Corporate Flashcards
A consolidated corporate income tax return can be filed by the members of an affiliated group. An affiliate group exists
- a parent corporation owns at least 80% of the stock in at least one other corporation in the group or
- at least 80% of the stock of other companies in the group is owned directly by one or more companies in the affiliate group
What 4 elements must be met for a corporation to file a Schedule UTP?
- Filed Form 1120, 1120-L or 1120-PC
- has assets equal to or exceeding $100 million
- issued audited financial statements and
- has one or more tax positions that need to be reported
ABC Corp distributes land with a FMV of $100,000 (adj basis $75,000) to Anna when the corp E&P is $350,000. Anna is the sole SH. What basis does Anna take in the land and what amt of gain does ABC Corp recognize as a result of this nonliquidating property distribution?
$100,000 basis in land to Anna, $25,000 gain to corp
The SH’s basis in property received as a result of a nonliquidating property dividend is the FMV on the date of the distribution. The corp will recognize a gain for the difference between the FMV on the date of distribution and the adj basis of the property at the date of the distrib. Corp will not recognize a loss on nonliquidating property dividend.
For which of the following is the owner’s basis increased by the owner’s share of profits and decreased by the owner’s share of losses but is not affected by the entity’s bank loan increases or decreases?
- C Corp
- S Corp
- LLC
- Partnership
- S Corp
Partnership basis increases with profits and decreases with losses. It also increases for the partner’s share of partnership debts.
C corp stock is not adj for income or loss
LLC do not bear personal liability for its debts.
Best Corp, an accrual basis calendar year C corp, received $100,000 in dividend income from the common stock that it held in an unrelated domestic corp. The stock was not debt-financed and was held for over a year. Best recorded the following info:
Loss from Best’s operations $(10,000)
Dividends rec’d $100,000
Taxable income before dividend reduction $90,000
Best’s dividends-received deduction on its tax return is what?
$63,000
$90,000 x 70% = $63,000
A Corp’s dividends-received deduction (for dividends from unrelated domestic corp) is 70% of the lesser of the dividends received or taxable income before the dividends received deduction. A special rule applies is the deduction creates or increases an NOL
A small corporation loses the AMT exemption only if its average annual gross receipts for 3 consecutive years exceed what dollar amount?
$7.5 million
What is the initial max annual gross receipts test amount beneath which a small business corp qualifies for relief from the AMT?
$5 million
Generally, a small corp is exempt from AMT if the 3 year gross receipt average is over $7.5 mill.
There is a special rule that applies for the first 2 years of existence. All corp are exempt their first year. The second year is the initial test year. The gross receipts test for a corps’ initial year is $5 million to qualify as a small corp exempt from AMT. For later years, it is $7.5 million
What dividends qualify for the dividends-received deduction?
Dividends qualify for the dividend-received deduction if the 46 day (or 91 day) holding period is met for each dividend received. The holding period must be met within the 91-day period beginning 45 days before the ex-dividend date of the stock. If the stock is cumulative preferred stock with an arrearage of dividends must be held at least 91 days during the 181 day period beginning 90 days before the ex-dividend date.
Days when the corporation is protected from loss on the stock by put options do not count toward the holding period requirement. The holding period requirement must be met for each dividend reviewed over time.
What is the carryback and carryforward period of corp capital losses?
Carryback 3 years and forward 5 years
In the current year, Brown, a C Corp, has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of $100,000 from a Fortune 500 corp during the current year. What is Brown’s net operating loss?
$170,000
Since a Fortune 500 corp’s stock is generally held, this indicates that Brown owns less than 20% of its stock and qualifies for the 70% dividends deduction. The taxable income limitation for the dividends-received does not apply since Brown has a net operating loss.
Income before dividends $900,000
Dividends $100,000
Gross income $1,000,000
Deductions ($1,100,000)
Dividends-rec’d deduction ($70,000)
Net operating loss ($170,000)
In 2013, Wein Corp had a net loss from operations of $50,000 which included a deduction for charitable contributions of $2,000. In addition, Wein received dividend income of $10,000 for a 15% owned domestic corp. What is the amount of Wein’s net operating loss for 2013?
$45,000
Wein’s charitable contribution is not deductible for tax purposes since a net loss was incurred. A dividends-received deduction is allowed.
A dividends-received deduction reduces taxable income. IN addition, there is no limit in deducting 70% of dividends received if a net operation loss is either created or increased.
According to the instructions for Form 1120, in a year in which an NOL occurs, this 70% limitation does not apply even if the loss is created by the dividends received deduction
A C corp net operating loss in 2013 is carried back and carried forward how many years?
Back 2 forward 20
Paul owns all of the stock of an S corp which had previously been a C corp. The S Corp had the following balances at the beginning of the tax year:
Accumulated Adj Account $8,000
Accumulaed E & P $10,000
Paul’s stock basis was $20,000 at the beginning of the tax year. The S corp made a distribution of $19,000 to Paul during the year. What amount of the distribution is taxable to Paul?
$10,000
S corp distributions are 1) tax free to the extent of the accumulated adjustments account (previously taxed to Paul), 2) taxable to the extent of accumulated E&P (C corp earnings). 3) any remaining distributions are a return of capital.
Baker, an individual, owned 100% of Alpha, an S corp. At the beginning of the year, Baker’s basis in Alpha Corp was $25,000. Alpha realized ordinary income during the year in the amount of $1,000 and LTCL in the amount of $3,000. Alpha distributed $30,000 cash to Baker during the year. What amount of the $30,000 cash distribution is taxable to Baker?
$7,000 Beginning basis $25,000 Ordinary income $1,000 LTCL ($3,000) Basis remaining $23,000 Cash distrib ($30,000) Taxable distrib $7,000 Basis at YE $0
Magic Corp, a regular C corp, elected S corp status at the beginning of the current calendar year. It had an asset with a basis of $40,000 and a FNV of $85,000 on Jan 1. The asset was sold during the year for $95,000. Magic’s corp tax rate is 35%. What was Magic’s tax liability as a result of the sale?
$15,750
Generally an S corp is not subject to income tax. The company’s taxable income or loss flow thru to the SH and is reported on their indiv TR. One exception to this is the built in gains tax. When a regular C corp converts to S corp status, a tax may be imposed on the net appreciation of the assets at the time of conversion if they are sold within 10 years. The built in gains tax is at the highest corp tax rate.
FMV of asset at conversion $85,000
Basis ($40,000)
Unrealized built in gain $45,000
Sale price $95,000
Basis ($40,000)
Realized gain $55,000
Built in gains tax:
lower of unrealized built in gain or realized gain $45,000
tax rate X.35
Built in gains tax $15,750
