ExpertMedium1 markMultiple Choice
CPA · Question 49 · Area III: Entity Tax Planning
A C Corporation has accumulated earnings of $300,000. It is a service corporation (law firm). It has no specific business plan for the funds. Assume the accumulated earnings credit for service corps is $150,000. What is the amount subject to Accumulated Earnings Tax?
A C Corporation has accumulated earnings of $300,000. It is a service corporation (law firm). It has no specific business plan for the funds. Assume the accumulated earnings credit for service corps is $150,000. What is the amount subject to Accumulated Earnings Tax?
Answer options:
A.
$50,000
B.
$150,000
C.
$300,000
D.
$0
How to approach this question
Accumulated Earnings Tax applies to earnings > Credit. Service Corp Credit = $150,000. $300,000 - $150,000 = $150,000 subject to tax.
Full Answer
B.$150,000✓ Correct
IRC §535. Accumulated taxable income is reduced by the accumulated earnings credit. For PSCs, the minimum credit is $150,000. $300,000 - $150,000 = $150,000.
Common mistakes
Using the $250,000 credit for a service corporation.
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