Corporate Tax Flashcards

2
Q

How is shareholder basis calculated for a new interest in a corporation?

A

Adjusted basis of property transferred + Gain recognized (if less than 80% ownership) - Boot received = Shareholder basis If shareholders have 80% control after a property transfer; no taxable event occurs. If liabilities exceed basis on contributed property to a corporation; a gain is recognized.

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3
Q

How is shareholder basis calculated for a TRANSFEROR of an interest in a corporation?

A

Transferor’s basis + Gain recognized by shareholder = Basis OR FMV of Corporate Interest - Adjusted basis of property = Gain

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4
Q

What basis do shareholders and corporations use for property?

A

They both use ADJUSTED BASIS; NOT FMV of property.

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5
Q

Describe how loss is taken on Section 1244 small business corporation stock?

A

A loss on worthless stock is an ordinary loss.

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6
Q

What are the requirements for taking an ordinary loss on Section 1244 small business corporation stock?

A

Taxpayer must be original stock owner; and either an individual or partnership $50k (single) or $100k (MFJ) limit - remainder is a capital loss Must have been issued in exchange for money or property (not exchanged for services) Shareholder equity must not be in excess of $1 million Both common and preferred stock is allowed

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7
Q

What are the basic rules for filing a form 1120?

A

Return is due regardless of income level Return is due 3/15 if on a calendar year basis; or 2 1/2 months after end of fiscal year An automatic six-month extension is available

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8
Q

When are corporate federal tax estimated payments required; and how are they calculated?

A

Required if more than $500 in tax liability expected; or 100% current year liability 100% previous year liability Note: If corporation had more than $1 Million in revenue the previous year; the first estimated payment must be based on the previous year and the remainder based on the current year.

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9
Q

Describe the AMT calculation for C-Corporations

A

Taxable Income +Tax Preference Items +/- Adjustments = Pre-ACE +/- ACE Adjustments = AMTI - 40;000 Exemption = Tax Base x 20% = Tentative Minimum Tax - Regular Tax Liability = AMT

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10
Q

What are the pre-ACE adjustments for C-corporation tax AMT calculations?

A

Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 years Personal Property - use 150% MACRS; not 200% Construction must use % completion method

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11
Q

What are the ACE adjustments in the C-corporation AMT tax calculation?

A

Municipal Bond Interest Life Insurance Proceeds 70% Dividends Received Deduction Organizational Expenditures must be capitalized; not amortized Note: AMT paid gets carried forward indefinitely; but never carried back

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12
Q

When are C-corporations exempt from AMT?

A

In year one In year two; if year one gross receipts were less than $5 Million In year three; if the average gross receipts for years 1 and 2 were less than $7.5 Million In year four and beyond; if the average from the previous 3 years is less than $7.5 Million

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13
Q

How are gains and losses handled with respect to a corporation’s transactions involving its own stock?

A

Corporations have no gain/(loss) from transactions involving their own stock; including Treasury Stock. If Corporation gets property in exchange for stock; there is no gain/(loss) on the transaction.

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14
Q

How are corporate organization costs handled?

A

Amortization of costs begin the month the corporation commences business activity If the corporation doesn’t amortize organization costs in year one; they can never be amortized Costs associated with offerings are neither deductible nor amortized

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15
Q

How are a C-corporation’s deductible charitable contributions calculated?

A

Sales -COGS= Gross Profit Gross Profit + Rent; Royalties; Gross Dividends; Capital Gains =Total Income Total Income - Deductions (No charitable contributions; Dividends Received Deductions (DRD); or NOL Carrybacks allowed) - NOL Carryforwards =Taxable Income before charitable contributions; DRD; NOL Carrybacks x 10% =Deductible Charitable Contributions

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16
Q

How are excess charitable contributions treated in a C-corporations?

A

Excess charitable contributions get carried forward 5 consecutive years (No Carryback)

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17
Q

When can a board of directors authorize charitable contributions for a tax year?

A

The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year

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18
Q

How is the dividends received deduction (DRD) calculated; and what are the limitations?

A

80% Interest = 100% DRD 20-79% = 80% DRD less than 20% = 70% DRD Only allowed if no consolidated return is filed. Qualified dividends from domestic corporations only.

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19
Q

What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?

A

Only take DRD % x Taxable Income Note: If DRD brings a loss situation; then you can take the full DRD If Taxable Income remains after DRD; only a partial DRD (T.I. x DRD %) is allowed

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20
Q

How are corporate losses on a sale to a corporation where a taxpayer owns a 50% or more interest handled in a C-corporation?

A

A loss on a sale to a corporation where taxpayer owns a 50% or more interest is disallowed

21
Q

How are capital losses handled in a C-corporation?

A

Capital Losses are deductible only to the extent of Capital Gains

22
Q

How are net short term capital gains taxed in a C-corporation?

A

Net Short Term Capital Gains are taxed at ordinary income rates

23
Q

How are corporate losses carried back/forward?

A

Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss

24
Q

How are bad debt losses handled in a corporation?

A

Bad debt losses are classified as ordinary

25
Q

What is the casualty loss floor for a C-corporation?

A

No floor on corporate casualty loss like there is with an individual taxpayer If destroyed; the loss is the property’s basis (minus proceeds) Calculation: Adjusted basis - Proceeds from Insurance = Loss If partially destroyed; take the lesser of FMV or adjusted basis reduction (minus proceeds)

26
Q

How are net operating losses handled in a C-corporation?

A

If loss includes NOL Carryforward; reduce the loss (add back the amount) to get the loss without the Carryforward Then; carry back the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to the most recent year Any leftover NOL = This year’s NOL

27
Q

How is investment interest expense handled in a C-corporation?

A

Unlike individual taxation; investment interest expense is not limited to investment income. Investment interest on tax-free investments are NOT deductible.

28
Q

What is the purpose of Schedule M-1 on a corporate tax return? Which items are included?

A

Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation; straight-line; etc)

29
Q

What is the purpose of Schedule M-2 on a corporate tax return? How is it calculated?

A

Reconciles beginning to ending retained earnings Beginning Unappropriated Retained Earnings + Net Income + Other Increases - Dividends paid - Other decreases = Ending Unappropriated Retained Earnings

30
Q

What is the purpose of Schedule M-3 on a corporate tax return?

A

Like M1; but for Corporations with $10M+ in assets

31
Q

How are affiliated (80%) corporation tax returns handled?

A

Consolidation election is binding going forward Dividends between them are eliminated; Advantage- Gains are deferred; Disadvantage- losses are deferred. One AMT exemption One accumulated earnings tax allowed Note: In order to consolidate; the parent must have 80% voting power and own 80% of the stock value

32
Q

How are corporate distributions to shareholders handled?

A

Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income) Then; remainder (if any) is a return of basis. Then; add’l remainder (if any) is a Capital Gain Distribution amount = FMV of Property + Cash - Liability Assumed Shareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)

33
Q

What is the order of treatment in a corporation’s distribution to a shareholder?

A
  1. Distribution is a dividend to the extent of current and accumulated earnings and profits 2. Shareholder basis is then exhausted 3. Remainder; if any; is a Capital Gain
34
Q

What is the basic calculation for accumulated earnings and profits in a corporation?

A

Beginning Accumulated Earnings and Profits + Net Income + Gain on Distribution (if not already in book income) - Distribution (but cannot create a deficit) - NOL of prior years = Ending Accumulated Earnings and Profits

35
Q

What is the treatment of a gain in a complete corporate liquidation?

A

If Capital Property; then Capital Gain If Non-Capital Property; then Ordinary Income Gain characterization is the same for both the corporation and the shareholder

36
Q

What is the treatment of a loss in a complete corporate liquidation?

A

Corporation: Depends on if property is capital in nature; otherwise ordinary loss Individual: capital loss only

37
Q

What is the treatment of the liquidation of a subsidiary?

A

No G/L to parent company

38
Q

What is a consent dividend? How is it treated?

A

Consented by the Board of Directors but not yet paid Treat as if distributed by the end of the year

39
Q

Describe the requirements for a personal holding company.

A

No banks or financial institutions can be PHCs 5 or fewer individuals own more than 50% of the stock 60% of the PHC’s income must be from passive means PHC tax is self-assessing - 15% tax rate on undistributed PHC Income

40
Q

How is corporate accumulated earnings tax (AET) different from PHC taxation?

A

Not Self-Assessing like a PHC

41
Q

How is the accumulated earnings credit calculated for a corporation?

A

Take greater of $250;000 ($150;000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)

42
Q

What are the requirements for holding S-corporation status?

A

Only individuals; estates and trusts can be shareholders Domestic only; no international S-corps or foreign shareholders Up to 100 shareholders allowed; and only one class of stock allowed Calendar tax year only

43
Q

How is an S-corporation election made?

A

Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year To make election; 100% of the shareholders must consent

44
Q

How is an S-corporation terminated?

A

To terminate election; 50% of the shareholders must consent No S Corp election allowed for 5 years after termination S Corp termination effective immediately following an act that terminates status

45
Q

What items are not included in calculating an S-corporation’s ordinary income?

A

These items are included on Schedule K; not in ordinary income: Foreign Taxes paid deduction No Investment Interest expense Section 179 Deduction 1231 Gain or Loss Charitable Contributions Portfolio Income (dividends or interest)

46
Q

How is S-corporation shareholder basis calculated?

A

Beginning Basis +Share of Income Items (including non-taxable income!) -Distributions (cash or property) -Non-deductible expenses -Ordinary Losses (but don’t take income below zero) = Ending basis