Corp Tax 1 Flashcards
Section 351 (transfers to a controlled corporation)
- No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock and immediately after the exchange those persons transferring property control the corporation.
a. Property includes everything but services.
b. Control means ownership of at least 80% of the total combined voting power and 80% of each class of nonvoting stock.
c. Receipt of boot (e.g., cash, short-term notes, securities, etc.) will cause recognition of gain (but not loss).
(1) Corporation’s assumption of liabilities is treated as boot only if there is a tax avoidance purpose, or no business purpose.
(2) Shareholder recognizes gain if liabilities assumed by corporation exceed the total basis of property transferred by the shareholder. - Shareholder’s basis for stock = Adjusted basis of property transferred
a. + Gain recognized
b. − Boot received (assumption of liability always treated as boot for purposes of determining stock basis) - Corporation’s basis for property = Transferor’s adjusted basis + Gain recognized to transferor.
organizational expenditures
include fees for accounting and legal services incident to incorporation (fees for drafting corp charter, blows, terms of stock certificates), expenses of organizational meetings and temporary directors meetings, and fees paid tot he state of incorporation.
The costs incurred in issuing and selling stock (e.g. professional fees to issue stock, printing costs, underwriting commissions) do not qualify as organizational expenditures and are not tax-deductible
is net long-term capital loss from the sale of marketable securities deductible in computing taxable income?
no
Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return
Generally, Schedule M-1 includes items whose treatment for computing book income differs from their treatment in computing taxable income. Premiums paid on a key-person life insurance policy would be deducted per books, but would not be deductible for tax purposes because it is an expense of producing tax-exempt income (i.e. the life insurance proceeds if the person dies).
The amount of premium would be added back to book income in order to arrive at taxable income on Schedule M-1
How are expenses of issuing stock treated?
As a reduction in paid-in-capital.
7 types of reorganizations which generally result in nonrecognition treatment
A - statutory mergers or consolidations
B - use of solely voting stock of acquiring corporation to acquire at least 80% of the voting power and 80% of each class of nonvoting stock of the target corporation
C - use of solely voting stock of the acquiring corporation (or parent) to acquire substantially all of the target’s properties
D - a transfer by a corporation of part or all of its assets to another if immediately after the transfer the transferor corporation or its shareholders control the transferee corporation
E - recapitalization to change the capital structure of a single corporation (e.g. bondholders exchange old bonds for new bonds or stock)
F - a mere change in identity, form, or place of organization
G - a transfer of assets by an insolvent corporation or pursuant to bankruptcy proceedings with the result that former creditors often become the owners of the corporation
Would a net capital loss per books be deductible for tax purposes for a corporation?
No
Are business meals deductible for tax purposes?
50%; 50% would be added back to book income to arrive at taxable income on Schedule M-1.
Exemption
AMTI is offset by a $40,000 exemption. The exemption is reduced by 25% of AMTI over $150,000 and completely phased out once AMTI reaches $310,000
Dividends-Received Deduction (DRD)
An 80% DRD is allowed for qualified dividends from taxable domestic unaffiliated corporations that are at least 20% owned
Only a 70% DRD is allowed for qualified dividends from taxable domestic unaffiliated corporations that are less than 20% owned.
PHC Tax
(1) is self-assessing (i.e. computed Sch. PH and attached to Form 1120); a six year statue of limitations applies if no Sch. PH is filed
(2) may be avoided by dividend payments sufficient in amount to reduce undistributed PHC income to zero
Is a corporation’s penalty for underpaying federal estimated taxes deductible?
No.
Even though a corporation’s penalty for underpaying federal estimated taxes is in the nature of interest, it is treated as an addition to tax and as such, the penalty is not deductible
what is the corporate alternative minimum tax rate?
20%
Is a deduction for a net operating loss carryover allowed in computing NOL?
No
How is a corporation’s net operating loss computed?
In the same way as its taxable income:
(a) the dividends received deduction is allowed without limitation
(b) no deduction is allowed for a NOL carry back or carryover from other years
(c) A NOL is generally carried back two years and forward twenty years to offset taxable income in those years. However, a three year carry back is permitted for the portion of a NOL that is attributable to a presidentially declared disaster and is incurred by a small business corporation (average annual gross receipts are $5M or less for the 3 year tax period preceding loss year)
(d) a corporation may elect to forego carry back and only carry forward 20 years
