C and S Corp. Taxation / Exempt Organizations (II) Flashcards

1
Q

Advantages of Consolidated Return

A

1) cap losses of one Corp. can offset cap gains of another
2) operating losses of one can offset operating losses of another
3) dividends received are 100% eliminated in consolidation (because they are intercompany dividends)
4) certain tax deductions and credits may be better utilized when subject to the limitations of the overall consolidated than individual
5) corporations NOL carryover may be applied against the income of the consolidated group
6) income from certain intercompany sales may be Deferred

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2
Q

Disadvantages of Consolidated Returns

A

1) Mandatory compliance with complex regulations
2) double-counting of inventory can occur if group members had intercompany transactions (in Y1)
3) losses from certain Interco. transactions may be deferred
4) each member of the group must change its tax year to the same year as the parents. Also, a Corp. joining the consolidated group may have to file a short year return in addition to longer year return when consolidating.
5) tax credits may be limited to OL of other members
6) election to file consolidated is Binding - only disbanded by seeking approval of IRS
7) many states do not allow for the filing of consolidated tax returns, so even when filing federal consolidated you file separate state returns resulting in additional Time and expense

5)

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3
Q

General Business Credits

A

GBS credit combines several no refundable tax credits and provide rules for their absorption against the taxpayers liability

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4
Q

Corp. tax deadline? When does statute of limitations begin?

A

Deadline - 3/15

Statute of limitations begins next day, 3/16

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5
Q

Corp. tax deadline? When does statute of limitations begin?

A

Deadline - 3/15

Statute of limitations begins next day, 3/16

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6
Q

Organizational costs (ie, Legal Expenses) amortizable over minimum period of what?

A

15 years, and in addition ,you can take a $5,000 deduction

EG:
$41,000 legal fees - $5K (y1 bonus) = $36,000K / (12mox15yr = 180mo) = $200/mo * 6 months = $1200 + 5K bonus back in = $6200 deductible for org. expenses

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7
Q

Result to shareholders in considering distributions from complete liquidations?

A

Capital Gain or Loss.

Shareholders should treat prop. received as full payment for their stock, and thus recognize cap gain or loss depending whether the FMV of the property exceeds the basis or not.

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8
Q

What is Type A reorganization? Tax-free to who?

A

Consolidation. AKA when A+B = C, with A and B both dissolved.

Tax-free to shareholders AND Corp.

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9
Q

What happens with Gain if you receive boot (Cash) as a majority shareholder immediately after formation of corp?

A

You recognize the lesser of Boot or Realized Gain.

EG: dif. of FMV and Fair Val is realized gain (EG $60K)
Cash rec. is $40K – so you recognize the lesser of the two, in this case cash for 40K.

IF THERE’S NO BOOT, YOU RECOGNIZE NOTHING.

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10
Q

Calculating recognized gain for corporations - what is the rule if an asset has a large amount of liability assumed by shareholder?

A

For purposes of gain computations, you use in the Gain recognition formula the greater of either FMV or of Liability assumed by shareholder.

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11
Q

What are the 3 types of entities eligible for NOL deductions?

A

1) individuals (1040)
2) Estates and trusts (1041)
3) Taxable C-corps (1120)

NOT Non-profs, partnerships, S-Corps

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12
Q

Who is denied consolidated tax return privileges?

A

1) S corps
2) Foreign corps
3) Most REITs
4) Some insurance companies
5) Exempt orgs.

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13
Q

What does Schedule M1 do?

A

Reconcile income/(loss) per books, to income/(loss) per tax

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14
Q

Key-person life insurance policy means what?

A

Corp. owns policy. NOT tax-deductible, so would need to be reconciled on M1.

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15
Q

When is accrual method of accounting REQUIRED?

A

1) purchase and sales of inventory where inventory is maintained
2) Tax shelters
3) Certain farming corps.
4) C-Corps, trusts involving unrelated trade/biz income, and partnerships that involve a C-corp as partner PROVIDED the biz has greater than $5 mil average annual gross receipts for the 3-year period ending with prior tax year

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16
Q

Taxable amount of dividend to shareholder?

A

Either amnt $ rec. in cash, OR FMV of Land Received (NOT BASIS!!)

17
Q

When does the payment of a dividend create a taxable (or non-taxable) event to a corp.?

A

When the corp. distributes appreciated property as dividends, the corp. recognizes gain as though property were sold at Fair Val.(think of this as perfect counterpoint to how indiv. shareholder is treating divs. rec. for tax purposes)

CASH DIVS ARE NOT TAXABLE TO CORPS.

18
Q

Rule for tax basis of land contributed for corps (on Corps Books?)

A

Basis of prop. received from transferor/shareholder is GREATER of:

1) Adj. net BOOK VALUE plus any gain recognized by transferor/shareholder

(EG - a transferor also receives $10K in cash, so this $10K is added to land basis for corp books tax basis in land)

or

2) Debt assumed by corp

(EG let’s say it cost the corp $100,000 for $10K land. Then land basis is $100K).

19
Q

Can an affiliated group of corps file a consolidated tax return? And Rule?

A

Yes.

Affiliated group of corps. may elect to be taxed as a single unit, thereby eliminating interco. gains and losses. HOWEVER:

1) all corps. in group need to have been affiliated at some time during the tax year
2) Must have filed a consent (EG file consolidated return to be considered)

20
Q

Def. of an affiliated group?

A

It means that common parent owns

1) 80% or more of voting power of all outstanding stock
* AND*
2) 80% or more of the VALUE of all outstanding stock of EACH corporation.