Ch 3 Part 2

Question 0

Computation of corporate regular (income) tax liability

Answer 0

Taxable income
X income tax rates
= regular tax liability
- foreign tax credit
= regular tax
- general business credit
- minimum tax credit
- other allowed credits
\+ recapture of previously claimed tax credits
= income (regular) tax liability

Question 1

Restriction on closely held corporations 4

Answer 1

1 Shareholder and family who own over 50% of company
Can’t deduct losses between company and shareholder
2 If share holder sells property of disallowed loss at gain, gain
Is offset by previously disallowed loss
3 if shareholder sells property of disallowed loss at loss, the
Disallowed loss is never recognized
4 Gain on sale is treated as ordinary income

Question 2

5% surcharge, corporate tax rates

Answer 2

5% surcharge applies to amounts above $100,000 and less
Than $335,000

Max surcharge = $11,750 (335k - 100k)

Question 3

Personal service corporations

Answer 3

Pay a flat tax rate of 35% on all income

Don’t have graduated tax rate like C corporations

Question 4

Control group: special tax rules

Answer 4

Prevent shareholders from distributing income to multiple
corporations to lower their tax rates

Shareholders of 2 or more corporations must pay 5% surcharge
On income exceed $100k (maximum of $11,750)

Pay 3% surcharge on taxable income exceeding $15 million
(Maximum $100,000)

Question 5

Controlled group

Answer 5

Comprised of 2 or more corporations owned directly or indirectly
By same shareholder or group of shareholders

Question 6

3 categories of controlled groups

Answer 6

1 parent subsidiary controlled group
2 brother sister controlled group
3 combined controlled group

Question 7

Parent-subsidiary controlled group

Answer 7

One corporation (parent corp.) must directly own at least 80%
Of voting and value of stock of a second corporation (subsidiary)

Question 8

Parent subsidiary control group example

Answer 8

Parent owns 80% of Axel corp and 40% of wheel corp
Axel owns 40% of wheel corp

Therefore parent also owns 80% of wheel corp, so the is
A parent subsidiary control group

Question 9

Brother sister controlled group, 2 definitions

Answer 9

1) 50%-80% definition

2) 50% only definition

Question 10

Brother sister controlled groups 50-80% definition: a group of 2 or more corporations is a brother sister group if 5 or fewer individuals, trusts or estates meet two conditions?

Answer 10

1 more than 50% voting power and 50% value owned

2 at least 80% voting power of all classes of voting stock
Of each corporation (5 shareholders must collectively own 80%)

Question 11

Brother sister controlled groups 50% only definition

Answer 11

5 or fewer owners must own 50% of company

Question 12

Combined controlled group

Answer 12

Comprised of 3 or more corporations meeting the following
Criteria:
1 each corporation is member of parent subsidiary controlled
Group or brother sister controlled group
2 at least one of the corporations is both the parent corp.
Of parent subsidiary controlled group and member of
Brother sister controlled group

Question 13

How long do you have to be a group member in the tax year to be considered part of the controlled group?

Answer 13

1/2 the days in the year

Question 14

Consolidated tax return

Answer 14

Groups of related corporations (affiliated groups) may elect to
File a single income tax return

Question 15

Affiliated group

Answer 15

One or more chains of includible corporations connected

Through stock ownership with common parent

Question 16

What are not considered includible corporations?

Answer 16

Foreign corporations, certain insurance companies, tax exempt org.,
S corporations

Question 17

2 required ownership criteria for affiliated groups to file consolidated return

Answer 17

1 common parent must directly own at least 80% of voting power
And value of at least one includible corporation

2 one or more group members must directly own stock with at
Least 80% voting power and value of each other other corp.
In affiliated group

Question 18

Can parent subsidiary portions of combined groups file consolidated returns?

Can brother-sister control groups file consolidated returns? Why .

Answer 18

Parent subsidiary portions of combined groups can file
consolidated returns

Brother sister controlled groups can’t, because parent subsidiary
Relationship doesn’t exist

Question 19

3 advantages of filing a consolidated return

Answer 19

1 losses of one member of group can offset profits of another
Group
2 capital losses of one member of group can offset capital gains
Of another member of the group
3 profits or gains realized from sale between members in group
Are deferred until sold outside of the group

Question 20

5 disadvantages of filing consolidated return

Answer 20

1 election is binding on all subsequent tax years unless IRS grants
Permission to discontinue consolidate returns/or affiliated group
Terminates
2 losses on inter company transactions deferred til sale to
Outside group takes place
3 sec. 1231 loss offsets sec. 1231 gain instead of being reported
as ordinary loss
4 losses of unprofitable group member may reduce deduction
Or credit limitations of group members compared to separate
Filing
5 additional administrative costs in maintaining records

Question 21

When are corporate installment payments required

Answer 21

Every corporation that expects to pay over $500 in tax for
Current year

Each payment should be equal to 25% of liability