5. Federal Taxation of Entities

Question 1

Charitable Contribution Deductions

Answer 1

Only 10% of AGI (without any carryback loss, DRD or charitable expense)
S Corps do NOT have the deduction as it is a separately stated item on the owner’s individual statements.

Question 2

S Corp Shareholder Basis

Answer 2

increased by all income (including tax-exempt in­come) and gains and reduced by distributions and losses (to the extent of basis)

Question 3

S Corp Shareholder Eligibility

Answer 3

For a C Corporation to become an S Corporation, shareholders may be individuals, estates (testamentary and bankruptcy), and trusts
Non-resident aliens, corporations (including LLCs), and foreign trusts may not be shareholders.

Question 4

R&D Costs for Corps

Answer 4

Capitalized, NOT expensed when incurred

Question 5

Business Gifts for Corps

Answer 5

Deductible up to $25 per person per year

Question 6

Partnership Distributions (Non Liquidating)

Answer 6

In a non-liquidating distribution of property, partner’s basis in the property is the lower of (i) Partnership basis in the property (inside basis) or (ii) Partner’s basis in the partnership interest before property distribution (outside basis)
Outside basis, for example, is the basis of the partner before property is distributed. So if there was cash to be distributed, that would first reduce the basis and then the difference would be the outside basis. If this is lower than the property basis, the property basis must be the lower of the two to avoid G/L since those are not taxable for partnerships.

Question 7

Tax Free Reorganization

Answer 7

When one company acquires at least 80% of another’s voting common stock - which constitutes control.

Question 8

Partnership Liability

Answer 8

All general partners are liable for any partnership tort (wrongful act of omission) that is in the ordinary course of business.
All general partners are liable for those partnership obligations that were unauthorized by partners/employees