C and S Corp. Taxation / Exempt Organizations

Question 1

For corps, what do you do with capital losses and gains

Answer 1

Net them

Question 2

Corporation’s Cap loss carry back/carry-over treated as??

Answer 2

Short-term capital loss

Question 3

Losses for “Small biz” Section 1244 qualifying stock - rules?

Answer 3

Sale, exchange, or worthlessness of stock are treated as FMV ordinary losses up to $50K - TO ORIGINAL owners ONLY.

(Others can do the capital loss carry-back)

Question 4

Personal Holding Companies - def., and with Over __% of AGI consisting of NIRD

Answer 4

Tax Law defines PHC’s as corporations more than 50% owned by 5 or FEWER INDIVS – (either directly or indirectly at any time during the last half of the TAX year)

60% of AGI as NIRD:
N- Net rent (IF Less than 50% of ordinary Gross Income)
I- Interest that is taxable (nontaxable Excluded)
R- Royalties (but not mineral, oil, gas, or copyright)
~~OR~~
D- Dividends from an unrelated domestic corporation

Question 5

What do dividends distribute up to?

Answer 5

A: Current year’s combined accumulated (aka prior year) and current year Earnings and Profits (E&P)

If distributions for the year are more than that, they will likely be returned of Basis so the excess is treated as capital gain (not div. income)

Question 6

What is goodwill amortization period for tax purposes?

Answer 6

15 years

Question 7

what do you do with goodwill impairment when reconciling book to taxable income?

Answer 7

You Less the excess of tax amortization over book impairment of goodwill.

EG:

Book income
\+ Fed Income Tax Expense
(Less) excess of tax amort over book amort.
\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxable Income

Question 8

Gain Recognition under liquidation - Rule?

Answer 8

When a corp. liquidates and distributes assets to shareholders, Gain is recognized to the extent that the FMV of assets distributed to s/hs exceeds s/h basis in the corporation’s stock.

EG -
$10.5K FMV land + $2K cash distribution = $12.5 K
LESS - basis of $6.5K from stock

Gain recognized in liquidating distribution - $6K

Question 9

What kind of gains and losses do you recognize upon formation of a corporation?

Answer 9

NONE - 0$

There is zero gain upon formation of corporations

(you wait for Disposals to recognize, usually)

Question 10

Bases in building vs. bases in stock

Answer 10

Bases in building - adj. basis building value

Basis in stock - Prop. less the amount of any Debt he is relieved of

(EG - contribute $40K basis building, relieve yourself of $10K mortgage, basis in stock = $30K)

Question 11

Dividends received deduction - “DRD”

Answer 11

Generally calculated as 70% of dividends received (EG 70% of $100,000 = $70K)

However - LIMITED to lower of Div. Rec. OR Taxable Income..

Taxable income for this = acc EP + CY EP + Gain Generated on any Distribution (dif. Of basis and FMV)

Question 12

C-Corp. % for charitable contributions?

Answer 12

10% after adding back in DRD

(EG - $820K inc. + $40K DRD = $860K x 10% = $86K)

Also, Any accrual must be paid within 2.5 months of YE to be deductible !!

Question 13

Deductions made from Y1 Taxable Income to determine undistributed PHC income (prior to div paid ded.?)

Answer 13

1) federal income taxes

2) cap Gains Less their related federal income taxes

Question 14

What steps can a calendar-year domestic C-corp (not PHC) take to eliminate or reduce any Y1 Accumulated Earnings Tax? (hint - 2)

Answer 14

1) Demonstrate “reasonable needs” of its business to require the retention of all or part of the Y1 accumulated taxable income
2) Pay Divs. Y2 by 3/15/X2

Question 15

Corp can reduce regular income tax by taking a tax credit for?

Answer 15

Foreign income taxes

Question 16

Rule about dividend paid in property (not money)?

Answer 16

FMV is value

Question 17

What qualifies as a tax-free (Type B) reorganization?? IRS requirements?

Answer 17

Acquisition of controlling interest (usually 80%) by one Corp., into the stock of another Corp., solely for STOCK Exchange.

IRS–
1) stock of target Corp. acquired solely for voting stock of acquiring Corp (or parent)

2) acquiring Corp. must have control of the target Corp. immediately after acquisition

Question 18

Rules about NOL’s (net operating losses, not capital losses) for C-Corp ?

Answer 18

Back 2, forward max of 20 years

Question 19

Some consolidated tax return rules?

Answer 19

1) Corporations where an indiv. (NOT a Corp.) owns 80% should NOT do consolidated return
2) operating losses of one group member may be used to offset operating profits