C and S Corp. Taxation / Exempt Organizations (II) Flashcards
Advantages of Consolidated Return
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
Disadvantages of Consolidated Returns
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)
General Business Credits
GBS credit combines several no refundable tax credits and provide rules for their absorption against the taxpayers liability
Corp. tax deadline? When does statute of limitations begin?
Deadline - 3/15
Statute of limitations begins next day, 3/16
Corp. tax deadline? When does statute of limitations begin?
Deadline - 3/15
Statute of limitations begins next day, 3/16
Organizational costs (ie, Legal Expenses) amortizable over minimum period of what?
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
Result to shareholders in considering distributions from complete liquidations?
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.
What is Type A reorganization? Tax-free to who?
Consolidation. AKA when A+B = C, with A and B both dissolved.
Tax-free to shareholders AND Corp.
What happens with Gain if you receive boot (Cash) as a majority shareholder immediately after formation of corp?
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.
Calculating recognized gain for corporations - what is the rule if an asset has a large amount of liability assumed by shareholder?
For purposes of gain computations, you use in the Gain recognition formula the greater of either FMV or of Liability assumed by shareholder.
What are the 3 types of entities eligible for NOL deductions?
1) individuals (1040)
2) Estates and trusts (1041)
3) Taxable C-corps (1120)
NOT Non-profs, partnerships, S-Corps
Who is denied consolidated tax return privileges?
1) S corps
2) Foreign corps
3) Most REITs
4) Some insurance companies
5) Exempt orgs.
What does Schedule M1 do?
Reconcile income/(loss) per books, to income/(loss) per tax
Key-person life insurance policy means what?
Corp. owns policy. NOT tax-deductible, so would need to be reconciled on M1.
When is accrual method of accounting REQUIRED?
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