Taxation & Business Law Flashcards

A corporation has a net operating loss (NOL) for 2023. Under current federal tax law, what is the maximum percentage of taxable income the NOL carryforward can offset?

Answer: 80%

Under the Tax Cuts and Jobs Act, NOL carryforwards are limited to 80% of taxable income in the carryforward year.

Which of the following is NOT a characteristic of an S corporation under federal tax law?

Answer: It can have both common and preferred stock classes

S corporations are permitted only one class of stock; having both common and preferred stock classes would disqualify S corporation status.

Under the Uniform Commercial Code (UCC), a firm offer made by a merchant is irrevocable for up to how long without consideration?

Answer: 3 months

Under UCC Article 2, a merchant's firm offer in a signed writing is irrevocable for the stated period or, if no period is stated, for a reasonable time not exceeding three months.

A taxpayer sells a capital asset held for 14 months at a gain. How is this gain classified?

Answer: Long-term capital gain

Assets held more than 12 months qualify as long-term capital assets, so a 14-month holding period produces a long-term capital gain.

Which legal doctrine allows a court to disregard the corporate entity and hold shareholders personally liable?

Answer: Piercing the corporate veil

Piercing the corporate veil is the doctrine courts use to impose personal liability on shareholders when the corporate form is abused or used fraudulently.

For federal income tax purposes, which of the following fringe benefits is generally excludable from an employee's gross income?

Answer: Employer-paid health insurance premiums

Employer-paid health insurance premiums are specifically excluded from an employee's gross income under IRC Section 106.

A contract that lacks a legal purpose is considered:

Answer: Void

A contract with an illegal object or purpose is void ab initio—it has no legal effect from the beginning.