C Corp: Formation and Operation Flashcards
Formation
What is C corp’s basis in property received?
R3-3
Greater of:
–adjusted basis (NBV)
or
–debt assumed by corporation
*nontaxable
Formation
No gain or loss is recognized by C corp for:
R3-3
no gain or loss recognized when issuing stock for property:
- -formation- issuance of C/S
- -reacquisition- purchase of T/S
- -resale- Sale of T/S
Formation
What is Shareholder’s basis in C/S?
R3-4
- -cash contributed
- -property NBV
- less liability assumed by C corp
- gain recognized when debt exceeds adj basis
- non-taxable
- -services FMV
- taxable
Formation
No gain or loss is recognized by shareholder if:
R3-3
No gain or loss recognized if:
- -80% of c corp control
- -boot not involved (received)
Gross Income
What are the GAAP vs Tax differences in gross income?
R3-7
Temporary Differences:
- -Interest income received in advance
- -Rental income received in advance
- -Royalty income received in advance
Permanent Differences:
GAAP items not included as TI:
–interest income from municipal, state bonds
–proceeds from life insurance (corp is beneficiary)
–federal income taxes= not deductible
Business Deductions
Domestic Production Deduction
How much is it?
R3-15
9% of the lesser of:
- -qualified production activities (QPAI)
- -taxable income (disregarding QPAI deduction)
Business Deductions
Domestic Production Deduction
How do you calculate QPAI?
Qualified production activities income
R3-15
Domestic production gross receipts -COGS -other directly allocable exp or losses -proper share of other deductions =qualified production activities income=
Business Deductions
Executive Compensation
How much is non-deductible?
R3-16
Non-deductible:
compensation over $1,000,000 paid to CEO or the 4 top compensated officers
Business Deductions
Bonus Accruals
Deductible or not?
R3-16
deductible if paid by April 15
Business Deductions
Bad Debts
Deductible or not?
R3-16
Accrual basis
- -tax deduction when specific A/R is written off
- -(direct write-off method is used for tax purposes, allowance method for GAAP)
Cash basis
–no tax deduction
Business Deductions
Business Interest Expense
Deductible or not?
R3-16
on business -> incurred and paid = deduct
on investments -> up to investment income
prepaid -> deduct “later” when incurred
Business Deductions
Charitable Contributions
How much can be deducted?
R3-16
–any accrual must be paid by April 15
- -deduct up to 10% of Taxable Income before:
- charitable contribution deduction
- dividend received deduction
- NOL CB
- C(L) CB
- production activities deduction
Business Deductions
Casualty and Loss related to business
How much is deductible?
R3-17
100% deductible
- different from individual loss:
- -no $100 reduction, no 10% AGI reduction
Business Deductions
Casualty and Loss related to business
How much is deductible? partially vs fully
R3-17
Partially Destroyed: --lesser of: -decline in FMV of property or -adj basis (NBV) of property before casualty
Fully Destroyed:
–adj basis (NBV) of property
Business Deductions
Operational and State-up Costs
What amount is deductible?
R3-17
Deduct up to $5,000 + amortize excess over 15yrs (180mo)
Business Deductions
State-up Costs
What costs are deductible?
R3-18
Included Costs:
- -legal services fees
- -accounting services fees
- -fees paid to state of incorporation
Excluded costs:
- -costs of issuing and selling stock
- -commissions and underwriter’s fees
- -costs incurred in transfer of assets to corp
Business Deductions
Amortization, Depreciation, and Depletion
Tax Rule vs GAAP Rule
R3-18
Goodwill, franchises, trademarks, and trade names:
Tax Rule:
–amortize Straight-Line over 15yrs (180mo)
GAAP Rule:
- -not amortized
- -test for impairment
Business Deductions
Life Insurance Premium
deductible or not?
R3-18
Corp is Beneficiary
–not tax deductible
Employee is Beneficiary
–tax deductible (employee benefit)
Business Deductions
Business Gifts
How much is deductible?
R3-18
up to $25 per person per year
Business Deductions
Business Meals and Entertainment
How much is deductible?
R3-18
50% deductible
Business Deductions
Penalties and fines
How much is deductible?
R3-18
Not tax deductible
Business Deductions
Taxes
Which taxes are tax deductible?
R3-19
Deductible:
- -State income taxes
- -City income taxes
- -Federal payroll taxes
Not Deductible:
- -federal income taxes
- added back to book income
Business Deductions
Lobbying and Political Exp
How much is deductible?
R3-19
Not tax deductible
Business Deductions
Capital Gains and Losses
Are they deductible?
R3-19
- -no deduction allowed
- -C(L) offsets CG
- -CG taxed at ordinary income rates
- -CB 3; CF 5 treated as S-T CG
