C & S Corps/Exempt Orgs Flashcards
Corporate Formation: Corporation Tax Consequences
Generally - no gain or loss recognized
Basis = Greater of:
- Adjusted basis of transferor
- Debt assumed by corporation
Corporate Formation: Shareholder Tax Consequences
Generally - no gain or loss recognized if 80% control and no boot received
COD: NBV-Liabilities = Boot
Basis = NBV - Liab assumed
What happens when the debt exceeds an asset’s adjusted basis?
Gain is recognized by the shareholder and added to bring stock basis to zero.
When is income received in advance of GAAP accrual taxed?
When received (i.e. interest/rental/royalty income)
DPAD deduction
9% of the lesser of:
- QPAI
- Taxable Income
How are start-up costs treated for tax purposes?
$5,000 deductible immediately, and excess amortized over 180 months (beginning month business begins)
What expenses to org/start-up costs specifically exclude?
- Costs of issuing and selling stock,
- Commissions
- Underwriter fees
- Costs incurred in the transfer of assets to a corp.
Amortization rules
Goodwill, covenants not-to-compete, franchises, trademarks, and trade names must be amortized on a straight-line basis over a 15-year period
Life Insurance Premiums (tax treatment)
Corp = Beneficiary: Not tax deductible
Employee = Beneficiary: Tax deductible as employee benefit
Corporate capital gains deductions
NOT allowed - can only be used to offset capital gains
Carryover = 3back/5forward
Dividends Received Deduction
70% - 0-20% owned
80% - 20-80% owned
100% - 80%+ owned
Dividends are eliminated when corps are affiliated
Estimated tax payments: small corp.
100% of:
- tax shown on CY return
- tax shown on PY return
Estimated tax payments: large corp
100% of tax shown on CY return
AMT adjustments +/-
LID
Long-term contracts (amt=%ofcompletion)
Installment sale dealer (full accrual/installment)
Depreciation adjustments
AMT preferences +
PPP
Percentage depletion
Private activity
Pre ‘87 ACRS excess depreciation
Adjusted Current Earnings +/-
MOLDD
Muni interest income Org. expense amortization Life insurance proceeds on key employees Difference between AMT/ACE depreciation Dividends received deduction (
Accumulated Earnings Tax
Imposed on C CORPS with retained earnings > $250,000 if improperly retained.
Tax = 20%
Personal Holding Company Definition
> 50% owned by 5 or fewer people and having 60% of adjusted OGI consisting of:
Net rent
Interest that is taxable
Royalties
Dividends from an unrelated domestic corp
Taxed an additional 20%
AMT Exemption amount
$40,000 less 25% of AMTI in excess of $150,000
Negative adjustments to E&P (reduce)
- Federal Income Tax Expense
- Nondeductible penalties, fines, political contr.
- Officer life insurance premiums (corp. beneficiary)
- Expenses for production of TE income
- Nondeductible charitable contr.
- Nondeductible capital losses
Positive adjustments to E&P (increase)
- Refunds of Fed IT paid
- TE income
- Refunds of items that were not subject to regular tax
- NOL deductions
- Life insurance proceeds where corp. is beneficiary
- DRD used to calc regular taxable income
- Carryovers of capital losses that impacted TI
- Carryovers of charitable contri that impacted TI
- Nontaxable cancellation of debt not used to reduce basis of property
Positive OR Negative Adjustments to E&P
- Losses/gains that have different effects on TI than E&P
- Changes in the cash surrender value of certain life ins. policies
- Excess depr. for E&P over that for regular IT
- Differences in allowable deductions for org/start-up exp
- Installment income method adjustments
- Completed contract income versus %of completion adj.
- Amortization of intangible drilling costs adj.
- Section 179 expense for reg tax vs. ratable depr.
Classification of corporate distributions
- Current/Accumulated E&P = DIVIDEND
- No E&P available = ROC (not taxed)
- No Basis = CAPITAL GAIN
How are stock dividends treated?
Generally not taxable unless the shareholder has a choice of receiving cash or other property.
Taxable amount of a dividend to the SHAREHOLDER
Cash = Amt rec'd Property = FMV of property
Taxable amount of a dividend to the CORPORATION
Cash dividend does not create a taxable event for corp.
Appreciated property results in gain recognized as if property was sold. FMV - NBV = corp gain
Corporate liquidation - sells and distr. cash to S/H
Corp gain/loss = SP - Basis
Shareholder gain/loss = Proceeds - Stock basis
Corporate liquidation - distributes assets to S/H
Corp gain/loss = FMV - basis
Shareholder gain/loss = SP - Stock basis
Tax free reorg - Type A
Mergers, Acquisitions/consolidations
Tax free reorg - Type B
Acquisition of another corps stock - stock for stock
Tax free reorg - Type C
Acquisition of another corps assets - stock for assets
Tax free reorg - Type D
Dividing of corporation into separate operating coprs
Tax free reorg - Type E
Recapitalizations
Tax free reorg - Type F
Mere change in identity, form, or place of organization
What type of filers are eligible as a S corp. S/H?
Individual, estate, certain types of trusts
When must S Corp. election be made?
By march 15 to be valid that year (otherwise following yr)
What are the effects of a S corp election on corp?
- December 31 is req’d year end
- No tax on corp
- LIFO recapture tax
- BIG tax
- Tax on passive investment income
What increases the AAA account?
separately and non-separately stated income and gains (except TE income and certain life insurance proceeds)
What decreases the AAA account?
Corp. distributions, separately and non-separately stated expense items and losses, and nondeductible expenses that relate to income other than TE income.
S corp distributions with NO corp E&P
- Extent of basis in stock = ROC
2. In excess of basis in stock = Capital Gain
S corp distributions with corp E&P
- Extent of AAA = Reduced basis in stock
- Extent of C corp E&P = taxed as dividend
- Extent of basis of stock = ROC
- In excess of basis in stock = capital gain
What is Unrelated Business Income (UBI)?
- Derived from an activity that constitutes a trade or bus.
- Regularly carried on
- Not substantially related to the orgs exempt purposes
Taxation of UBI
- Must comply with corp estimated pmts rules
- Only taxed on amount in excess of $1,000
- There are types of income excluded
What types of income are excluded from UBI?
- Royalties/dividends/interest/annuities
- Rents from real property
- Gains/losses on sale&exchange of property
- Income from research of a college or hospital
- Income of labor unions
- Activities limited to exempt orgs by state law (BINGO)
- Value of securities loaned to a broker and the income rec’d by a lender
- Income from exchange or rental of membership lists
Who is not required to file 990?
CHRIST or
