38 - Corporate Taxation 1

Question 1

How is shareholder basis calculated for a new interest in a Corporation?

Answer 1

Adjusted basis of property transferred + Gain recognized (if less than 80% ownership) - Boot received = Shareholder basis. If shareholders have 80% control after a property transfer, no taxable event occurs. If liabilities exceed basis on contributed property to a Corporation, a gain is recognized.

Question 2

How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?

Answer 2

Transferor’s basis
+ Gain recognized by shareholder
= Basis

OR

FMV of Corporate Interest
- Adjusted basis of property
= Gain

Question 3

What basis do shareholders and Corporations use for property?

Answer 3

They both use ADJUSTED BASIS, NOT FMV of property.

Question 4

Describe how loss is taken on Section 1244 small business Corporation stock?

Answer 4

A loss on worthless stock is an ordinary loss.

Question 5

What are the requirements for taking an ordinary loss on Section 1244 small business Corporation stock?

Answer 5

Taxpayer must be original stock owner, and either an individual or partnership

$50k (single) or $100k (MFJ) limit - remainder is a capital loss

Must have been issued in exchange for money or property (not exchanged for services)

Shareholder equity must not be in excess of $1 million

Both common and preferred stock is allowed

Question 6

What are the basic rules for filing a form 1120?

Answer 6

Return is due regardless of income level

Return is due 3/15 if on a calendar year basis, or 2 1/2 months after end of fiscal year

An automatic six-month extension is available

Question 7

When are Corporate federal tax estimated payments required, and how are they calculated?

Answer 7

Required if more than $500 in tax liability expected, or

100% current year liability

100% previous year liability

Note: If Corporation had more than $1 Million in revenue the previous year, the first estimated payment must be based on the previous year and the remainder based on the current year.

Question 8

Describe the AMT calculation for C-Corporations

Answer 8

Taxable Income
\+Tax Preference Items
\+/- Adjustments
= Pre-ACE
\+/- ACE Adjustments
= AMTI
- 40,000 Exemption
= Tax Base
x 20%
= Tentative Minimum Tax
- Regular Tax Liability
= AMT

Question 9

What are the pre-ACE adjustments for C-Corporation tax AMT calculations?

Answer 9

Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 years

Personal Property - use 150% MACRS, not 200%

Construction must use % completion method

Question 10

What are the ACE adjustments in the C-Corporation AMT tax calculation?

Answer 10

Municipal Bond Interest
Life Insurance Proceeds
70% Dividends Received Deduction
Organizational Expenditures must be capitalized, not amortized

Note: AMT paid gets carried forward indefinitely, but never carried back

Question 11

When are C-Corporations exempt from AMT?

Answer 11

In year one

In year two, if year one gross receipts were less than $5 Million

In year three, if the average gross receipts for years 1 and 2 were less than $7.5 Million

In year four and beyond, if the average from the previous 3 years is less than $7.5 Million

Question 12

How are gains and losses handled with respect to a Corporation’s transactions involving its own stock?

Answer 12

Corporations have no gain/(loss) from transactions involving their own stock, including Treasury Stock.

If Corporation gets property in exchange for stock, there is no gain/(loss) on the transaction.

Question 13

How are Corporate organization costs handled?

Answer 13

Amortization of costs begin the month the Corporation commences business activity

If the Corporation doesn’t amortize organization costs in year one, they can never be amortized

Costs associated with offerings are neither deductible nor amortized

Question 14

How are a C-Corporation’s deductible charitable contributions calculated?

Answer 14

Sales -COGS= Gross Profit
Gross Profit + Rent, Royalties, Gross Dividends, Capital Gains
=Total Income
Total Income - Deductions (No charitable contributions, Dividends
Received Deductions (DRD), or NOL Carrybacks allowed)
- NOL Carryforwards
=Taxable Income before charitable contributions, DRD, NOL Carrybacks
x 10%
=Deductible Charitable Contributions

Question 15

How are excess charitable contributions treated in a C-Corporations?

Answer 15

Excess charitable contributions get carried forward 5 consecutive years (No Carryback)

Question 16

When can a board of directors authorize charitable contributions for a tax year?

Answer 16

The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year