- Which of the following is a deduction available to C corporations but NOT to individual taxpayers?
Answer: The dividends received deduction (DRD).
The DRD is a deduction unique to corporations, allowing partial exclusion of dividends received from other domestic corporations to reduce double taxation. Answer B is correct. Corporations do not have a standard deduction (A). The QBI deduction is for pass-through entities and individual taxpayers (C). Home office deductions apply to individuals and self-employed persons (D).
- For purposes of corporate alternative minimum tax (CAMT) enacted under the Inflation Reduction Act, the tax applies to:
Answer: Applicable corporations (generally those with average annual adjusted financial statement income of $1 billion or more) at a rate of 15% on adjusted financial statement income.
The Inflation Reduction Act's CAMT applies to large corporations (average annual adjusted FSI of $1 billion+) at 15% on book income. Answer D is correct. The threshold is $1 billion FSI, not $1 million taxable income (A). Pass-through entities are not subject to CAMT (B). Not all book/tax differences trigger CAMT (C).
- The accumulated earnings tax (AET) is imposed on corporations that:
Answer: Accumulate earnings beyond the reasonable needs of the business for the purpose of avoiding the shareholder-level income tax.
The AET is a penalty tax on improper accumulation - earnings retained beyond reasonable business needs with the intent to avoid shareholder taxes. Answer C is correct. Estimated tax failures (A) result in different penalties. Having E&P over $250,000 (B) is the AET credit amount, not the trigger. A $1 million threshold (D) is not the law.
- A corporation's Form 1120 requires Schedule M-1 or M-3 to reconcile:
Answer: Book income (per financial statements) to taxable income, identifying temporary and permanent differences between the two.
Schedule M-1/M-3 reconciles book income to taxable income, identifying all book-tax differences (depreciation, meals, penalties, etc.). Answer A is correct. Year-over-year reconciliation (B) is not M-1/M-3's purpose. E&P reconciliation (C) is on Schedule M-2. State apportionment (D) is on separate state returns.
- The Section 179 deduction allows a corporation to:
Answer: Immediately expense qualifying business property in the year of acquisition rather than depreciating it over its useful life, subject to an annual dollar limit and a taxable income limitation.
Section 179 allows immediate expensing of qualifying business property up to the annual limit ($1.25 million for 2025), subject to a taxable income limitation. Answer A is correct. Section 179 has limits (B). Deferring gain on replacement property (C) describes like-kind exchange rules. 15-year amortization (D) describes Section 197 intangibles.
- A corporation's earnings and profits (E&P) differ from taxable income because:
Answer: E&P uses straight-line depreciation over the ADS life and adds back items excluded from taxable income (tax-exempt interest), resulting in a more accurate measure of economic income available for distribution.
E&P is a measure of economic capacity to pay dividends - it uses ADS straight-line depreciation (not MACRS), includes tax-exempt income, and makes other adjustments. Answer C is correct. E&P uses ADS depreciation (not accelerated) (A). E&P is not simply taxable income plus DRD (B). E&P is not GAAP-based (D).
- A domestic corporation's taxable income is calculated beginning with gross income and then:
Answer: Subtracting allowable deductions, including the dividends received deduction, net operating loss deduction, and other business deductions.
Corporate taxable income = gross income minus allowable deductions, including special corporate deductions like the DRD and NOL deduction. Answer A is correct. Book-to-tax adjustments (B) are part of the return but not how taxable income is 'calculated.' Financial statement rates (C) are for GAAP purposes. Only cash expenses (D) describes cash method, not the general rule.
- Which of the following correctly describes a corporation's ability to deduct business interest expense under Section 163(j)?
Answer: Business interest expense is generally limited to 30% of adjusted taxable income (ATI), with disallowed interest carried forward indefinitely - small businesses with average gross receipts of $31 million or less are exempt (the inflation-adjusted threshold for 2024).
Section 163(j) limits business interest deductions to 30% of ATI, with the excess carried forward. Businesses with $31 million or less average gross receipts are exempt (the current inflation-adjusted threshold). Answer D is correct. Full deductibility without limit (A) applies only to exempt small businesses. The 50% limit (B) was a temporary COVID relief provision. The $10 million threshold (C) and the outdated $30 million figure are both incorrect; the current adjusted threshold is $31 million.
- A corporation receives $100,000 of dividends from a domestic corporation in which it owns 25% of the stock. The dividends received deduction (DRD) percentage applicable is:
Answer: 65%, resulting in a DRD of $65,000, because ownership of at least 20% but less than 80% qualifies for the 65% deduction.
For dividends from a corporation where the recipient owns 20% or more (but less than 80%), the DRD is 65%. Answer D is correct. The 50% DRD (A) applies to ownership below 20%. The 100% DRD (C) applies to affiliated group members (80% or more ownership). Answer B states the correct percentage but Answer D provides the correct explanation including the ownership threshold.
- A corporation files its Form 1120 and later discovers it overpaid its taxes. To claim a refund, the corporation must file:
Answer: An amended Form 1120-X within 3 years from the original return due date or 2 years from the date the tax was paid, whichever is later.
Corporate refund claims are made on Form 1120-X within the general refund statute of limitations: 3 years from the original due date or 2 years from payment, whichever is later. Answer B is correct. Form 1040-X (A) is for individual returns. Written requests (C) and Form 843 (D) with 1-year/6-month timelines are incorrect.
- Which of the following correctly describes the limitation on the dividends received deduction?
Answer: The DRD is generally limited to the applicable percentage of taxable income, computed without the DRD - unless the full DRD creates or increases a net operating loss.
The DRD is limited to the applicable percentage of taxable income (without the DRD), but this limitation does not apply if claiming the full DRD results in a net operating loss. Answer C is correct. The net income limitation (A) is not precisely stated. A flat 50% (B) ignores ownership tiers. The taxable income limit applies at all ownership levels below 80% (D).
- A corporation pays a dividend to its shareholders. Which of the following correctly describes the tax treatment to the corporation?
Answer: The dividend is not deductible by the corporation - dividends are paid from after-tax earnings, resulting in double taxation at the corporate and shareholder levels.
Corporate dividends are not deductible - they represent a distribution of after-tax profits, creating the classical double taxation of corporate income. Answer C is correct. Dividends are not business expenses (A). No loss carryforward is created (B). No E&P-based deduction exists for paid dividends (D).
- A corporation that has overpaid its estimated taxes may apply the overpayment to:
Answer: Either a refund or the next year's estimated taxes, at the corporation's election on the return.
A corporation with an overpayment may elect to receive a refund or apply the overpayment as a credit toward next year's estimated taxes. Answer C is correct. The overpayment is not limited to future estimates only (A) or refunds only (B). Future application is limited to one year, not five (D).
- The current federal corporate income tax rate is:
Answer: A flat 21% rate on all corporate taxable income, regardless of the amount.
The Tax Cuts and Jobs Act of 2017 replaced the prior graduated corporate rate structure with a flat 21% rate on all corporate taxable income. Answer C is correct. The old graduated structure (A) was repealed. 28% (B) is incorrect. There is no size distinction in the current rate (D).
- Which of the following is subject to the personal holding company (PHC) tax?
Answer: A closely held corporation (5 or fewer individuals own more than 50% of stock) where at least 60% of adjusted ordinary gross income consists of PHC income (dividends, interest, rents, royalties, personal service income).
The PHC tax applies to closely held corporations with concentrated ownership (5 or fewer = 50%+) and primarily passive/PHC income (60%+ threshold). Answer D is correct. Retained earnings (A) triggers the AET, not PHC tax. Any corporation earning passive income (B) is too broad. Public corporations (C) don't meet the closely held requirement.
- A corporation's fiscal year-end is June 30. For tax years beginning after December 31, 2025, the original due date for its Form 1120 is:
Answer: The 15th day of the fourth month after the end of the fiscal year - October 15.
Under the general rule, Form 1120 is due on the 15th day of the fourth month after the corporation's tax year-end. For a June 30 year-end, that is October 15 for tax years beginning after December 31, 2025. Answer A is correct for the period described in the stem. Note: under a statutory transition rule, June 30 fiscal year corporations used the 15th day of the 3rd month (September 15) for tax years beginning before January 1, 2026 - that transition rule is reflected in Answer D. April 15 (B) is for calendar-year corporations. March 15 (C) is the due date for S corporations and partnerships.
- A corporation makes a charitable contribution in excess of the 10% taxable income limitation. The excess contribution:
Answer: May be carried forward for up to 5 years and deducted in future years, subject to the 10% limitation in each carryforward year.
Corporate charitable contribution excess over the 10% limit may be carried forward for 5 years. Answer A is correct. The deduction is not lost permanently (B). Carryback is not available (C). The carryforward period is limited to 5 years, not indefinitely (D).
- A corporation acquires 100% of another corporation's stock in a taxable acquisition. The acquiring corporation:
Answer: Receives a stepped-up basis in the target's stock equal to its cost, but the target's assets retain their historical tax basis unless a Section 338 election is made.
In a stock acquisition, the acquirer's basis in the target's stock is the purchase price, but the target's assets retain carryover basis - a Section 338 election is needed to step up asset basis (with tax cost). Answer A is correct. Automatic asset step-up (B) requires a Section 338 election. The acquirer gets a cost basis in the stock (C). The purchase price is not deductible (D).
- A C corporation with $500,000 of taxable income (before charitable contributions) makes a $75,000 charitable contribution during the year. What is the allowable charitable contribution deduction?
Answer: $50,000 - limited to 10% of taxable income before the contribution ($500,000 × 10%).
Corporate charitable contribution deductions are limited to 10% of taxable income computed before the deduction. $500,000 × 10% = $50,000. The remaining $25,000 carries forward 5 years. Answer C is correct. The full amount (A) exceeds the limit. 12% (B) and 7.5% (D) are incorrect percentages.
- A corporation's estimated tax payments are required when:
Answer: The corporation expects to owe $500 or more in taxes, and must pay in four equal installments due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.
Corporations must make estimated tax payments if expected taxes are $500 or more, in four equal installments due at the 4th, 6th, 9th, and 12th month marks. Answer D is correct. The $500 threshold is correct but the installment details are missing in A. Prior year income alone (B) doesn't trigger payments. Asset size (C) is not the threshold.
