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Regulation > C Corp: Taxation > Flashcards

C Corp: Taxation Flashcards

1
Q

C Corps

What are the filing requirements?

R3-26

A
  • -Form 1120

- -Deadline: April 15

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2
Q

C corps taxation

Who is required to use Accrual Basis?

R3-27

A

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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3
Q

Who can make estimated tax payments?

R3-27

A

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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4
Q

Regular Tax

Who can file consolidated tax return?

R3-28

A

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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5
Q

Consolidated Tax Return

Tax Rule vs GAAP

R3-29

A

Consolidated differences:

  • -Tax = 80% to 100%
  • -GAAP = over 50%
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6
Q

Can Brother-Sister Corps file a consolidated tax return?

R3-29

A

no

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7
Q

AMT

What are the Adjustments: +/-

R3-32

A

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

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8
Q

AMT

What are the Preferences: +

R3-33

A

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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9
Q

AMT

What are the Adjusted Current Earnings (ACE)?

R3-34

A

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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10
Q

AMT

How do you calculate ACE adjustment?

R3-33

A

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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11
Q

AMT

What is the AMT Exemption Amount?

R3-35

A

$40,000

- 25% AMTI in excess of $150,000

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12
Q

AMT

What is the AMT tax rate?

R3-35

A

20% flat rate

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13
Q

AMT

What credit can be taken for AMT purposes?

R3-35

A

foreign tax credit

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14
Q

AMT

What is the Minimum Tax Credit (MTC)?

R3-35

A

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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15
Q

Accumulated Earnings Tax

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

R3-38

A

Taxed if accumulated (retained) earnings exceed:

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

Tax Rate = 20%

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16
Q

Accumulated Earnings Tax

What is the Exemption?

R3-38

A

1st–need good reason to keep the earnings

2nd–

17
Q

Personal Holding Company Tax

Who qualifies as a PHC?
“NIRD” mnemonic

R3-39

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

N–Net rent (if

18
Q

Personal Holding Company Tax

What percentage is the Additional tax?

R3-39

A
  • -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
19
Q

Corporate E&P

What is the calculation for current E&P?

R3-39

A

Taxable Income
+/-Adjustments
=Current Earnings and Profits

20
Q

Corporate E&P

What are the Negative Adjustments? (6)

R3-40

A

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)
21
Q

Corporate E&P

What are the Positive Adjustments? (9)

R3-40

A

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
22
Q

Corporate E&P

What are the Positive or Negative Adjustments (7)?

R3-41

A
  • -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
23
Q

Corporate E&P

What is the calculation for Accumulated E&P?

R3-41

A

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

24
Q

Corporate E&P

How is Accum E&P distributed?

R3-41

A 
1st-- apply to current E&P
2nd--apply to accumulated E&P
3rd--apply to return of capital
--Excess is "excess distribution"
--excess reported as CG (taxable income) to shareholder
25
Q

Corporate E&P

When is Accum E&P taxable and nontaxable?

R3-41

A

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

26
Q

Corporate Dividends

How are dividends applied to E&P?

R3-43

A

Current E&P
–allocated on pro-rata basis to each distribution

Accum E&P
–applied chronological order w/ earliest distribution

27
Q

Corporate Dividends

Are Stock dividends taxable?

R3-43

A

Generally not taxable
–unless shareholder has choice of receiving cash or property

FMV @ distribution date

28
Q

Corporate Dividends

What value is the dividend taxed at to the shareholder receiving it?

R3-44

A

Dividend is taxed at:

  • -cash @ amount received
  • -property @ FMV

If shareholder is a corporation, it is subject to DRD

29
Q

Corporate Dividends

At What amount is the corporation paying dividend taxed?

R3-44

A

General Rule:

  • -div paid is not taxed
  • -reduces E&P

if appreciated property is distributed:
–FMV property less NBV=Corp Gain

30
Q

Corporate Dividends

What happens when corp distributes appreciated property div?

R3-44

A

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)

31
Q

Corporate Dividends

Stock Redemption (corp buys back stock)

R3-44

A

property is treated as if it was sold at FMV and corp recognizes gain (no loss)

proportional
–taxable div income

disproportional
–CG(L)

32
Q

Corporate Liquidation

Corp sells assets and distributes cash to shareholders

R3-45

A

–Corporation:
Sale price
-Basis
=Taxable G(L)

–Shareholder:
Proceeds
-Stock basis
=Taxable G(L)

33
Q

Corporate Liquidation

Corp distributes assets to shareholders

R3-45

A

–Corp:
FMV
-Basis
=Taxable G(L)

–Shareholder:
Sale price
-Stock basis
=Taxable G(L)

34
Q

Tax-free Reorganizations

6 types of reorganizations

R3-46

A
  • -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)
35
Q

Tax-Free Reorganization

Parent/Subsidiary Liquidation

R3-46

A

–no G(L) recognized by either when parent owns 80%+

–must result in a continuity of business (not liquidated)

36
Q

Tax-Free Reorganization

Nontaxable event

R3-46

A

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
37
Q

Worthless Stock

How is it treated?

R3-47

A
  • -only original stockholder can take ordinary loss up to $50k ($100k MFJ)
  • -any excess loss is capital loss up to $3k
38
Q

Small Business Stock

how much can be excluded?

R3-47

A

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

Regulation (13 decks)

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