Corporate Formation

Question 1

Which type of entity has the most flexible choice of accounting periods? How is this disclosed?

Answer 1

C Corp in the first year of their tax return

Question 2

GR: The formation of a corporation (is/isn’t) a taxable event, and therefore gain or loss (is/isn’t) calculated for the taxpayer even with liabilities associated with property contribution.

Answer 2

is NOT/is NOT

Question 3

A corporation’s basis in contributed property during formation (does/doesn’t) include liabilities associated with it

Answer 3

does NOT

Question 4

The exception to the taxpayer not recognizing gain or loss for a corporation is if the liabilities are in excess of _____ or if there is _____, in which case the gain will equal to _____.

Answer 4

Liabilities > Contributed Basis

Lesser of Realized Gain / Boot Received

Question 5

What type of contribution is not recognized for the “no gain or loss rule” in Section 351 for corporate formation?

Answer 5

Services performed

Question 6

What is the requirement for S351 that determines whether gain or loss applies?

Answer 6

Shareholders must together own at least 80% of the stock (those who donate services don’t count towards this)

Question 7

If the 80% test isn’t met for S351, the corporations basis is based on the property’s (adjusted basis / FMV)

Answer 7

FMV

Question 8

The costs of organizing a corporation may be amortized over a period greater than ____ years. And in year 1, a $_______ deduction can be granted.

Answer 8

15 years (180 months)
$5,000

Question 9

The DRD deduction can be taken by _________, the investments must be held at least ______ and the thresholds are:
1) If owned <20%
2) If 20-40%
3) If 50%+
And are multiplied by the lesser of _______ or _______

Answer 9

C Corps / 45 Days
1) 50%
2) 65%
3) 100%
Dividends Received / Modified Taxable Income

Question 10

What is the only cost that illegal businesses can deduct?

Answer 10

Cost of Merchandise

Question 11

Life insurance proceeds on the death of an officer where the corporation is the owner and beneficiary (are/aren’t) included in the taxable income of the corporation. Premiums (are/aren’t) included.

Answer 11

are NOT / ARE

Question 12

An accrual basis corp deducts expenses in the year that they are (accrued/expensed) unless paid to a cash-basis taxpayer who owns at least ____% of the corp’s stock.

Answer 12

Accrued / 50%

Question 13

A charitable deduction donation can be taken for year 1 so long as it is done before ________.

Answer 13

April 15, Year 2

Question 14

Business gifts are deductible at a maximum of $___ per employee per year.

Answer 14

$25

Question 15

Bad debt expense is a (temporary/permanent) difference going from Book to Tax?

Answer 15

Temporary

Question 16

Corporate bond interest is included in (taxable/book) income.

Answer 16

Both!

Question 17

Accumulated earnings tax (can/cannot) be imposed on companies that make distributions in excess of R/E

Answer 17

CANNOT

Question 18

Accumulated earnings tax is imposed on _______ if their R/E is in excess of $__________

Answer 18

Corporations, $250k

Question 19

An entity is a personal holding company if more than ___% of the stock is owned by ___ or less individuals AND ___% or more of AGI income must be taxable investment income.

Answer 19

50% / 5 or less / 60%

Question 20

Estimated tax payments for a corporation use the lower of ___% of the prior year’s tax liability or ___% of the current year’s (assuming positive for both)

Answer 20

100% for both - Individuals are 90% of PY and 100% of current year (or 110% of rich)

Question 21

Consent and normal dividends paid (can/can’t) be deducted by a personal holding company for its taxes?

Answer 21

CAN

Question 22

How can a C-Corps capital losses be carried? What can they be used to offset?

Answer 22

Back 3 Forward 5, only offsetting capital gains and is limited by net operating income (can’t create a loss)

Question 23

How can a C-Corps operating losses be carried?

Answer 23

2017-2021: Back five, forward indefinitely

2021+: Forward indefinitely (80%) limitation

Question 24

When consolidated corporations have net operating losses, ____% can be consolidated.

Answer 24

100%

Question 25

Charitable donations for Corps are ___% of NI (before/after) DRD

Answer 25

BEFORE

Question 26

What is the usual result for shareholders in a complete liquidation distribution?

Answer 26

Capital Gain/Loss

Question 27

On complete liquidation stock, what are the two levels of taxation?

Answer 27

Corporation: FMV - Adjusted basis of asset
Shareholder: FMV - Adjusted basis of shareholder

Question 28

Does complete liquidation of a corporation recognize gain or loss?

Answer 28

Yes

Question 29

Dividends distributed from current E&P (is/isn’t) taxable

Answer 29

IS

Question 30

Dividends from Accumulated E&P at distribution date (is/isn’t) taxable.

Answer 30

IS

Question 31

Dividends in excess of stock basis, which means no E&P, are classified as __________ and (is/isn’t) taxable.

Answer 31

Return on Capital, is NOT taxable (reduces basis)

Question 32

Dividends with no basis and E&P are classified as ________ distributions and (is/isn’t) taxable.

Answer 32

Capital Gain, IS taxable as a capital gain

Question 33

What is the maximum S1244 loss that can be deducted for an entire year? Is it an (ordinary/capital) loss? Can this be inherited?

Answer 33

$50k (x2 MFJ), and it is an ordinary loss for the 50k, the remainder is capital. This CANNOT be inherited

Question 34

Losses on distributions of property (are/aren’t) deductible for corporations?

Answer 34

are NOT

Question 35

Shareholders taking on liabilities associated with property distributions affect ______ and not ______

Answer 35

taxable income / basis

Question 36

Property dividends (can/cannot) increase the company’s gain, which can increase the E&P for distribution classification for the taxpayers.

Answer 36

CAN