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Laura Tax > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

What expenses are not qualified organizational expenses?

A
  1. professional fees for issuance of stock
  2. printing costs for stock certificates
  3. broker’s commission on sale of stock
  4. commission paid to underwriters
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2
Q

What is excluded in determining limit for charitable contributions?

A
  1. charitable contributions
  2. DRD
  3. Dividends paid deduction
  4. NOL carryback
  5. capital loss carryback
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3
Q

What is the dividend received deduction?

A

Less of percent of TI or dividend

<80% = 80%
80% & affil = 100%

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4
Q

What is excluded in determining limit for DRD?

A
  1. . DRD
  2. Dividends paid deduction
  3. NOL carryback
  4. capital loss carryback
  5. certain extraordinary div adjustments
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5
Q

What is the rule with DRD and NOL’s?

A

If DRD produces NOL, it is not limited.
If DRD doesn’t produce NOL, lesser of DRD or that
% of TI

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6
Q

What is formula for DRD that has indebtedness?

A

Dividend times 70% of (100% - average indebtedness %) . Use 80% if at least 20% owned

average indebt % =
Avg amt of indebt during period / avg amt of AB during period

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7
Q

When is the DRD allowable for dividends received from foreign corporations?

A
  1. foreign corp is at least 10% owned by recipient
    domestic corp.
  2. foreign corp is subject to U.S. federal income
    tax
  3. foreign corp has income effectively connected
    with T or B in US
  4. foreign corp not a foreign personal holding co.
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8
Q

What is the business gift limitation?

A

$25 per donee per year

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9
Q

What is the deductibility limitation for compensation

in a public corp?

A

Excess of $1 million dollars. Further, no amount of parachute payment is deductible

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10
Q

What is the amount allowed for direct costs for influencing legislation?

A

$2,000

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11
Q

What is the treatment of research and experimental expenditures?

A

May be amortized over 60 months, capitalized or expensed

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12
Q

What costs are included for R&E?

A

Costs in development of a model, process or similar property.

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13
Q

What costs are not included for R&E?

A

costs of market research, sociological research or development of art.

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14
Q

What is the treatment for worthless securities?

A

Treated as capital loss, except when security of affiliated corp, which is ordinary loss

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15
Q

What is the rule for casualty losses for business property?

A

Partially destroyed - lesser of decline in FMV or property’s AB (before loss)

Fully destroyed - property’s AB prior to loss

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16
Q

What method is used for MACRS for personal property?

A

PERSONAL PROPERTY
200% DB for 3,6,7,10 year
150% DB for 15,20 year and farm personal prop

Half year convention except if 40% of assets are purchased in fourth quarter
Otherwise, mid quarter convention should be used

17
Q

What is mid quarter convention?

A 
For personal property. Treated as if purchased mid quarter.  Multiply full year by following percentages
1st quarter - 87.5%
2nd quarter - 62.5%
3rd quarter - 37.5%
4th quarter - 12.5%
18
Q

How is real property depreciated?

A

Straight line and mid month

19
Q

What is the recovery period for residential rental property?

A

27.5 year (mid month convention)

20
Q

What is recovery period for non residential real estate?

A

39 year mid month

21
Q

What three types of real property qualify for 15 year straight line?

A

leasehold property
restaurant property
retail improvement property

22
Q

When is alternative depreciation system required?

A
  1. listed property
  2. property used, leased or financed by tax
    exempt organizations
  3. tangible property used predominately
    outside U.S.
  4. imported property from country that engages
    in discriminatory trade practices
23
Q

What is the limit for section 179 expense

A

No more than:
$500,000 minus excess over $2 million or
taxable income from T or B

24
Q

What is an amortizable asset?

A
  1. intangible
  2. personal (as opposed to real)
  3. determinable useful life
  4. used in TorB for production of income
25
Q

What is the amortizable period for intangibles?

A

180 months, beginning with month that intangible is acquired

26
Q

How are start up costs amortized?

A

180 months or more, immediate deduction of $5,000

27
Q

What are examples of start up costs?

A
  1. research of a product or market
  2. advertising for opening of business
  3. creating a website
  4. setting up accounting system
  5. travel to secure distributors
  6. expense of training employees
28
Q

What are organizational costs recovery period?

A

180 months, immediate deduction of $5,000

29
Q

What is the amortizable period for a pollution control facility?

A

60 months

30
Q

What is the amortizable period for reforestation?

A

$10,000 costs and any remaining balance amortized over 84 months

31
Q

What is the amortizable period for removal of transportation barriers?

A

up to $15,000 of costs

32
Q

How is cost depletion computed?

A

(AB in mineral property / estimated units avail at year’s start) x mineral units sold during the year

33
Q

How is percentage depletion computed?

A

Lower of:
1. 50% of person’s TI before depletion
2. a percentage of gross income from property
less related rents or royalties paid

34
Q

What is computation for unit of production method?

A

(asset cost - SV) x (# of units produced during the tax year / estimated total units asset will produce)

35
Q

What is the computation for operating days method?

A

(asset cost - SV) x (# of days used during the tax year / estimated total days asset can be used)

36
Q

What is the computation for income forecast method?

A

(asset cost - SV) x (income generated during the tax year / estimated total income from the property during its useful life)

37
Q

What are the “rules” in computing NOL?

A
  1. DRD may produce or increase an NOL
  2. charitable contributions are not allowed when
    computing
  3. depreciation may not create or increase NOL

May elect to forego carryback

Carryback 2 years
carryforward 20 years

38
Q

What is the carryback/carryforward for capital losses?

A

Carryback 3 year
Carryforward 5 years
May NOT elect to forego carryback

39
Q

How is capital loss treated in carryover year?

A

Short term loss

Laura Tax (7 decks)

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