While a C corporation's losses cannot be used by their shareholders to offset personal income, a C corporation may carry back and carry forward losses to help offset the taxable income a corporation had or will have. How are these net operating losses carried back and carried forward?

A. Carried back two years, carried forward indefinitely

B. Carried back indefinitely, carried forward two years

C. Carried back two years, carried forward five years

D. Carried back two years, carried forward twenty years

E. None of these.

Answer: d

Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume Military Gear Inc has a $100,000 loss for the year, Logan's tax basis in his Military Gear Inc. stock was $150,000 at the beginning of the year, and he received $75,000 ordinary income from other sources during the year. Assuming Logan's marginal income tax rate is 15%, how much more tax will Logan pay currently if Military Gear Inc. is a C corporation compared to the tax he would pay if it were an S corporation?

A. $0

B. $3,750

C. $7,500

D. $11,250

Answer: c

Which of the following is not an effective strategy for mitigating double taxation in a C corporation?

A. C corporations can shift income to shareholders via deductible payments

B. C corporations can make an S election

C. C corporations can pay dividends to their shareholders

D. None of these. All of these statements are effective strategies to mitigate or avoid double taxation.

Answer: c

If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

A. No taxation

B. Single taxation

C. Double taxation

D. Triple taxation

Answer: d

Crocker and Company, Inc. had taxable income of $550,000. At the end of the year, it distributes all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 34 percent and his marginal tax rate on dividends is 15 percent. What is the overall tax rate on Crocker and Company's pre-tax income?

A. 9.9%

B. 15.0%

C. 35.0%

D. 43.9%

E. 66.7%

Answer: d

If C corporations retain their after-tax earnings, when will their shareholders be taxed on the retained earnings?

A. Shareholders will be taxed when they sell their shares at a gain

B. Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings

C. Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return

D. None of these

Answer: a

Which of the following is most effective in mitigating the double tax?

A. Shift income from high tax rate shareholders to low tax rate corporations

B. Shift income from low tax rate shareholders to high tax rate corporations

C. Shift income from high tax rate corporations to low tax rate shareholders

D. Shift income from low tax rate corporations to high tax rate shareholders

Answer: c