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    T/F business taxation questions

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    A majority interest taxable year is the taxable year of one or more partners that own more than 50 percent of partnership capital and profits.

    If a partnership does not have a majority interest taxable year, a principal partner taxable year, or a natural business year, it must use the taxable year resulting in the least aggregate deferral of income to its partners.

    A principal partner is any partner who owns more than 25 percent of partnership capital or profits.

    A taxable C corporation cannot be a shareholder in an S corporation.

    For Year 2003, the maximum expense allowed under Section 179 of the Internal Revenue Code, for those companies not doing business in any empowerment zone or enterprise community, is $25,000.

    The costs associated with drilling a new oil and gas well can be expensed in the year incurred, rather than being capitalized and depleted over the productive life of the well.

    Percentage depletion is based on the annual revenue derived from a natural resource.

    Henry Inc. bought equipment for $125,000 this year. The company expects to have net loss before cost recovery deductions of $(85,000). The company can take full advantage of the Sec. 179 expensing election this year.

    Jackson Company placed $450,000 of property subject to Sec. 179 expensing in service this year. Its business income before cost recovery deductions is expected to be $220,000. Jackson will be able to take full advantage of the expensing election this year.

    Most tax elections concerning the computation of taxable income for a passthrough entity are made by the entity.

    Darden Partnership purchased business equipment in 2003 and elected to expense the maximum amount allowed under Section 179. This amount is deducted by the partnership in computing the partnership ordinary business income.

    Credits earned by a partnership or S corporation are passed through to the partners or shareholders for use in their own personal tax returns.

    Partners capital accounts are decreased by their shares of loss items.

    Cash distributed during the year has no effect on partners capital accounts.

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    Solution Preview

    A majority interest taxable year is the taxable year of one or more partners that own more than 50 percent of partnership capital and profits. True

    If a partnership does not have a majority interest taxable year, a principal partner taxable year, or a natural business year, it must use the taxable year resulting in the least aggregate deferral of income to its partners. False, a partnership would use a calendar year. The rule relates to S corporation.

    A principal partner is any partner who owns more than 25 percent of partnership capital or profits. False, it is 5%

    A taxable C corporation cannot be a shareholder in an S corporation. True, only individuals (natural ...

    Solution Summary

    The 444 word solution provides detailed explanations regarding a variety of tax issues for partnerships, S-corporations and C-corporations.

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