Chapter 5 Flashcards
does a corp recognize gain on the sale of treasury stock?
no, a corp will never recognize gain/loss on the receipt of money or other property in exchange for its stock, including treasury
Who does the Accumulated Earnings Tax not apply to?
Personal Holding Companies
What are the requirements for a Type A reorg?
Most of the assets of the target firm are exchanged for stock in the acquiring firm
What are the requirements for a Type B reorg?
The acquiring firm must exchange its own voting stock for the stock of the target. Stock for stock.
The acquiring firm must own at least 80% of the stock of the target firm after the acquisition.
Any consideration other than voting shares in the acquiring corporation will violate the requirements of the reorganization.
What are the requirements for a Type C reorg?
The acquiring firm acquires substantially all of the assets of the target in exchange for substantially all of the voting stock.
The target firm distributes stock and other assets to its shareholders.
“Substantially all” is 90% of net asset value and 70% of gross asset value.
What are the requirements for a Type D reorg?
Divisive reorg (not acquisitive) in that the parent corp divides by transferring assets to a subsidiary in exchange for subsidiary shares. The parent corp must receive and distribute control of the subsidiary in the exchange (80% of the vote and other classes of stock)
When an organization is reorganized, what gain or loss, if any, is required to be recognized by the acquiring corporation?
The acquiring corporation does not recognize gain or loss on the transfer of its stock for the acquired corporation; if it transfers assets, then gain (but not losses) in the assets is recognized.
Foreign Tax credit
can be carried back one year and carried forward 10 years
how is the foreign tax credit limitation calculated?
US tax on worldwide income x (Foreign Source taxable income / worldwide taxable income)
what is subpart F income?
income earned by a controlled foreign corp that is not connected economically to the country in which it is organized
how does an individual qualify for the foreign earned income exclusion?
if the individual has a tax home in a foreign country and is present in one or more foreign countries for at least 330 days during any 12 consecutive months
do partners recognize a G/L on contributions to a partnership?
no
What is the general gain recognition rule in partnership liquidations?
Distributions do not create gain or loss unless a partner receives cash (or deemed cash) in excess of his/her adjusted basis.
Can partners recognize a loss on a liquidating distribution?
yes, they can recognize a loss if the distribution consists only of cash, inventory and/or unrealized receivables. Since a partnership interest is a capital asset, the loss will be a LTCL
If a partner receives nonliquidating distribution of property, what is the partners basis in the property?
the partnerships basis before distribution
hot assets
unrealized receivables
inventory
if a P has hot assets at the time a P interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income
once terminated, when can S status be elected again?
5 years
Simple trust
a trust that is:
- required to distribute all its income to designated beneficiaries every year
- has no beneficiaries that are qualifying charitable orgs
- makes no distribution of trust corpus during the year
Complex trust
a trust that is not a simple trust.
Permits accumulation of current income, provides for charitable contributions, or distributes principal during the taxable year.
what year must an estate have
May be either a calendar year, or a fiscal year beginning on the date of the decedent’s death.
If the grantor of a trust retains substantial control over the trust, such as the power to revoke the income and remainder interests who will be taxed on the trusts income?
the grantor, and not to the trust or beneficiaries
what is the maximum amount of the distribution to be included in the beneficiary’s gross income limited to?
the estates distributable net income
Do estates have to pay estimated taxes?
Trusts and estates must make quarterly estimated tax payments, except that an estate is exempt from making estimated tax payments for taxable years ending within two years of the decedent’s death.
What is the Foreign tax credit
The U.S. taxes income from all sources, including income from foreign countries. The purpose of this credit is to prevent double taxation of foreign income that is subject to income tax in the foreign jurisdiction.
how is the foreign tax credit calc
The credit is limited to the lower of the foreign tax paid, or the proportion of U.S. tax allocable to foreign sourced income (known as the foreign tax credit limitation) which is calc: US tax x (foreign taxable income/worldwide taxable income)
how long can excess foreign tax credit be carried forward/back
back one year, forward 10 years
An executor of a decedent’s estate that has only U.S. citizens as beneficiaries is required to file a fiduciary income tax return, if the estate’s gross income for the year is at least
$600
