Chapter 3 - C and S Corps, and Exempt Org Taxes Flashcards
What are the tax stages for C-Corps? (FOTDL)
F - Formation O - Operations T - Taxation (Regular Tax, Minimun, Accum Earnings) D - Distributions L - Liquidations
What is important to know for S-Corp? (EEEET)
E - Eligibility requirements E - Electing Status E - Effect on Corporation E - Effect on Shareholders T - Termination of S-Corp
What are the stages to know for Partnerships? (FOTDL)
F - Formation O - Operations T - Tax Returns D - Distributions L - Liquidations
What do you need to know about LLCs? (FT)
F - Formations
T - Taxation
What do you need to know about Exempt Orgs? (TU)
T - Types of Exempt Orgs
U - UBI
Personal Holding Company must know (4 things)
1) 60% of AGI held by <5 people. Made of Net Rent, Interest Income, Royalties, Dividends.
2) The additional tax (penalty) is self-assessed
3) Not subject to accumulated earnings tax
4) There is only a penalty if earnings are NOT distributed
What happens for C-Corp shareholders on Liquidation?
Gain recognized FMV of assets - Basis
When is the formation of a C-Corp taxable for Shareholder? (4 times)
1) Services are rendered
2) Liability contributed > NBV of property
3) Shareholder(s) own < 80% after formation.
4) Boot is recieved
What is the C-Corp’s basis in Contributed Property?
GREATER OF:
1) Adjusted Basis
2) Debt assumed by Corporation
3) Cash paid to get property
What is DRD limited to?
It is limited to Appropriate % times the DRD Modified Taxable Income (TI before DRD, NOL, capital loss carryback/forward, any domestic production activities deductions)
What is the C-Corp taxation Form formula?
GROSS INCOME (Deductions) SUBTOTAL A (Charity) - 10% of A SUBTOTAL B (Dividends Recieved Deduction) 70%, 80%, 100% TAXABLE INCOME
Personal Holding Company income?
NIRD
what costs are expensable and amortizable for Organizational expense?
ONLY Costs of organizing Corp (i.e legal fees for drafting the corporate charter)
COSTS of Selling Stock ARE NOT!
WHat percentage means CORP can consolidate return?
Common parent must own 80% of voting stock to consolidate tax return
what is important about General business tax credit? (2 things)
1) It COMBINES several tax credits
2) to PROVIDE UNIFORM rules for carryback and carry forward years
What is a Type B Reorg?
1) Acquiring company acquires stock for voting stock of another company
2) Acquiring company is “in control” immediately after acquisition
Corporate tax return due date?
The ides of March (15).
Statute of limitations begins on your BDAY
Upon Formation of C-Corp, when does a Stockholder recognize a gain?
1) When FMV services are rendered.
2) LIABILITY GIVEN EXCEEDS BASIS (same as partnership)
3) BOOT RECEIVED
4) Own < 80% of the stock
Upon Liquidation of C-Corp, what expense are deductible and to whom?
Fees for liquidating the C-Corp are deductible to C-Corp
What are the carryback/forward year rules for C-Corps?
NOL (2 back - 20 forward) Capital gains (3 back - 5 forward) Charity contributions (forward FOREVA)
What is the CORPORATIONS basis in Assets upon formation?
GREATER OF:
NBV of Property & LIABILITY ASSUMED
PLUS any cash paid to attain it
How do shareholders treat liquidated property from Complete liquidating dividends (c-corp)?
Treated like selling property
As a Capital Gain or Loss (FMV - Basis of surrendered stock)
What is the minimum AE credit that can be taken for manufacturing companies?
$250K after federal income taxes have been taken.
what entities may take NOL deduction at entity level? (3 entities)
Individuals
C-Corps
Trusts and Estates
What entities may not file consolidated return? (5 SFReIE)
S-Corps Foreign Corps Real Estate Investment Trusts Some Insurance Companies Most exempt orgs
What’s the difference between Cash dividend and Property dividend (appreciated) when dividend is taxable.
Shareholder’s recognize Cash rec’d or FMV of property rec’d for Dividend income
Corporations reduce taxable earning by cash distributed and basis of asset distributed. (Pay taxable gain for appreciated portion of property)
How to determine (upon Formation of C-Corp) if shareholder’s appreciated property yields a taxable gain?
IRC Section 351.
if shareholders contributing cash and property don’t own 80% of stock (voting/non-voting) then the Appreciated FMV of property will be taxable as a gain.
What is amortization of intangible for tax purposes?
15 years
Difference between Section 1244 and Worthless stock treatment
Section 1244 - Ordinary loss (if original owner)
Worthless - Capital loss
S-Corp things to know (GRIT)
General Rule = No tax
Rules to become S-Corp
Income/Loss Recording
Termination Rules
Must be to become S-Corp
Must be:
Individual
Estate
Certain Trusts
Who can’t become S-Corp
Corporations and Partnerships
SH limit for S-Corp?
<100 people & One Class of stock
Election due date for S-Corp
The Ides of March
S-Corp status terminates when:
1) For three consecutive years. S-Corp’s prior C-Corp income is passive investment in nature and exceeds 25% of total S-Corp income
2) If >50% of total shares issued elect to
For S-Corp what items are included separately from k-1 form? (DCLGF)
Dividend Income Charitable Contributions Long term capital loss Gain or loss on sale of collectibiles Foreign Income Taxes
FOr built-in gains sold before 10 years, how much is taxed as C-Corp tax?
Only the amount that was appreciated at election date.
Are there any taxes on distributions for S-Corps?
Yes. Appreciated property
What increases/(decreases) Accumulated Adjustment Account (AAA) for S-Corps?
Separately and non-separately stated items on K-1
Are tax exempt orgs taxed on unrelated business income <$1000?
No.
what happens if unrelated business expenses Exceed unrelated business income?
A net operating loss occurs and is carried back and forward
A private foundation may terminate it’s exempt status by becoming what?
Max 50% charitable deduction donees
Broadly publicly supported organization
Public safety organization
Supporting organization
i.e: if it becomes public
Who qualifies as an exempt organization? (SRCS)
Social Clubs
Religious Org
Charitable Org
Scientific Org
Who DOES NOT qualifiy as an exempt org?
“Feeder orgs” (Make profit and send 100% to exempt org)
“Lobbyist” (Legislation influencers)
What tax rate is unrelated business income (exempt org) subject to?
Corporate tax rates unless org is taxable as a trust.
For corporations what is the exemption amount for AMTI?
THe exemption amount for ALternative Minimum Taxable Income is $40K.
Phase out is 25% of the AMTI >$150K
What increases and decreases shareholder’s basis in S-CORP?
INCREASES-
1) ALL INCOME (tax free or not)
2) Adjusted basis for Land contributed
3) Amount of Cash contributed
DECREASES-
1) All loses (Limited to Basis+Direct shareholder loan to S-Corp Recourse-Distributions
2) Distributions to shareholders
Similar to partnership without liability rules
Does a corporation have to use the Direct-write off method instead of the reserve method for bad debts?
If the corporation is NOT a Small Bank or thrift institution, then YES.
BELOW what amount does the corporation’s total tax have to be for the corporation to NOT have to pay any UNDERPAYMENT TAX PENALTY?
$500
What is AMT for corporations formula?
Regular Taxable Income
+/- LID
+ PPP
+/- Adjusted Current Earnings (MOLDD)
=AMTI
=AMT Base
*20%
=Gross AMT
=Tentative Minimum Tax Liability
=AMT
Which Tax payers are required to use ACCRUAL BASIS ACCOUNTING? (CATF)
C - C-Corp with > $5M annual gross reciepts for 3 years
A - Accounting PURCHASE and sale of inventory
T - Tax Shelters
F - Farming corporations
What effects the Shareholder’s basis in a C-CORP?
Increases \+ Cash contributed \+ AB of Property \+ FMV of services rendered \+ Gain recognized by shareholder is an increase Decreases - Cash Rec'd from corp - Liabilities assumed by the corporation - FMV of non money boot.
When does a shareholder NOT recognize a gain on formation?
1) when Shareholders end up with 80% CONTROL
2) NO BOOT INVOLVED
How are distributions/dividends of Land treated in a C-Corp from the Shareholder perspective? (DIFFERENT FROM PARTNERSHIP)
The land is received at its FMV not adjusted basis. (DIFFERENT FROM PARTNERSHIP) NOT AB. Liability reduces the tax on it BUT NOT BASIS.
It is taxable up to earnings and profit (Accum & Current)
How does the C-Corp treat distributions of assets to shareholders?
Like a sale
GREATER OF
FMV or Liabilities Relieved
=GAIN
On what amount is charitable contribution limitation (10%) deducted?
Income including Dividends received minus expenses NOT INCLUDING:
1) DRD
2) NOL
3) CAPITAL LOSS CARRYBACK/FORWARD
