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D557 Section 2 Questions and Correct
Answers/ Latest Update / Already Graded
What are the similarities between corporate and individual tax
treatment?
Ans: Gains and losses from property are handled similarly.
Business deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ?
Ans: 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?
Ans: Corporations can elect either a calendar year or a fiscal
year.
What are Personal Service Corporations (PSCs)?
Ans: 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.
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What tax year must S corporations and PSCs use?
Ans: S Corps & PSCs must use a fiscal year, unless a PSC makes
a business purpose election or 444 election.
When is the cash method of accounting unavailable for corporations?
Ans: 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?
Ans: Corporations cannot deduct accruals until the related
party reports the amount as income.
How must accrual basis taxpayers recognize gross income?
All rights reserved © 2025/ 2026 |
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Ans: Must recognize gross income no later than when it is
included in financial statements.
How are capital gains taxed for corporations?
Ans: 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?
Ans: Corporations cannot deduct net capital losses against
ordinary income. Capital losses can be carried back 3 years and
forward 5 years.
How is a long-term capital loss treated for corporations?
Ans: Long-term capital losses are treated as short-term capital
losses.
What depreciation recapture rules apply to corporations?
Ans: Both § 1245 & § 1250 recapture rules apply to corporations
and individuals. § 1250 recapture is limited to excess of
accelerated depreciation over straight-line depreciation.
All rights reserved © 2025/ 2026 |
D557 Section 2 Questions and Correct
Answers/ Latest Update / Already Graded
What are the similarities between corporate and individual tax
treatment?
Ans: Gains and losses from property are handled similarly.
Business deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ?
Ans: 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?
Ans: Corporations can elect either a calendar year or a fiscal
year.
What are Personal Service Corporations (PSCs)?
Ans: 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.
All rights reserved © 2025/ 2026 |
, Page |2
What tax year must S corporations and PSCs use?
Ans: S Corps & PSCs must use a fiscal year, unless a PSC makes
a business purpose election or 444 election.
When is the cash method of accounting unavailable for corporations?
Ans: 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?
Ans: Corporations cannot deduct accruals until the related
party reports the amount as income.
How must accrual basis taxpayers recognize gross income?
All rights reserved © 2025/ 2026 |
, Page |3
Ans: Must recognize gross income no later than when it is
included in financial statements.
How are capital gains taxed for corporations?
Ans: 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?
Ans: Corporations cannot deduct net capital losses against
ordinary income. Capital losses can be carried back 3 years and
forward 5 years.
How is a long-term capital loss treated for corporations?
Ans: Long-term capital losses are treated as short-term capital
losses.
What depreciation recapture rules apply to corporations?
Ans: Both § 1245 & § 1250 recapture rules apply to corporations
and individuals. § 1250 recapture is limited to excess of
accelerated depreciation over straight-line depreciation.
All rights reserved © 2025/ 2026 |
