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C Corporation Taxation - See Special Enrollment Exam

  1. What amount, if any, is the corporation's dividends-received deduction for 2025?
    Answer: No dividends-received deduction; the $100,000 dividend remains fully includible in taxable income. IRC § 246(c)(1)(A) denies the dividends-received deduction unless the stock is held for more than 45 days during the 91-day period beginning 45 days before the ex-dividend date. The corporation's 45-day holding period does not satisfy the 'more than 45 days' requirement, so no DRD is allowed and the dividend remains fully taxable. Choice B misstates the required holding period as 45 days. Choice C ignores the holding-period requirement even though 25% ownership would otherwise qualify for the 65% DRD under IRC § 243(c). Choice D confuses the 100% DRD for 80%-owned corporations with the facts here.
  2. Which of the following correctly describes the use of Pine Corp's 2025 net capital loss?
    Answer: It is carried back to 2022 and 2023, offsetting $30,000 of capital gains; the remaining $20,000 is first carried forward to 2026. IRC §§ 1211(a) and 1212(a)(1). A corporation may deduct capital losses only against capital gains. A corporate net capital loss is carried back to each of the 3 preceding tax years and then forward to each of the 5 following tax years, and in each of those years it is treated as a short-term capital loss. The 2025 loss is applied in order: $20,000 to 2022, $10,000 to 2023 and nothing to 2024, which had no net capital gain. That uses $30,000, and the remaining $50,000 − $30,000 = $20,000 is carried forward, first to 2026. Choice A is correct. Choice B is wrong because an unused corporate capital loss does not expire after the carryback period; it carries forward for 5 years. Choice C is wrong twice: it ignores the carryback to 2023, and a corporation cannot deduct any of the loss in 2025 because a corporation's capital losses offset only capital gains. Choice D is wrong because IRC § 1212(a)(1) gives an ordinary C corporation no election to waive the 3-year carryback; no such election exists, so the loss must first be carried back.
  3. For 2025, a calendar-year C corporation had taxable income of $90,000 computed before the dividends-received deduction, before any net operating loss deduction, and before any capital loss carryback. It received a $100,000 dividend from a domestic corporation in which it owns 25% of the stock. Assume the stock is not debt-financed and is held for the required holding period. What are the corporation's dividends-received deduction and its regular corporate income tax (ignoring credits and estimated tax payments)?
    Answer: $58,500 dividends-received deduction and $6,615 tax IRC §§ 243(a), 246(b), and 11(b). Choice B is correct. Because the corporation owns 25% of the dividend-paying corporation, the dividends-received deduction percentage is 65%, giving a tentative deduction of $65,000. The full deduction would not create a net operating loss, so the taxable-income limitation applies: 65% of $90,000 is $58,500. Taxable income is $31,500, and tax at the 21% corporate rate is $6,615. Choice A uses the 50% rate that applies only to less-than-20% owned corporations. Choice C ignores the § 246(b) taxable-income limitation and taxes the $25,000 remaining taxable income. Choice D applies a 50% taxable-income limitation instead of the 65% limitation for a 25%-owned corporation.
  4. Which of the following is correct regarding the treatment of a C corporation's net capital loss for 2025?
    Answer: A C corporation may carry a net capital loss back three years and forward five years, and in those years the loss may offset only capital gains. IRC § 1212(a). Choice B is correct. A corporation's net capital loss is not deductible against ordinary income. It is carried back three years and forward five years, and in the carryback or carryover year it is treated as a short-term capital loss and may offset only capital gains. Choice A incorrectly gives a corporation an ordinary deduction subject to the NOL limitation. Choice C has the wrong carryover period and an incorrect 80% capital-gain restriction. Choice D states the individual capital loss rule, which is not available to C corporations.
  5. What is Fern Corp's allowable dividends-received deduction and its taxable income for 2025?
    Answer: $65,000 dividends-received deduction and $0 of taxable income, with a $15,000 net operating loss carryforward. IRC § 243(c) allows a 65% dividends-received deduction for a domestic corporation at least 20% owned, so the tentative deduction is $65,000. Before the DRD, Fern's taxable income is $300,000 + $100,000 - $350,000 = $50,000. Under IRC § 246(b)(1), the DRD would normally be limited to 65% of that amount, or $32,500, but IRC § 246(b)(2) waives the limitation when allowing the full deduction creates a net operating loss; here the full $65,000 deduction creates a $15,000 NOL. That NOL is carried forward. Choice A applies the limitation without the NOL exception. Choice C incorrectly says the DRD cannot create a loss. Choice D uses the 50% DRD percentage that applies to ownership of less than 20%.
  6. What is Bellwether Corp's total federal income tax liability for 2025, before credits and estimated tax payments?
    Answer: $9,500,000, because the CAMT is the excess of tentative minimum tax over regular tax, added to the regular tax. Under IRC § 55, an applicable corporation's tax is the regular tax plus the corporate alternative minimum tax, and the corporate AMT is the excess of the tentative minimum tax over the regular tax. Bellwether's total tax is $8,000,000 plus ($9,500,000 - $8,000,000), or $9,500,000. Choice B misstates the applicability of the CAMT, which is based on adjusted financial statement income, not on status as a personal service corporation. Choice C double-counts the tentative minimum tax. Choice D misstates the relationship; the excess is an additional tax, not a replacement of the regular tax.
  7. Which statement is correct about Ash Corp's 2025 required installments?
    Answer: Ash may pay $12,500 for the first installment, but its second installment must be $187,500. IRC § 6655(d)(1) and (d)(2). A large corporation may not use the prior-year safe harbor, except that it may use it to compute the first required installment. Any reduction in the first installment is recaptured by adding it to the next installment. Ash's first installment is the lesser of 25% of its $400,000 current-year tax ($100,000) or 25% of its $50,000 2024 tax ($12,500), so $12,500. The $100,000 - $12,500 = $87,500 shortfall is added to the second installment: $100,000 + $87,500 = $187,500. The third and fourth installments are $100,000 each. Choice B is correct. Choice A applies the prior-year safe harbor available to corporations that are not large corporations. Choice C applies the bar that applies when the preceding year was a short year or showed no liability, but Ash filed a 12-month return showing $50,000 of tax. Choice D extends the first-installment rule to later installments and ignores the recapture.
  8. What amount of the NOL carryover may Oak Corp deduct for 2025, and what is the status of the remaining carryover?
    Answer: Deduct $480,000; the remaining $520,000 carries forward indefinitely. IRC § 172(a) limits the NOL deduction to 80% of taxable income computed without the NOL deduction. Oak may deduct 80% of $600,000, or $480,000, of its 2023 NOL carryover for 2025. The unused $520,000 remains an NOL carryover; because the NOL arose in a tax year beginning after 2017, it carries forward indefinitely (IRC § 172(b)(1)(A)(ii)). Choice A states the correct deduction amount but incorrectly limits the carryover to five years. Choice B ignores the 80% limitation and deducts the full $600,000 of taxable income. Choice D does not apply the 80% limitation to 2025 taxable income; it deducts $400,000 (the excess of the carryover over current taxable income) and leaves $600,000, whereas the correct split is $480,000 deducted and $520,000 carried over.
  9. During 2025, a calendar-year C corporation made a qualifying cash charitable contribution of $30,000. Its taxable income for 2025, determined before the charitable contribution deduction and before the dividends-received deduction, was $200,000. The corporation had no net operating loss deduction and no capital loss carryback or carryover for 2025. The corporation also received a $50,000 dividend from a domestic corporation in which it owns 15% of the stock. What is the corporation's charitable contribution deduction for 2025 and its charitable contribution carryover, if any, to 2026?
    Answer: $20,000 deduction for 2025; $10,000 carryover to 2026 IRC §§ 170(b)(2), 170(d)(2), and 243(a). Choice A is correct. A C corporation's charitable contribution deduction is limited to 10% of its modified taxable income, which is computed without the charitable contribution deduction, the dividends-received deduction, and any net operating loss or capital loss carryback. Here, the corporation had no NOL or capital loss carryover or carryback, so modified taxable income is $200,000 and the limit is $20,000. The unused $10,000 carries forward to the five succeeding tax years. The corporation's separate $25,000 dividends-received deduction (50% of $50,000) does not reduce the contribution base. Choice B ignores the 10% limitation. Choice C subtracts the dividends-received deduction before applying the 10% limitation. Choice D incorrectly treats the disallowed portion as lost rather than carried forward.
  10. At the beginning of 2025, a calendar-year C corporation had a $60,000 net operating loss carryover that arose in a taxable year beginning after 2020. For 2025, its taxable income computed without regard to the net operating loss deduction is $50,000. What is the corporation's net operating loss deduction for 2025, and what is its regular corporate income tax (ignoring credits and estimated tax payments)?
    Answer: $40,000 net operating loss deduction; $2,100 tax IRC §§ 172(a), 172(b), and 11(b). Choice D is correct. For net operating losses arising in tax years beginning after 2020, the NOL deduction for a carryover year is limited to 80% of taxable income computed without regard to the NOL deduction. Thus, the deduction is 80% × $50,000 = $40,000. Taxable income is $10,000, and tax at the 21% corporate rate is $2,100; the remaining $20,000 carryover remains available. Choice A ignores the 80% limitation. Choice B uses the full $60,000 carryover even though it exceeds the limitation. Choice C applies the 80% limitation to the carryover amount ($60,000) rather than to taxable income.
  11. A calendar-year C corporation received a $480,000 dividend in 2025 from a domestic corporation of which it has owned 5% of the stock for more than one year. The corporation has no other gross income and no carryovers; its deductions for 2025, other than the dividends-received deduction, are $280,000. What amount of dividends-received deduction may the corporation claim for 2025?
    Answer: $240,000 IRC §§ 243(a)(1) and 246(b). Because the corporation owns less than 20% of the distributing corporation, the dividends-received deduction rate is 50%: 50% × $480,000 = $240,000. Taxable income before the deduction is $480,000 − $280,000 = $200,000, so the general § 246(b)(1) limitation would be 50% × $200,000 = $100,000. Under § 246(b)(2), however, the limitation does not apply when the full tentative deduction creates a net operating loss: $200,000 − $240,000 = ($40,000). Because the full deduction produces an NOL, the limitation is suspended and the deduction is $240,000. Choice A ($100,000) applies the 50% taxable-income limitation but ignores the NOL exception. Choice B ($200,000) caps the deduction at taxable income before the DRD, incorrectly assuming a deduction cannot create a loss. Choice D ($480,000) treats the dividend as fully deductible, applying the 100% rate, which requires affiliated-group (80%) status that a 5% owner lacks (§ 243(a)(3) and (b)); the other 100% case, § 243(a)(2) for small business investment companies, does not apply here.
  12. What amount of charitable contribution deduction may Willow Corp claim for 2025, and what is the treatment of any excess?
    Answer: Deduct $30,000 currently and carry the $8,000 excess forward for up to five succeeding tax years. Under IRC § 170(e)(3), a C corporation's contribution of inventory to a qualified charity for the care of the ill is measured by basis plus one-half of the unrealized appreciation, limited to twice basis: $10,000 + one-half of $16,000 = $18,000. Added to the $20,000 cash gift, total charitable contributions are $38,000. IRC § 170(b)(2) limits a corporation's current deduction to 10% of taxable income computed without the contribution deduction, here $30,000, so $8,000 carries over under IRC § 170(d)(2) for up to five succeeding tax years. Choice D is therefore correct. Choice A values the inventory at basis and misses the enhanced inventory rule. Choice B ignores the 10% corporate limit. Choice C values the inventory at fair market value rather than under the § 170(e)(3) rule.
  13. A calendar-year C corporation had a long-term capital gain of $100,000, a long-term capital loss of $40,000, and a short-term capital loss of $130,000 in 2025. The corporation had net capital gains of $15,000 in 2022 and $35,000 in 2024, and no capital gains or losses in 2023. In 2022 and 2024, the corporation's taxable income before any capital loss carryback was at least $15,000 and $35,000, respectively. What is the corporation's capital loss carryover to 2026?
    Answer: $20,000 IRC § 1212(a)(1). A C corporation's capital losses are deductible only against its capital gains, and a corporate net capital loss is carried back 3 years (beginning with the earliest year) and then forward 5 years; a carryback may not create or increase a net operating loss. The 2025 items net to a $70,000 net capital loss: $100,000 − $40,000 − $130,000. The facts state that the carryback would not create or increase an NOL in 2022 or 2024. The $70,000 loss offsets the $15,000 net capital gain in 2022, is not used in 2023 (no gains or losses), and then offsets the $35,000 net capital gain in 2024, leaving $20,000 as the capital loss carryover to 2026. Choice A ($20,000) is correct. Choice B ($35,000) applies the carryback only against the 2024 gain and ignores the 2022 gain that must first absorb part of the loss. Choice C ($50,000) reports the amount absorbed by the carryback ($15,000 + $35,000) instead of the carryover amount. Choice D ($70,000) ignores the 3-year carryback and treats the whole net capital loss as a carryover.
  14. For a calendar-year C corporation, which of the following is correct regarding its 2025 federal estimated income tax requirements?
    Answer: It must make estimated tax payments if it expects its 2025 tax to be $500 or more, and installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of its tax year. IRC § 6655. Choice C is correct. A corporation is required to make estimated tax payments when it reasonably expects its tax liability to be $500 or more, and the required installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of its tax year. Choice B uses the $1,000 threshold that applies to individual estimated tax. Choice A has the correct corporate threshold but the wrong installment months. Choice D contains both errors.
  15. During 2025, a calendar-year C corporation made $20,000 of cash contributions to a public charity. The corporation also has a $25,000 charitable contribution carryover from 2024. Its taxable income for 2025, computed without regard to the charitable contribution deduction, the dividends-received deduction, and any net operating loss or capital loss carrybacks, is $300,000. What amount of charitable contribution deduction may the corporation claim for 2025?
    Answer: $30,000 IRC § 170(b)(2)(A) and (d)(2). A corporation's charitable contribution deduction is limited to 10% of taxable income computed without regard to the contribution deduction, the dividends-received deduction, and any net operating loss or capital loss carrybacks: 10% × $300,000 = $30,000. Current-year contributions are deducted first, and a carryover is deductible only to the extent the 10% limit exceeds the current-year contributions. The $20,000 paid in 2025 uses $20,000 of the limit, leaving $10,000, which is filled by $10,000 of the 2024 carryover; the remaining $15,000 of that carryover continues to carry forward. Choice B ($30,000) is therefore the correct deduction. Choice A ($20,000) deducts only the 2025 contributions and overlooks that a carryover may be used within the 10% limit. Choice C ($45,000) combines the current contributions and the full carryover, ignoring the 10% ceiling. Choice D ($55,000) treats the $30,000 10% limitation as a separate deduction and then adds the full carryover, rather than using the limitation only to cap the combined current-year and carryover contributions.

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