C Corp: Taxation Flashcards by Carla Torres

C Corps

What are the filing requirements?

R3-26

-Form 1120

- -Deadline: April 15

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C corps taxation

Who is required to use Accrual Basis?

R3-27

Accrual Basis is required for:

-purchases and sales of inventory
-tax shelters
-farming corps
-business w/ > $5mill gross receipts for 3-yr period

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Who can make estimated tax payments?

R3-27

Small corps Pay lesser of:

-100% tax owed in current year
-100% tax owed in preceding year
- cannot use if owed -0- in previous yr

Large Corps (income > $1mil):

-100% tax owed in CY
-cannot use preceding year method

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Regular Tax

Who can file consolidated tax return?

R3-28

Consolidated tax returns = 100% DRD
–affiliated group of corps can elect to be taxed as a single unit

Affiliated group = Consolidated tax return

-80%+ voting power of outstanding stock
-80%+ value of all outstanding stock

Brother-Sister Corps = not consolidate

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Consolidated Tax Return

Tax Rule vs GAAP

R3-29

Consolidated differences:

-Tax = 80% to 100%
-GAAP = over 50%

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Can Brother-Sister Corps file a consolidated tax return?

R3-29

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AMT

What are the Adjustments: +/-

R3-32

L–Long-Term Contracts
I–Installment Sales
D–Depreciation adj for property 1986-1999

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AMT

What are the Preferences: +

R3-33

Not taxed for regular tax
Added back for AMT purposes

P–Percentage depletion
P–Private activity bonds
P–pre-1987 ACRS depreciation

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AMT

What are the Adjusted Current Earnings (ACE)?

R3-34

M–municipal bond interest +
O–organizational expense amortization +
L–life insurance proceeds on key employee +
D–difference in AMT depreciation and ACE depreciation +/-
D–70% dividends received deduction +

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AMT

How do you calculate ACE adjustment?

R3-33

Step 1:

-determine Adjusted Current Earnings
-“MOLDD” mnemonic

Step 2:
–75% of difference in ACE and AMTI before the adjustment and the alternative tax NOL deduction

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AMT

What is the AMT Exemption Amount?

R3-35

$40,000

- 25% AMTI in excess of $150,000

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AMT

What is the AMT tax rate?

R3-35

20% flat rate

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AMT

What credit can be taken for AMT purposes?

R3-35

foreign tax credit

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AMT

What is the Minimum Tax Credit (MTC)?

R3-35

Credit Against Future Regular Tax:

Corps that pay AMT in one year can use AMT as a credit in future years against regular income tax liability.

CF indefinitely; no CB

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Accumulated Earnings Tax

At what amount of AE&P will it be taxed?

R3-38

Taxed if accumulated (retained) earnings exceed:

-$250k for C corps
-$150k for personal service corps

Tax Rate = 20%

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Accumulated Earnings Tax

What is the Exemption?

R3-38

1st–need good reason to keep the earnings

2nd–

Personal Holding Company Tax

Who qualifies as a PHC?
“NIRD” mnemonic

R3-39

-tax is self assessed
-50%+ owned by 5 or fewer people and have 60% of adj. ordinary GI consisting of:

N–Net rent (if

Personal Holding Company Tax

What percentage is the Additional tax?

R3-39

-PHC are taxed an additional 20% on undistributed personal holding company net income
-tax calculated before div deduction
-PHC not subject to accumulated earnings tax

Corporate E&P

What is the calculation for current E&P?

R3-39

Taxable Income
+/-Adjustments
=Current Earnings and Profits

Corporate E&P

What are the Negative Adjustments? (6)

R3-40

Subtract from Taxable Income:

-Federal Income tax exp
-nondeductible penalties, fines, political contributions
-officer life insurance premiums (corp is beneficiary)
-exp for production of tax-exempt income
-nondeductible charity
-nondeductible capital losses C(L)

Corporate E&P

What are the Positive Adjustments? (9)

R3-40

Add back to Taxable Income:

-refunds of federal income tax paid
-tax-exempt income
-refunds of items not subject to regular tax
-NOL deduction
-life insurance proceeds (corp is beneficiary)
-DRD
-C(L) carryovers that impact TI
-charity carryovers that impact TI
-nontaxable cancellation of debt

Corporate E&P

What are the Positive or Negative Adjustments (7)?

R3-41

-losses and gains w/ differences in GAAP vs tax
-changes in cash surrender value of life insurance policy
-excess depreciation for E&P over regular income tax
-diff in allowable deductions for organizational and start-up exp
-installment income method adjustment
-completed contract method vs %-completion
-amortization of intangible drilling costs
-section 179 exp vs ratable depreciation using 5-yr life

Corporate E&P

What is the calculation for Accumulated E&P?

R3-41

Beginning Accumulated E&P
+/-Current E&P for tax yr less distributions deemed current from E&P
-Distributions from accum E&P
=Ending Accumulated E&P

Corporate E&P

How is Accum E&P distributed?

R3-41

1st-- apply to current E&amp;P
2nd--apply to accumulated E&amp;P
3rd--apply to return of capital
--Excess is "excess distribution"
--excess reported as CG (taxable income) to shareholder

Corporate E&P When is Accum E&P taxable and nontaxable? R3-41

1) E&P --curent and accum = div income 2) No E&P = return of capital (not taxed) 3) No basis = CG distribution

Corporate Dividends How are dividends applied to E&P? R3-43

Current E&P --allocated on pro-rata basis to each distribution Accum E&P --applied chronological order w/ earliest distribution

Corporate Dividends Are Stock dividends taxable? R3-43

Generally not taxable --unless shareholder has choice of receiving cash or property FMV @ distribution date

Corporate Dividends What value is the dividend taxed at to the shareholder receiving it? R3-44

Dividend is taxed at: - -cash @ amount received - -property @ FMV If shareholder is a corporation, it is subject to DRD

Corporate Dividends At What amount is the corporation paying dividend taxed? R3-44

General Rule: - -div paid is not taxed - -reduces E&P if appreciated property is distributed: --FMV property less NBV=Corp Gain

Corporate Dividends What happens when corp distributes appreciated property div? R3-44

1) Corp has no E&P (div is not taxable) 2) Corp distributes appreciated property as div 3) Corp recognizes gain 4) Corp gain increases/created Corp E&P 5) Div to shareholder ix taxable income (to extent of E&P)

Corporate Dividends Stock Redemption (corp buys back stock) R3-44

property is treated as if it was sold at FMV and corp recognizes gain (no loss) proportional --taxable div income disproportional --CG(L)

Corporate Liquidation Corp sells assets and distributes cash to shareholders R3-45

--Corporation: Sale price -Basis =Taxable G(L) --Shareholder: Proceeds -Stock basis =Taxable G(L)

Corporate Liquidation Corp distributes assets to shareholders R3-45

--Corp: FMV -Basis =Taxable G(L) --Shareholder: Sale price -Stock basis =Taxable G(L)

Tax-free Reorganizations 6 types of reorganizations R3-46

- -mergers and consolidation (type a) - -acquisition of another corp's stock (type b) - -acquisition of another corp's assets (type c) - -dividing corp into separate corps (type d) - -recapitalization (type e) - -change in identity, form, or place (type f)

Tax-Free Reorganization Parent/Subsidiary Liquidation R3-46

--no G(L) recognized by either when parent owns 80%+ --must result in a continuity of business (not liquidated)

Tax-Free Reorganization Nontaxable event R3-46

Corporation - -reorganization is nontaxable - -all tax attributes remain Shareholder - -reorganization is nontaxable - -shareholder retains original basis - -shareholder recognizes gain to extent of boot received in reorg

Worthless Stock How is it treated? R3-47

- -only original stockholder can take ordinary loss up to $50k ($100k MFJ) - -any excess loss is capital loss up to $3k

Small Business Stock how much can be excluded? R3-47

non-corp shareholder holding small business stock for >5 yrs may exclude 100% of gain on sale or exchange of stock Greater of: --10 * stock basis or --$10 million