Chapter 15 - Corporate Distributions Flashcards
What is Earnings and Profits?
an approximate measure of a corporation’s ability to pay a dividend to its SH.
Distribution to a Shareholder
is FMV of the property distributed. It can be decreased by any liabilities that are assumed by the SH or to which the property is subject.
What is included with Stock rights in order to be included in gross income?
1) Distribution in Lieu of money
2) a disproportionate distribution
3) a distribution on PS
4) a distribution of convertible PS
5) a distribution of common and PS
What are the steps for calculating E and P from corporate distributions
1) income excluded from TI
2) Expenses and losses that are nondeductible for TI
3) Deferred income recognition items
4) Accelerated deduction items
5) Deductions not allowed for E and P
Under the Income excluded from TI, what items can be added to E & P?
a) add economic income
b) Refunds of prior year’s federal income tax
c) Tax exempt interest income
d) excluded portion of life insurance proceeds paid to the corporation
What are the nondeductible expenses and losses from corporate distributions?
1) Charitable contributions ( excess over 10% of TI )
2) Capital Losses (current year’s carried over )
3) Disallowed Losses ( e.g., sale to related party)
4) Federal income taxes
5) Penalties and fines
6) Political contributions
7) Expenses relating to tax exempt income
8) The excludable portion of life insurance premiums (with corporation as beneficiary)
What is Deferred Recognition items from Corporate distributions?
An exception defers recognition of most income when determining TI ( not included in E & P until recognized ).
Exceptions:
1) Add to TI- any unrecognized realized income / gain on an installment sale
2) Recalculated income reported on a long term contract is the completed contract method as if - The Percentage of completion method were used.
Accelerated Deduction Items
Due to economic decline, deductions that reduce TI from the excess of economic costs are due to the premature recognition
What are the adjustments for Accelerated deduction items?
Adjusts TI up or downward for the difference between
1) Section 179 expense deducted and the amount deducted as if the cost is expensed ratably over 5 years
2) Realty depreciation deducted using teh MACRS rules and depreciation computed over 39 years
3) ACRS deductions and straight line ACRS deductions with extended recovery periods
4) MACRS deductions and the alternative depreciation system ( ADS ) deductions
a) ADS applies straight line depreciation over the property’s class life using a half year convention
5) Percentage depletion deductions claimed and cost depletion amounts
6) Intangible drilling costs (IDC) deducted and the IDC amounts amortized over 60 months
Deductions not allowed for E and P
These items may have already been reduced E & P in a prior tax year or may never reduced E & P:
1) Charitable contribution carryovers
2) Net operating loss carryovers
3) Capital loss carryovers
4) Dividends Received Deductions (DRD)
