FCCA FCCA Taxation and Compliance 1 — Questions and Answers
Question 1: In the United States, which federal tax form does a C-corporation use to file its annual income tax return?
- Form 1040
- Form 1120 (Correct answer)
- Form 1065
- Form 1041
Correct answer: Form 1120
C-corporations in the US file their federal income tax return using Form 1120 (US Corporation Income Tax Return).
Question 2: What is the current federal corporate income tax rate in the United States as established by the Tax Cuts and Jobs Act (TCJA) of 2017?
- 25%
- 28%
- 21% (Correct answer)
- 35%
Correct answer: 21%
The TCJA reduced the US federal corporate income tax rate to a flat 21% beginning in 2018, replacing the previous graduated rate structure.
Question 3: Which US concept allows businesses to carry forward net operating losses (NOLs) to offset future taxable income under TCJA rules?
- NOLs can only be carried back 2 years
- NOLs can be carried forward indefinitely but are limited to 80% of taxable income (Correct answer)
- NOLs can be carried forward for up to 20 years only
- NOLs are no longer allowed under TCJA
Correct answer: NOLs can be carried forward indefinitely but are limited to 80% of taxable income
Post-TCJA, NOLs generated after 2017 can be carried forward indefinitely but may only offset up to 80% of taxable income in any given year.
Question 4: For US federal tax purposes, what is the tax treatment of dividends received by a US C-corporation from another domestic corporation in which it owns 20-79% of voting stock?
- 100% included in taxable income
- 50% deductible via the dividends received deduction (DRD)
- 65% deductible via the dividends received deduction (DRD) (Correct answer)
- 100% excluded from taxable income
Correct answer: 65% deductible via the dividends received deduction (DRD)
Under IRC Section 243, a C-corporation owning 20-79% of another corporation's stock qualifies for a 65% dividends received deduction, reducing the effective tax on those dividends.
Question 5: Under US tax law, what is the primary purpose of transfer pricing rules for multinational corporations?
- To set prices for retail sales to consumers
- To ensure transactions between related parties are priced at arm's length to prevent profit shifting (Correct answer)
- To regulate commodity prices in international trade
- To determine import duties and tariffs on goods
Correct answer: To ensure transactions between related parties are priced at arm's length to prevent profit shifting
Transfer pricing rules require related-party transactions to be priced as if conducted between unrelated parties (arm's length), preventing tax base erosion through profit shifting to low-tax jurisdictions.
Question 6: In US taxation, what does 'basis' refer to in the context of capital gains calculations?
- The market value of an asset at the time of sale
- The original cost of an asset, adjusted for improvements and depreciation (Correct answer)
- The tax rate applied to capital gains income
- The minimum price at which an asset can be sold
Correct answer: The original cost of an asset, adjusted for improvements and depreciation
Tax basis is generally the original cost of an asset, adjusted upward for capital improvements and downward for depreciation, used to calculate the gain or loss on sale.
FCCA FCCA Taxation and Compliance 1
In the United States, which federal tax form does a C-corporation use to file its annual income tax return?