C Corp, S corp, LLC, Partnership, tax exempt

Question 1

Reasons a court will “pierce the
corporate veil” (hold a limited owner personally liable).(mnemonic)

Answer 1

I C FRAUD –
● I - Inadequate capitalization
● C - Comingling personal with
corporate funds
● Fraud committed against existing
creditors.

Question 2

Fundamental changes that require shareholder approval in C corporations (mnemonic)

Answer 2

DAMS –
● D - Dissolution
● A - Amendments to the Articles of
incorporation
● M - Mergers, consolidations, and
compulsory share exchanges.
● S - Sale of substantially all the
corporation’s assets.

Question 3

Formula to calculate C Corp taxable income

Answer 3

Gross Income
-Deductible Exp
- Depreciation and Amortization
- Tax Credits and Deductions
-NOL’s
- Dividend Received Deduction (DRD)
-Specific Adjustments

Gross Income (all income from sales, services, interest, dividends, rents, royalties, and other sources.)

Deductible exp - must be ordinary (common and accepted in the business) and necessary (appropriate and helpful for the
business). Examples include salaries and wages, rent,
interest, taxes, etc.

Net Operating Losses: If the corporation had net operating
losses (NOLs) in previous years, these could be carried
forward and used to offset current income, subject to certain limitations.

Specific Adjustments: Adjust for any other specific items
as per the tax code, like adjustments for foreign income, if applicable.

Question 4

whats Dividend Received Deduction (DRD) and its rules

Answer 4

Dividend Received Deduction (DRD): allows
corporations to deduct a portion of the dividends received.

1. If the receiving corp owns less than 20% of the paying corp = it can deduct 50% of the
   dividends received.
2. If the receiving corp owns Between 20% and 80% = can deduct 65% of the dividends received.
3. If the receiving corp owns More Than 80% = can deduct 100% of the dividends received

Question 5

Define NOL

Answer 5

A Net Operating Loss (NOL) occurs when a corporation’s
allowable tax deductions exceed its taxable income within a tax
year.

Question 6

Calculation of NOL

Answer 6

● Income: Aggregate the corporation’s income for the year.
● Deductions: Sum up all allowable tax deductions (e.g.,
operating expenses, interest, taxes, depreciation).
● NOL Calculation: If deductions exceed income, the difference is the NOL

Question 7

Capital Loss
Definition:

Answer 7

Capital loss occurs when the sale or exchange of a
capital asset results in a loss

Question 8

Corporations can carry forward NOLs indefinitely to offset future taxable income.
An NOL can offset up to 80% of taxable income in
future years.

Question 9

Carryback and carryforward rules of NOLs for corporations

Answer 9

The carryback of NOLs was largely
eliminated by the Tax Cuts and Jobs Act, except for
specific cases like farming losses or casualty and theft
losses.

Question 10

Carryback and carryforward rules of capital losses for corporations

Answer 10

Corporations can carry forward capital losses up to 5 years.

Carryback: Corporations can carry back capital losses
up to 3 years.

Usage: Capital losses can only offset capital gains. If there are no capital gains in the current year, the losses carry forward.