Additional CORP tax

Question 1

Interest income from municipal bonds must be added back to book income for an M-1. What else is added back related to municipal bonds?

Answer 1

Interest expense incurred to carry the bonds.

Question 2

What amounts should you compare in determining the DRD?

Answer 2

Make sure you compare Taxable Income x DRD% to Dividend Received x DRD%. Must take lesser. Except for creating loss.

Question 3

What items do PHC (Personal holding company) subtract from taxable income before distributions to determine undistributed PHC income?

Answer 3

Federal Income Taxes
&
Net LTCG less related federeal income taxes

Question 4

Which type of corporation(s)are the Accumulated Earnings Tax imposed on?

Answer 4

Regular C corporations whose accumulated (retained) earnings are in excess of 250,000. (150k for PSC)

Question 5

What is the calculation for a shareholder’s basis in a non-taxable exchange (Cash/Property and 80%)?

Answer 5

Asset NBV
+ Cash Contributed
-Liability
= Stock Basis

Question 6

What is the calculation for a shareholder’s basis in a taxable exchange (Not Cash/Property and 80%)?

Answer 6

FMV
- Liability
= Stock Basis

Question 7

The detailed alternate computation to Shareholder basis is?

Answer 7

Adjusted basis of transferred property (including cash)
\+ FMV of services rendered
\+ Gain recognized by shareholder
- Cash received
- Liabilities assumed by Corp
- FMV of nonmoney boot received
= Basis

Question 8

Besides the normal reasons, when can a corporation’s tax year be reopened when the Statute of Limitations has passed?

Answer 8

When an item is ruled deductible in a subsequent year after having been taken in a closed year. Done to avoid hardship on taxpayer.

Question 9

What are the type of income considered for the additional tax for PHC’s?

Answer 9

Net Rent (If less than 50% of ordinary gross income)
Interest that is taxable (Don’t include nontaxable)
Royalties (but not mineral, oil, gas, or copyright)
Dividends from an unrelated domestic corporation (70% ones)

Question 10

In a non-liquidating distribution, what should a shareholder include as dividend income for property?

Answer 10

the FMV

NOT ADJUSTED BASIS
IGNORE ANY E&P STUFF
There going to keep showing the basis and E&P to throw me off

Question 11

Are a corp’s penalty for underpayment of estimated taxes deductible?

Answer 11

NOPE!

Wouldn’t be a penalty if it was.

Question 12

When paying a dividend (non-liquidating distribution), what is the calculation to find the taxable amount for a corporation?

Answer 12

FMV of Property
- NBV
=Corp. Gain

*As if you outright sold it

Question 13

What happens if a corp recognizes a gain when paying a dividend?

Answer 13

It creates or Adds E&P.
Even if there isn’t any beforehand.
Leads to Shareholder being taxed dividend income

Question 14

What are the different type of reorganizations?

Answer 14

Type A: Mergers/Consolidations
Type B: Once corp aquires another corp’s stock . (Stock for Stock)
Type C: One corp aquires another corp’s assets. (Stock for Assets
Type D: One Corp divides into several operating corp’s.
Type E: Recapitalizations
Type F: A mere change in identity, form, or place of organization.

To be tax-free, the aquiring corporation must continue the business of the old entity or use a significant portion of it’s assets and it must have 80% control immediately following reorganization.

Question 15

When computing a corp’s income tax expense for estimated tax purposes, what should include?

Answer 15

Everything (Credits, deductions, AMT, etc.)

You need the TAX LIABILITY from prior years.

Question 16

In a liquidating distribution, what is calculation for gain/loss for a corp when the corp sells assets and distributes cash?

Answer 16

Sale Price
- Basis
= Taxable Gain/Loss

Question 17

In a liquidating distribution, what is calculation for gain/loss for a shareholder when the corp sells assets and distributes cash?

Answer 17

Proceeds
- Stock Basis
= Taxable Gain/Loss (Usually capital in nature)

Question 18

In a liquidating distribution, what is calculation for gain/loss for a corp when the corp distributes assets and not cash?

Answer 18

FMV
- Basis
= Taxable Gain/Loss

Question 19

In a liquidating distribution, what is calculation for gain/loss for a shareholder when the corp distributes assets and not cash?

Answer 19

Sale Price
- Stock Basis
= Taxable Gain/Loss (Usually capital in nature)

Question 20

What is the accumulated earnings tax calculation?

Answer 20

Taxable Income (Before DRD, NOL, Charity Deduction, Cap. Loss carryover)
- ALL CHARITY
 - ALL CAPITAL LOSSES
- TAXES
- DIVIDENDS PAID
= Accumulated Taxable Income
- Remaining Credit
= Current Accum. Taxable Inc.
x 20%
Accumulated Earnings Tax

Question 21

How is shareholder gain determined when he receives boot?

Answer 21

Must take the lesser of realized gain or boot received.

Amount Realized (FMV, Cash)
- Adjusted Basis
= Realized gain

Question 22

Who can use NOL?

Answer 22

Only taxable entities (Individuals, estates and trusts, corporations)
Not pass-throughs or nont-for-profits and the like.

Question 23

Who CANNOT file consolidated returns?

Answer 23

S-corp
Foreign corp
REITs
Some insurance companies
Most exempt organizations

Question 24

What happens to shareholder’s stock basis when a common stock dividend is issued?

Answer 24

Basis per stock decreases. Total stock basis is unchanged.

Question 25

When is the accrual method required?

Answer 25

Accounting for purchases and sales of inventory
Tax shelters
Certain farming corporations
Business that have greater than 5 million of average annual gross receipts for the 3-year period ending with the tax year.

Question 26

What is the financial accounting Account Analysis Format?

Answer 26

Beginning Balance
Add: Purchases
Subtract: Cash payments
=Ending Balance

Question 27

How the excess of 1244 losses (over 50k single, 100k MFJ) treated?

Answer 27

As a capital loss.

Question 28

When receiving insurance proceeds, what portion of it can be taxed?

Answer 28

Any excess over adjusted basis and any for lost profits (makes it profit, hence income).