Corporate Tax

Question 1

if you put equipment into a corp worth 20k, you have basis of 6k, and it has a liability of 12k, how much gain do you recognize?

Answer 1

you recognize the amount of liability over your basis that you’re relieved of. So you had a 12k liability with basis of 6k, so your gain is 6k.

Question 2

what basis does a corp take in land contributed by an owner?

Answer 2

it takes the owner’s basis plus any gain the owner recognized on the transaction.
If an owner contributes land with 40k of basis but the corp gives him 10k in cash, the corp’s basis in the property is 50k

Question 3

for corporations, how long is goodwill amortized?

Answer 3

amortized over 15 years

Question 4

how are premiums paid on a key-person life insurance policy treated on an M-1?

Answer 4

they reduce book income but not taxable income

Question 5

how are corporate NOLs treated?

Answer 5

you can carry them back two years and ahead 20 years

Question 6

for a corp, are life insurance premiums paid for its executives as part of their taxable compensation deductible to the corp?

Answer 6

yes, they are fully deductible

Question 7

is interest expense on a loan used to purchase municipal bonds deductible?

Answer 7

since the loan is used to purchase bonds that generate tax-exempt income, the interest expense is NOT deductible

Question 8

is interest on municipal arbitrage bonds and interest on US treasury notes taxable to a corp?

Answer 8

yes- both are taxable.

Question 9

how long do you have to own a stock to qualify for dividends received deduction?

Answer 9

45 days

Question 10

is a dividend received deduction allowed on a REIT investment?

Answer 10

no

Question 11

what amount of a net capital loss can a corp deduct in one year?

Answer 11

none- capital losses are only used to offset capital gains. they can be carried back 3 years and forward 5

Question 12

is interest on funds borrowed for working capital deductible?

Answer 12

yes.

Question 13

which of these are qualified organizational expenses for a corporate startup:

• legal fees
• state incorporation fees
• commissions paid to broker on sale of stock

Answer 13

only the state incorporation fees and the legal fees. the broker fees aren’t deductible at all.

Question 14

for a corp, how long can you carry forward excess charitable contributions?

Answer 14

up to five years

Question 15

for dividends rec deduction questions, when the income is a net loss:

Answer 15

make sure to deduct it from the income amount before applying the DRD.

-20k in net income with 200k of 25% owned dividends = a DRD of 80% against 180k - NOT 200k

Question 16

difference in startup costs for a corp and organization costs for a corp?

Answer 16

nothing really- they are separate and each have the 5k rule but they are different. organization costs and startup costs are NOT lumped together

Question 17

dividends received deduction limits:

Answer 17

0-20%: deduct 70%
21-80%: deduct 80%
81-100%: deduct 100%

Question 18

how does the corporate AMT small corp exemption work?

Answer 18

In the first year of a corp’s existence it is automatically exempt from AMT.
Year 2’s test is the gross receipts from year one.
If year one’s gross receipts exceed 5million, then the corp is NOT exempt from AMT in year 2.
Once the small corp test is failed, the corp is NOT exempt for all future tax years.

The general test is 7,500,000- the above 5million test is for NEW corps.

Question 19

what is the AMT exemption regarding 40k?

Answer 19

the exemption is 40k minus 25% of the AMT income exceeding 150k.

If you have 200k of AMT income then 50k applies to the exemption. That would be 40k - (50k x .25) which equals 27,500

Question 20

what is the federal acc earnings tax credit and how does it work?

Answer 20

it gives corps 250k to lower its income subject to the acc earnings tax, plus any dividends or fed income taxes paid.
If your corp had 400k in taxable income and it paid 100k in tax, you then subtract the credit of 250k from the remaining 300k- this leaves you with 50k that is subject to the acc earnings tax

Question 21

when would a corp want to distribute land instead of cash?

Answer 21

if the land is appreciated then the corp would have to pay tax on the appreciation.
the amount of dividend income is the same either way to the shareholder

Question 22

how do noncorporate shareholders treat gains on a redemption of stock that qualifies as a partial liquidation?

Answer 22

entirely as a capital gain

Question 23

what is a B reorg?

Answer 23

stock for stock, and only the voting stock of the acquiring firm is permitted

Question 24

what is a type a reorg?

Answer 24

a statutory merger- target ceases to exist, but target shareholders now own stock in acquiring corp

Question 25

what is a type c reorg?

Answer 25

acquisition of “substantially all” of the assets of the target solely in exchange for voting stock of the acquiring corp

Question 26

accrual based corps can deduct all or part of charitable contributions paid after the year end of its tax year if the contribution is paid within the first ____ months after the end of the tax year

Answer 26

2 and 1/2 months.

if the board approved 300k to be donated on jan 31st of the next year, the corp can deduct the maximum amount this year.

Question 27

are S corps eligible to be in an affiliated group?

Answer 27

NO