Corporate Taxation Paper 5

1

Which of the following is not a requirement for a corporation to elect S corporation status (Subchapter S)?






2

Brooke, Inc., an S corporation, was organized on January 2, 2012, with two equal stockholders who materially participate in the S corporation’s business. Each stockholder invested $5,000 in Brooke’s capital stock, and each loaned $15,000 to the corporation. Brooke then borrowed $60,000 from a bank for working capital. Brooke sustained an operating loss of $90,000 for the year ended December 31, 2012. How much of this loss can each stockholder claim on his 2012 income tax return?






3

Jaxson Corp. has 200,000 shares of voting common stock issued and outstanding. King Corp. has decided to acquire 90% of Jaxson’s voting common stock solely in exchange for 50% of its voting common stock and retain Jaxson as a subsidiary after the transaction. Which of the following statements is true?






4

Ace Corp. and Bate Corp. combine in a qualifying reorganization and form Carr Corp., the only surviving corporation. This reorganization is tax-free to the
Shareholders . . . . Corporations






5

In a type B reorganization, as defined by the Internal Revenue Code, the
I. Stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent.
II. Acquiring corporation must have control of the target corporation immediately after the acquisition.






6

Pursuant to a plan of corporate reorganization adopted in July 2012, Gow exchanged 500 shares of Lad Corp. common stock that he had bought in January 2009 at a cost of $5,000 for 100 shares of Rook Corp. common stock having a fair market value of $6,000. Gow’s recognized gain on this exchange was






7

Which one of the following is a corporate reorganization as defined in the Internal Revenue Code?






8

With regard to corporate reorganizations, which one of the following statements is correct?






9

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?






10

Claudio Corporation and Stellar Corporation both report on a calendar-year basis. Claudio merged into Stellar on June 30, 2012. Claudio had an allowable net operating loss carryover of $270,000. Stellar’s taxable income for the year ended December 31, 2012, was $360,000 before consideration of Claudio’s net operating loss carryover. Claudio’s fair market value before the merger was $1,500,000. The federal long-term tax-exempt rate is 3%. As a result of the merger, Claudio’s former shareholders own 10% of Stellar’s outstanding stock. How much of Claudio’s net operating loss carryover can be used to offset Stellar’s 2012 taxable income?






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