Corp Taxes Flashcards
Foreign tax credit
Credit or deduction
Includes two computations for limits, less than ok compare below with for paid amts
1. For non business related interest earned
2. Other for source taxable income
1st after AMT, FCT, AET, PHC
LIM: us income tax (for source inc/ ww taxable income
Excess: 1b 10f
Consolidated returns exclusions NONO
Tax exempt org S Corp Foreign sales Corp Ins Corp Real estate inv trusts Regulated investment co Dom international sales Corp Sec 936 possessions tax credit
Affiliated groups
80% voting power AND
80% total value outstanding
Tax yr of parent
Election only reversed by consent of irs
Consolidation - separately reported
Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return
Charitable cont DRD %depletion NOL Sect 1231 Cap g/l
Intercompany transactions
Buyer assumes sales basis Consolidated gain or loss: Acquiring Corp claims depreciation One member leaves Disposition outside of the group
Brother - sister controlled group
80% owned by same 5 or fewer or
> 50% of voting power of all classes
INDIVIDUALS, trusts, estates
Constructive ownership
Family member € spouse
Or entity wit > 5% interest
Limit on control group benefits
Only one: Tax brackets Sec 179 25k max Amt exemption $base Gem bus credit $25 AET 250 presumed deduction base
AMT
- tax pref items \+/- adjustments \+ ACE - AMT NOL = AMTI - AMT exemption = AMTI BASE x rate - FT CRED = TENTATIVE MIN TAX - regular tax = AMT
AMT TAX PREFERENCE ITEMS
Excess depreciation
Tax exempt bonds
Small business stock
Adjustments
Accelerated depreciation Real prop - SL 40 mid-mo Personal prop - 150% Section 1250 - SL NO Installment sales Long term contracts - % of completion Pollution control facilities - sec 168 Mining & exploring & (R&D, circulation 3 yrs) - capitalized and AMORT 10yr except for tax loss of abandonment NOL - MODIFY NOL TO THE SAME EXTENT
ACE adjusted current earnings
When computing ACE (AMTI includes ACE + NOL adj)
+Organizational exp Amort and deducted are added
+ 70% DRD
+ life ins PROCEEDS
+ LIFO recapture = FIFO>LIFO
= ACE-AMTI x 75%
ACE > AMTI = add ACE ADJ
ACE
ACE NONCHANGES
LT CAP GAINS
DRD 80% or 100%
Debt discharge
Tax exempt interest 2009 & 2010
Corp AMT TAX RATES
20%
AMT NOL
Previous yr NOL
CURRENT YR - lim 90% of the AMTI
AMT EXEMPTION
Reduces AMTI to produce AMTI BASE
Exemption = 40k with TH of 150k
max= 150k
= .25 on the dollar above TH
AMT FCT
= FTC
Or
90% of gross Tent AMT B4 NOL orFTC
AMT MTC - Individual
Difference if tax favorable deferred items
= Recent yrs AMT wo ded and add carryover MTC
ONLY DEFERED ITEMS
AMT MTC - corporations
Both deferred and exclusion items Gross regular tax - credits - TMT MTC max allowable, excess is carried over indefinitely
Gross regular tax amt is reduced by: Currently allowable: Refundable credits No refundable personal items For tax Drug testing Nonconv source fuel credits General bus credit
Small Corp AMT exemption
5 mil avg income for first 3 yrs
7.5 mil avg beyond
Taxes due
Estimated On the 15th of
4, 6, 9, 12 mo
Difference = 15th of 3rd mo following yr end
Estimated tax payments
25% of the lesser of
100% of prior years tax
Or 100% of current yrs tax
Estimated based on annual, not seasonal
Large Corp makeup
Taxable income of > 1 mil during any one of 3 prev yrs
Penalty
Amt by which any required installment exceeds est tax paid
5% ( 3% ind)
Installment due date until underpayment is paid or if earlier the due date for filing the tax return F2220 submitted w/return
No est penalty if:
Tax liab is less than $500
Waived
Large Corp wd
Refund
Quick refund - only if overpayment is >500 and >10% Corp est tax liability
Form 4466 after close before tax due
AET
15% tax on ATI accumulated taxable income
No offsetting
Subsequent earnings distributions do not helping
No form determined by irs audit
No “carry back”
No AET ON ENTITIES
S Corp Tax exempt PHC FPHC PFIC
ATI :
AET = ATI - AEC
TI addback NOL DRD CharIty - subtract excess over 10% Charity addback carryover Fed tax - subtract Cap gains - subtract net, add fed taxes on gain Capital losses - subtract excess, addback carryover Div paid deduction : No preferential Div of ordinary income Consent and throwback In liquidation up to E&P
AEC
Increased amount of reasonable needs of the business during the year
- General credit = RETAINED CURRENT E&P less capital gains
- Min floor = 250 or 150 not less than 0
Not reasonable needs
Funding plans to declare a dividend
Unrealistic business hazard protection
Investment prop unrelated to business activities
Loans to shareholder
Sur Taxes
5% on 100k-335k
3% on 15mil-18.33mil
Flat 35%
Method of estimating tax liability
100% of preceding yr - requires previous yr liability
If NOL only option is :
Annualized income method
NOTE LARGE CORP > 1 mil inc = 100% of current year!!! Not previous!
Example AEC CALC
Prior yr : 250-AEP - DPD = MIN CRED BASE
Compare with reasonable needs
MCB > reasonable needs
The AEC = MCB
AEC - current yr (AEP-DPD) = if excess AEC, it rolls over
Max ATI subject to AET if taken the min AEC
TI - fed inc tax - 250 =
AET WHY
Corporations that avoid distribution to avoid SH tax
Sec 351
No gain or loss on prop for controlling amount of Corp stock is not recognized - mandatory
Corp, includes BOOT, SH may have taxable event
(After formation, contributions,treasury stock)
DOES NOT INCLUDE SERVICES
NQ PREFERRED STOCK = BOOT
BOOT
SH Gain of FMV (boot rec) 1. FMV of property received 2 FMV of property given up Based on type of prop Liabilities > basis are treated as rec gain
SH basis in Corp
Adjusted basis
- boot
+ gain recognized to SH
SH holding period
Stock holding period of stock + holding period of the property!
Sole proprietor ex:
capital assets not 1231
Contributed when incorporating
EACH SHARE HAS A SPLIT HOLDING PERIOD
Corp property basis
Adjusted basis
+ gain recognized by SH
Control %
Can = 80%
E&P LIMITS…
Amount that is taxable to SH AS A DIV
E&P calc
Add: Exempt income Injury comp Life proceeds DRD Cap & NOL carryover Excess SL dep Completed contract
Reductions: Life ins premiums Penalties Bonds expense Excessive comp Fed tax Meals a Prior installment sales
Reporting dividend distribution
=>10$
W/h taxes
=> 600$ in liquidation
Possible opt for rec gain on stock transactions CORP
Dist in lieu of money Disproportionate distribution Distribution of pref stock Dist of convertible perf stock Pref stock with cap stock dist choice
Stock rights
As a dist of stock
Basis = 0 if FMV
Dist of stock holding period
Day after acquisition
Basis of stock dividend
Day received
Stock split
Not a distribution
Holding period rollover
Basis is split and allocated to new stock, inc value of per share
Sale versus dividend treatment of redemption
Sale if - disproportionate
Received by an estate - loss recognition
Partial liquidation - loss recognition
Realize gain
Stock reacquisition costs
Not deductible
Cost allocated to indebtedness - amortized over life of indebtedness ( financial advisory costs)
Redemption
A sale or termination of SH equity
Not proportionate
Recvd by an estate (death)
Not a dividend
Termination of SH interest
- no interest except as a creditor
- not acquire for 10 yrs
- irs notified if interest acquired
Substantially disproportionate distribution
Les than 50% of voting power &
Less than 80% of ea interest in voting stock & common stock
Dividend equivalency
Reduction in voting power
Estate
In order to be a sale:
Stock value > 35% of gross (admin, funeral,claims, taxes & unpaid mortgages)
SH div and basis
Div € basis adj
Corp liquidation
Recognize a loss,
> 50% SH = no loss
Pre contributed reduces the loss
Partial liquidation
Plan Recognizes a gain, not loss Prorata distributions do not preclude partial liquidation sale treatment No return of stock required Safe harbor
Safe harbor
Corp ceases trade or business for 5 yrs
Corp continues to perform at least one active trade that it has prev conducted for 5 yrs
Subsidiary liquidation
No gain or loss to parent
Basis is transferred
Reorganizations
Change of investment
Gain = boot
New Corp 40% control going forward
Maintaining one line of business
Reorganization boot
Lessor of gain realized or FMV
Securities FMV> face value given up
Character: gain = dividend (OI)to the extent of E&Pll
Liability € boot unless unrelated to business
No loss € distribution to creditor
Basis in stock /securities is exchanged, boot = tax cost
Reorganization types
Merger - results in consolidation
Stock for stock - must control, no boot allowed
Stock for assets - _> 90% of all assets and 20% of assets exchanged for no voting stock, limits boot,
DIVISION -80% of ea type of stock, division of SH
RECAPITALIZATION - capital structure of Corp is modified by exchanges in stock btw SH and Corp
REINCORPOATION change of name form place
BANKRUPCY REORGANIZATION - court supervised
Corp tax liability and payments
Failure to file penalty = 5% of the tax for each month up to a max of 25%
Failure to pay = 1/2% of tax ea month
Failure to file is rduced by failure to pay
Liquidation fees
I fully deductible by corporation