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Regulation > C Corp: Formation and Operation > Flashcards

C Corp: Formation and Operation Flashcards

1
Q

Formation

What is C corp’s basis in property received?

R3-3

A

Greater of:
–adjusted basis (NBV)
or
–debt assumed by corporation

*nontaxable

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2
Q

Formation

No gain or loss is recognized by C corp for:

R3-3

A

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
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3
Q

Formation

What is Shareholder’s basis in C/S?

R3-4

A
  • -cash contributed
  • -property NBV
    • less liability assumed by C corp
    • gain recognized when debt exceeds adj basis
    • non-taxable
  • -services FMV
    • taxable
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4
Q

Formation

No gain or loss is recognized by shareholder if:

R3-3

A

No gain or loss recognized if:

  • -80% of c corp control
  • -boot not involved (received)
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5
Q

Gross Income

What are the GAAP vs Tax differences in gross income?

R3-7

A

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

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6
Q

Business Deductions
Domestic Production Deduction

How much is it?

R3-15

A

9% of the lesser of:

  • -qualified production activities (QPAI)
  • -taxable income (disregarding QPAI deduction)
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7
Q

Business Deductions
Domestic Production Deduction

How do you calculate QPAI?
Qualified production activities income

R3-15

A 
Domestic production gross receipts
-COGS
-other directly allocable exp or losses
-proper share of other deductions
=qualified production activities income=
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8
Q

Business Deductions
Executive Compensation

How much is non-deductible?

R3-16

A

Non-deductible:

compensation over $1,000,000 paid to CEO or the 4 top compensated officers

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9
Q

Business Deductions
Bonus Accruals

Deductible or not?

R3-16

A

deductible if paid by April 15

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10
Q

Business Deductions
Bad Debts

Deductible or not?

R3-16

A

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

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11
Q

Business Deductions
Business Interest Expense

Deductible or not?

R3-16

A

on business -> incurred and paid = deduct
on investments -> up to investment income
prepaid -> deduct “later” when incurred

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12
Q

Business Deductions
Charitable Contributions

How much can be deducted?

R3-16

A

–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
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13
Q

Business Deductions
Casualty and Loss related to business

How much is deductible?

R3-17

A

100% deductible

  • different from individual loss:
  • -no $100 reduction, no 10% AGI reduction
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14
Q

Business Deductions
Casualty and Loss related to business

How much is deductible? partially vs fully

R3-17

A 
Partially Destroyed:
--lesser of:
  -decline in FMV of property
or
  -adj basis (NBV) of property before casualty

Fully Destroyed:
–adj basis (NBV) of property

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15
Q

Business Deductions
Operational and State-up Costs

What amount is deductible?

R3-17

A

Deduct up to $5,000 + amortize excess over 15yrs (180mo)

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16
Q

Business Deductions
State-up Costs

What costs are deductible?

R3-18

A

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
17
Q

Business Deductions
Amortization, Depreciation, and Depletion

Tax Rule vs GAAP Rule

R3-18

A

Goodwill, franchises, trademarks, and trade names:
Tax Rule:
–amortize Straight-Line over 15yrs (180mo)

GAAP Rule:

  • -not amortized
  • -test for impairment
18
Q

Business Deductions
Life Insurance Premium

deductible or not?

R3-18

A

Corp is Beneficiary
–not tax deductible

Employee is Beneficiary
–tax deductible (employee benefit)

19
Q

Business Deductions
Business Gifts

How much is deductible?

R3-18

A

up to $25 per person per year

20
Q

Business Deductions
Business Meals and Entertainment

How much is deductible?

R3-18

A

50% deductible

21
Q

Business Deductions
Penalties and fines

How much is deductible?

R3-18

A

Not tax deductible

22
Q

Business Deductions
Taxes

Which taxes are tax deductible?

R3-19

A

Deductible:

  • -State income taxes
  • -City income taxes
  • -Federal payroll taxes

Not Deductible:

  • -federal income taxes
  • added back to book income
23
Q

Business Deductions
Lobbying and Political Exp

How much is deductible?

R3-19

A

Not tax deductible

24
Q

Business Deductions
Capital Gains and Losses

Are they deductible?

R3-19

A
  • -no deduction allowed
  • -C(L) offsets CG
  • -CG taxed at ordinary income rates
  • -CB 3; CF 5 treated as S-T CG
25
Q

Business Deductions
Capital Gains and Losses

How are Capital Gains taxed?

R3-19

A

CG taxed at ordinary income rates

26
Q

Business Deductions
Capital Gains and Losses

How are Capital Losses treated?

R3-19

A
  • -C(L) offsets CG

- -CB 3; CF 5

27
Q

Business Deductions
Net Operating Losses (NOL)

How is a NOLs treated?

R3-20

A

CB 2; CF 20
“hindsight is 20/20. 2-20”

When calculating:

  • -no charitable contribution deduction
  • -yes dividend received deduction

fill out Form 1120X

28
Q

Business Deductions
Inventory Valuation Methods

Inv methods: Tax Rules vs GAAP

R3-20

A
  • -the tax method used for accounting purposes must be used for income tax purposes
  • -change in inventory method must be approved by IRS

Uniform Capitalization Rules:

  • -RM, DL, FOH
  • -must use different valuation methods
29
Q

General Business Credit

What is the Formula?

R3-21

A 
Net Income Tax
less greater of:
--25% of regular tax liability above $25k
or
--Tentative minimum tax

unused credits -> CB 1; CF 20

30
Q

Dividends Received Deduction (DRD)

How much can be deducted?

R3-21

A

Deduction allowed is a percentage of div income.

–70% if own

31
Q

Dividends Received Deduction

What is the Formula?

R3-23

A 
Dividend Income
-deductions
-dividend received deduction
=taxable income
-tax
=net income (after tax)
32
Q

Dividends Received Deduction

What is the taxable limitation?

R3-24

A

DRD = lesser of:

  • -70% (or 80%) dividends received
  • -70% (or 80%) of TI w/o DRD, C(L) CB, or domestic production activities deduction

Exception:
–does not apply if after taking full DRD, there is a NOL

33
Q

Dividends Received Deduction

What is the taxable limitation exception?

R3-25

A

Exception:
–limitation does not apply if after taking full DRD, there is a NOL

“table manners”

  • -winners are polite and take smaller portion
  • -losers are not polite and take larger portion
34
Q

Dividends Received Deduction

Which corps cannot take DRD?

R3-25

A
  • -personal service corps
  • -personal holding co
  • -(personally taxed) S corps

“don’t take it Personally”

35
Q

Dividends Received Deduction

Who can take 100% DRD?

R3-25

A

–affiliated corps w/ ownership > 80%

DRD -> consolidate

Regulation (13 decks)

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