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Regulation > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are C corporations?

A

Legal entities that are separate and distinct from its owners.

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2
Q

How are C corporations created?

A

They are formally created by filing its Articles of Incorporation.

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3
Q

When is an exchange tax free?

A

Exchange of cash/property of 80% or more or a reorganization.

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4
Q

When is an exchange taxable?

A

Services or less than 80% of stock.

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5
Q

What if shares are issued in exchange for rendering of services?

A

Shares issued in exchange for rendering of services to the corporation result in ordinary income to the service provider and is reported at FMV by the service provider.

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6
Q

When is property contribution reported at FMV?

A

When less than 80% of the total voting stock is in the hands of shareholders that contributed cash or property.

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7
Q

When does a non-recognition of gain apply?

A

Applies only to amounts transferred solely in exchange for stock.

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8
Q

What if the shareholder receives cash or property in addition to stock?

A

A gain is recognized up to the amount of cash or FMV of other property received.

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9
Q

What if a shareholder contributes property subject to liabilities?

A

The shareholder’s basis in the stock received is reduced by the amount of liability relief. If liabilities exceed the shareholder’s adjusted basis in the property, gain is recognized on the excess and the shareholder’s basis in the stock is zero.

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10
Q

When is revenue recognized for a C corporation?

A

The earlier of when earned or collected

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11
Q

Can a corporation deduct capital losses?

A

Capital losses are not deductible to a corporation and may only offset capital gains.

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12
Q

How are loss carrybacks and carryforwards treated for a corporation?

A

They are all considered short term.

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13
Q

Which entity has the most flexibility in choosing an accounting period?

A

C corporation

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14
Q

What is the purpose of the M-1 recon?

A

To identify to the IRS amounts that are reported differently for GAAP and tax purposes.

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15
Q

When is a gain or loss recognized when a corporation makes a nonliquidating distribution of its stock?

A

A gain/loss is recognized when the property is appreciated property.

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16
Q

What tax credit cannot be claimed by a corporation?

A

EIC

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17
Q

How much compensation expense can be deducted for the highest paid executives of an issuer?

A

Only up to $1M can be deducted for the top 5 executive officers.

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18
Q

Who has to complete an M-3?

A

Companies with assets of $10M or more.

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19
Q

When are quarterly estimated tax payments due for corporations?

A

4th, 6th, 9th, and 12th month.

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20
Q

When would an underpayment penalty of tax for corporations not apply?

A

When the balance is less than $500, when the installment payments are accurate, when the tax payments made are 100% of this year or last year.

21
Q

What qualifies as a personal service corporation?

A

Health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting services.

22
Q

What is a type C reorganization?

A

Use of voting stock to acquire at least 80% of the target’s net assets

23
Q

What is a type E reorganization?

A

Recapitalization to change the capital structure of a single corporation.

24
Q

What is a type A reorganization?

A

Merger or consolidation.

25
Q

In a qualifying stock redemption, when are losses disallowed?

A

When a shareholder directly or indirectly owns more than 50% at the time of redemption.

26
Q

How are AET and PHC calculated?

A

AET is as a result of an audit and PHC is self-assessed.(sch. PH)

27
Q

The PHC tax only applies to what kind of income?

A

The tax only applies to undistributed income.

28
Q

What is the tax rate for PHC and AET?

A

20%.

29
Q

What are the safe harbor amounts for AET?

A

$250k for manufacturing and $150k for PSCs and for the purpose of federal income taxes owed.

30
Q

What are the 2 qualifications of PHC?

A

5 or fewer individuals AND 60% or more of revenue are from passive sources (interest, dividends, rent, royalty).

31
Q

What is gain realized?

A

FMV of property received minus basis in property given up.

32
Q

What expenses are not deductible for income tax purposes?

A

Federal income taxes, government fines/penalties, costs of issuing stock, lobbying costs, club dues.

33
Q

Distributions from a C corp to a shareholder cannot be treated as what by the shareholder?

A

They cannot be treated as a capital loss by the shareholder. Any excess in basis is are treated as capital gains.

34
Q

How can a corporation use up their capital losses?

A

Carried back 3 years and forward 5 years to offset capital gains.

35
Q

How much is deductible for organizational expenses and start up costs?

A

$5k each and amortized over 180 months.

36
Q

Which accrued expenses are tax deductible if paid w/in 2 1/2 months of year end?

A

Salaries, wages, bonuses, and vacation pay.

37
Q

What must be added back to get to ATI?

A

Charity, DRD, and capital loss carryback.

38
Q

Which accrued expense is tax deductible if paid w/in 3 1/2 months of year end?

A

Charity.

39
Q

Which type of reorganization involve only the original corporation, with no reference to an acquirer or other parties?

A

Types E and F.

40
Q

When must a C corporation use the accrual method?

A

A C corporation that has more than $25M in average sales for a 3 year period

41
Q

What is the value of a dividend that a recipient must recognize?

A

The FMV at the date of distribution

42
Q

What happens to general business credit that can’t be claimed in the current year?

A

They can be carried back 1 year and forward 20 years.

43
Q

Can tax shelters use the cash method of accounting?

A

No, only accrual

44
Q

What are examples of reorganizations that qualify as a tax-free exchange?

A

Changes in place of organization, mergers and consolidations, absorption of subsidiaries

45
Q

What is a reduction of APIC?

A

Cost of issuing, printing, and selling stock

46
Q

What are non-deductible expenses of a corporation?

A

Cost of issuing stock, lobbying costs, and club dues

47
Q

When are losses deductible for a corporation?

A

Only in liquidation of the company

48
Q

When do stock redemptions result in a capital gain?

A

Redemption is:

  1. Not equivalent to a dividend
  2. Substantially disproportionate
  3. All of s/h’s stock is redeemed
  4. From a non-corporate s/h in partial liquidation
  5. To pay death taxes under Sec. 303

Regulation (12 decks)

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