Church Corporation is a closely held C corporation. All of the stock is owned by Charles and Chanda Church. The corporation, in its second month of operation in its initial tax year, anticipates earning $150,000 of gross income in the current year. Gross income is expected to be approximately 40% dividends, 30% corporate bond interest, and 30% net real estate rentals (after interest, property taxes, and depreciation). Administrative expenses are expected to be $20,000. What special problems does the large amount of passive income that Church Corporation expects to earn present to you as their CPA

Answer:B.

$100

C.

$300

D.

$400

C.

$300

The exemption amount for a simple trust is $300. A simple trust is required to distribute all of its net income each year to the beneficiaries.

The exemption amount for a complex trust is $100. A complex trust is not required to distribute all of its net income each year to the beneficiaries.

2

What is the tax treatment for start-up expense incurred in May 2016?

A.

Not deductible

B.

Deduct up to $5,000; amortize the excess over 60 months

C.

Deduct up to $5,000; amortize the excess over 180 months

D.

Current deduction for all start-up expenses

C.

Deduct up to $5,000; amortize the excess over 180 months

For start-up expenses incurred after August 16, 2011, taxpayers may deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of start-up expenditures exceeds $50,000. Any remaining start-up expenditures not deducted are amortized over a 15-year period (180 months).

IRC Section 195