductions? Answer:
Corporations cannot deduct accruals until the related party reports
the amount as income.
How must accrual basis taxpayers recognize gross income? Answer:
Must recognize gross income no later than when it is included in
financial statements.
How are capital gains taxed for corporations? Answer: Corporations
do not receive favorable tax rates on long-term capital gains. Capital
gains are taxed at the normal corporate tax rate.
Can corporations deduct net capital losses? Answer: Corporations
cannot deduct net capital losses against ordinary income. Capital
losses can be carried back 3 years and forward 5 years.
© 2025 All rights reserved
