Business Taxation Final Exam 2025 ||
Questions & Answers (100% Correct)
For tax purposes, it is permissible to treat the affiliated corporations as... - ANSWER - a
single entity in which inter-company transactions are disregarded
Without restrictions on affiliated companies, taxpayers would have an incentive to... -
ANSWER - multiply the number of corporations employed in operating a business to
take advantage of certain tax benefits
Absent a limitation, a business could be organized in several corporations to with each
corporation eligible to... - ANSWER - take advantage of lower marginal tax rates; obtain
a 40k exemption amount in computing the alternative minimum tax; obtain a 250k
accumulated earnings tax credit; expense depreciable business property
A controlled group of corporations may be either... - ANSWER - a "parent-subsidiary"
controlled group or a "brother-sister" controlled group (or a combination of both)
A parent-subsidiary group exists if one or more chains of corporations are connected
through... - ANSWER - stock ownership with a common parent
Requirements for parent-subsidiary - ANSWER - each corporation is at least 80%
owned by one or more of the other corporations; the parent directly owns at least 80%
of at least one of the other corporations
A brother-sister controlled group is two or more corporations having... - ANSWER - five
or fewer persons who are individuals, estates, or trusts that own more than 50% of each
corporation taking into account the stock ownership of each person only to the extent it
is identical, or overlapping, in each corporation
Are nonvoting preferred stock, treasury stock and excluded stock, considered in
applying the parent-subsidiary and brother-sister ownership tests? - ANSWER - no
Two or more organizations are considered controlled for Code purposes if there is... -
ANSWER - control of any kind, direct or indirect, whether legally enforceable or not
(T/F)
The Code states that the reality of the control is the key question, not... - ANSWER - its
form or the mode of exercise (T/F)
A presumption of control is created if... - ANSWER - income or deductions are arbitrarily
shifted between two entities (T/F)
, T or F? Transactions between controlled taxpayers are subjected to special scrutiny and
the Service has the authority to make adjustments in cases involving inadvertence as
well as those motivated by tax avoidance considerations. - ANSWER - T
T or F? Whether a controlled transaction produces an arm's length result is generally
evaluated by comparing the results of that transaction to those realized by uncontrolled
taxpayers engaged in comparable transactions under comparable circumstances -
ANSWER - T
The code permits commonly controlled corporations meeting certain requirements to... -
ANSWER - be treated as a single entity for tax purposes
Advantages of a consolidated return - ANSWER - Losses of one member of the group
may be used to offset income to other members/ inter-company dividend distributions
are eliminated from income; income from inter-company transactions is deferred
Disadvantages of a consolidated return - ANSWER - Losses on inter-company
transactions are deferred; an election to file a consolidated return may not be revoked
without the Service approval
On a complete liquidation, a corporation... - ANSWER - distributes all of its assets (or
the proceeds of their sale), subject to any liabilities, to its shareholders in exchange for
all their stock
What happens once a liquidation is completed? - ANSWER - it dissolves under state
law
Is legal dissolution under state law required for a liquidation to become complete under
the code? - ANSWER - no, and the corporation may retain a nominal amount of assets
to pay remaining debts and preserve its legal existence
A corporation liquidates for tax purposes when... - ANSWER - it ceases to be a going
concern and its activities are merely for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its shareholders
The difference between the amount realized and the shareholder's adjusted basis in the
stock is treated as... - ANSWER - a capital gain or loss in the usual case where the
stock is a capital asset
The shareholder's amount realized is the amount of money and fair value of all other
property received from... - ANSWER - the liquidating corporation, less any liabilities
assumed by the shareholder or encumbering of the distributed property
T or F? A shareholder who holds several blocks of stock with different bases and
acquisition dates determines his gain or loss separately for each block of stock rather
than on an aggregate basis. - ANSWER - True
Questions & Answers (100% Correct)
For tax purposes, it is permissible to treat the affiliated corporations as... - ANSWER - a
single entity in which inter-company transactions are disregarded
Without restrictions on affiliated companies, taxpayers would have an incentive to... -
ANSWER - multiply the number of corporations employed in operating a business to
take advantage of certain tax benefits
Absent a limitation, a business could be organized in several corporations to with each
corporation eligible to... - ANSWER - take advantage of lower marginal tax rates; obtain
a 40k exemption amount in computing the alternative minimum tax; obtain a 250k
accumulated earnings tax credit; expense depreciable business property
A controlled group of corporations may be either... - ANSWER - a "parent-subsidiary"
controlled group or a "brother-sister" controlled group (or a combination of both)
A parent-subsidiary group exists if one or more chains of corporations are connected
through... - ANSWER - stock ownership with a common parent
Requirements for parent-subsidiary - ANSWER - each corporation is at least 80%
owned by one or more of the other corporations; the parent directly owns at least 80%
of at least one of the other corporations
A brother-sister controlled group is two or more corporations having... - ANSWER - five
or fewer persons who are individuals, estates, or trusts that own more than 50% of each
corporation taking into account the stock ownership of each person only to the extent it
is identical, or overlapping, in each corporation
Are nonvoting preferred stock, treasury stock and excluded stock, considered in
applying the parent-subsidiary and brother-sister ownership tests? - ANSWER - no
Two or more organizations are considered controlled for Code purposes if there is... -
ANSWER - control of any kind, direct or indirect, whether legally enforceable or not
(T/F)
The Code states that the reality of the control is the key question, not... - ANSWER - its
form or the mode of exercise (T/F)
A presumption of control is created if... - ANSWER - income or deductions are arbitrarily
shifted between two entities (T/F)
, T or F? Transactions between controlled taxpayers are subjected to special scrutiny and
the Service has the authority to make adjustments in cases involving inadvertence as
well as those motivated by tax avoidance considerations. - ANSWER - T
T or F? Whether a controlled transaction produces an arm's length result is generally
evaluated by comparing the results of that transaction to those realized by uncontrolled
taxpayers engaged in comparable transactions under comparable circumstances -
ANSWER - T
The code permits commonly controlled corporations meeting certain requirements to... -
ANSWER - be treated as a single entity for tax purposes
Advantages of a consolidated return - ANSWER - Losses of one member of the group
may be used to offset income to other members/ inter-company dividend distributions
are eliminated from income; income from inter-company transactions is deferred
Disadvantages of a consolidated return - ANSWER - Losses on inter-company
transactions are deferred; an election to file a consolidated return may not be revoked
without the Service approval
On a complete liquidation, a corporation... - ANSWER - distributes all of its assets (or
the proceeds of their sale), subject to any liabilities, to its shareholders in exchange for
all their stock
What happens once a liquidation is completed? - ANSWER - it dissolves under state
law
Is legal dissolution under state law required for a liquidation to become complete under
the code? - ANSWER - no, and the corporation may retain a nominal amount of assets
to pay remaining debts and preserve its legal existence
A corporation liquidates for tax purposes when... - ANSWER - it ceases to be a going
concern and its activities are merely for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its shareholders
The difference between the amount realized and the shareholder's adjusted basis in the
stock is treated as... - ANSWER - a capital gain or loss in the usual case where the
stock is a capital asset
The shareholder's amount realized is the amount of money and fair value of all other
property received from... - ANSWER - the liquidating corporation, less any liabilities
assumed by the shareholder or encumbering of the distributed property
T or F? A shareholder who holds several blocks of stock with different bases and
acquisition dates determines his gain or loss separately for each block of stock rather
than on an aggregate basis. - ANSWER - True
