C Corp Taxation - Becker

Question 1

A corporation’s capital loss carryback or carryover is:

Answer 1

Always treated as a short-term capital loss

Question 2

Jackson, a single individual, inherited Bean Corp. common stock from Jackson’s parents. Bean is a qualified small business corporation under Code Section 1244. The stock cost Jackson’s parents $20,000 and had a fair market value of $25,000 at the parents’ date of death. During the year, Bean declared bankruptcy and Jackson was informed that the stock was worthless. What amount may Jackson deduct as an ordinary loss in the current year?

Answer 2

$0; Losses resulting from the sale, exchange or worthlessness of Section 1244 qualifying stock (also called small business stock) are treated as ordinary losses up to $50,000 in any tax year. However, this loss is available only to original owners of the stock. Because Jackson inherited the stock, he is not the original owner. Therefore, in this case, no ordinary loss may be deducted. (Note that Jackson would be allowed a capital loss in the year the stock was deemed entirely worthless. The capital loss would be deducted under the personal capital loss rules and calculated using the likely transfer basis of $25,000.)

Question 3

Which of the following is not true with regard to personal holding companies (PHCs)?

a. Personal holding companies are not subject to the accumulated earnings tax.
b. The additional tax (penalty) is self-assessed by the PHC.
c. Personal holding companies, as specifically defined by the Code, are corporations that meet certain "closely-held" ownership criteria and have over 50% of their adjusted gross income consisting of net rent (less than 50% of ordinary gross income), taxable interest, most royalties, and dividends from an unrelated domestic corporation.
d. There is no penalty if net earnings are distributed, as the penalty only applies to income that has not been distributed.

Answer 3

While most of the information in the item is correct, it is when over 60% of the adjusted gross income of a closely-held (more than 50% owned by 5 or fewer individuals either directly or indirectly at any time during the last half of the tax year) corporation consists of “NIRD” that it is defined as a personal holding company, not over 50% (as in the selection).