Corporate Formation Flashcards
Which type of entity has the most flexible choice of accounting periods? How is this disclosed?
C Corp in the first year of their tax return
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.
is NOT/is NOT
A corporation’s basis in contributed property during formation (does/doesn’t) include liabilities associated with it
does NOT
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 _____.
Liabilities > Contributed Basis
Lesser of Realized Gain / Boot Received
What type of contribution is not recognized for the “no gain or loss rule” in Section 351 for corporate formation?
Services performed
What is the requirement for S351 that determines whether gain or loss applies?
Shareholders must together own at least 80% of the stock (those who donate services don’t count towards this)
If the 80% test isn’t met for S351, the corporations basis is based on the property’s (adjusted basis / FMV)
FMV
The costs of organizing a corporation may be amortized over a period greater than ____ years. And in year 1, a $_______ deduction can be granted.
15 years (180 months) $5,000
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 _______
C Corps / 45 Days 1) 50% 2) 65% 3) 100% Dividends Received / Modified Taxable Income
What is the only cost that illegal businesses can deduct?
Cost of Merchandise
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.
are NOT / ARE
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.
Accrued / 50%
A charitable deduction donation can be taken for year 1 so long as it is done before ________.
April 15, Year 2
Business gifts are deductible at a maximum of $___ per employee per year.
$25
Bad debt expense is a (temporary/permanent) difference going from Book to Tax?
Temporary
Corporate bond interest is included in (taxable/book) income.
Both!
Accumulated earnings tax (can/cannot) be imposed on companies that make distributions in excess of R/E
CANNOT
Accumulated earnings tax is imposed on _______ if their R/E is in excess of $__________
Corporations, $250k
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.
50% / 5 or less / 60%
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)
100% for both - Individuals are 90% of PY and 100% of current year (or 110% of rich)
Consent and normal dividends paid (can/can’t) be deducted by a personal holding company for its taxes?
CAN
How can a C-Corps capital losses be carried? What can they be used to offset?
Back 3 Forward 5, only offsetting capital gains and is limited by net operating income (can’t create a loss)
How can a C-Corps operating losses be carried?
2017-2021: Back five, forward indefinitely
2021+: Forward indefinitely (80%) limitation
When consolidated corporations have net operating losses, ____% can be consolidated.
100%
Charitable donations for Corps are ___% of NI (before/after) DRD
BEFORE
What is the usual result for shareholders in a complete liquidation distribution?
Capital Gain/Loss
On complete liquidation stock, what are the two levels of taxation?
Corporation: FMV - Adjusted basis of asset
Shareholder: FMV - Adjusted basis of shareholder
Does complete liquidation of a corporation recognize gain or loss?
Yes
Dividends distributed from current E&P (is/isn’t) taxable
IS
Dividends from Accumulated E&P at distribution date (is/isn’t) taxable.
IS
Dividends in excess of stock basis, which means no E&P, are classified as __________ and (is/isn’t) taxable.
Return on Capital, is NOT taxable (reduces basis)
Dividends with no basis and E&P are classified as ________ distributions and (is/isn’t) taxable.
Capital Gain, IS taxable as a capital gain
What is the maximum S1244 loss that can be deducted for an entire year? Is it an (ordinary/capital) loss? Can this be inherited?
$50k (x2 MFJ), and it is an ordinary loss for the 50k, the remainder is capital. This CANNOT be inherited
Losses on distributions of property (are/aren’t) deductible for corporations?
are NOT
Shareholders taking on liabilities associated with property distributions affect ______ and not ______
taxable income / basis
Property dividends (can/cannot) increase the company’s gain, which can increase the E&P for distribution classification for the taxpayers.
CAN
