CORPORATE TAX Flashcards
When forming a corp, under what circumstances is no gain or loss recognized?
- only property received from the corporation is stock
- the stock is received in exchange for property or cash
- the group transferring property and receiving stock owns at least 80% of voting power
What is the control club
the people who contribute property or cash to form the corporation. cannot contribute services
What if stock is received for services?
- FMV of stock is reported as wages
- The corp has a salary expense deduction
Boot and recognizing a gain
Anything received other than stock
Gain is recognized as the lower of
- FMV of boot received OR
- realized gain (amount realized - ab)
What happens when the liabilities assumed by the corporation is more than the total AB of property received?
Recognize a gain
= liabilities assumed - AB of received property
Shareholder basis in stock received by corporation formula
= AB of property transferred to corp \+ gain recognized - boot received - liabilities assumed by the corp
Corporate capital losses
Can only be used to offset gains
CB 3; CF 5
Corporations are required to use accrual method unless:
- average gross receipts are less than 5m
- personal service corp
- it is an S Corp
M-1 adjustments for corporations
Non-deductibles (+) to BI (fed tax exp)
Taxable Income NOT in book (+) to BI
Deductions NOT expensed in book (-) from BI (DRD, sec 179)
Non-taxable income in book (-) from BI (muni interest, life insurance)
Personal service corporation
corp whose principal activity is to perform personal services by employees who own substantially all of the stock
Passive loss rules
- no limits for a corp
- closely held can offset corp income but not portfolio income
- PSC cannot offset against active or portfolio income
DRD
Dividends Received Deduction
When corp owns stock in another company, and the other company pays dividends
DRD ownership % for dividends
If company owns less than 20% = DRD * 70%
If company owns 20-79% = DRD * 80%
If company owns 80-more = DRD * 100%
If the company’s taxable income is less than total DRD, can only deduct up to taxable income amount
Charitable Contribution Rules if Inventory is contributed
Lower of
AB of property + 50% (FMV-AB)
OR
AB * 2
Deduction for charitable contributions
limited to 10% of taxable income before special deductions
CF 10 years only; No CB
Organizational costs that can be deducted
accounting services, organizational meetings of directors and shareholders, fees paid to incorporate, legal fees, temporary director fees
Organizational and startup cost rules
$5,000 can be deducted from taxable income; but reduced by any amount above $50,000
The rest must be capitalized over 180 months (15yrs)
Stock issuance costs are “syndication” NOT deductible
Domestic Production Deduction
9% of the lower of :
- qualified production activity income OR
- taxable income
Qualified production activity income formula
Gross Receipts
- COGS
- Direct fees, allocable to the income, including wages
- prorated share of indirect expenses
AMT Exemption rule
Average annual gross receipts do not exceed $7.5 million
First year is automatically exempt and first 3 years annual average GR test is $5m
Once it failed once it applies in all future years
AMT Formula with Exemption
40,000 - [25%*(AMTI - 150,000)]
When tentative minimum tax is more than regular tax, you do what?
Add it to the regular tax = total tax liability
If also PHC tax, also add to it
Gives you total regular tax and tentative
Take difference and add difference to the regular
Accumulated earnings tax
penalty when corp accumulates earnings and profits for the purpose of avoiding tax for its shareholders = 20% of accumulated taxable income
Any DRD is added back to income
Accumulated earnings credit
amount that can be accumulated for reasonable business needs
the greater of:
- amount of earnings needed OR
- 250,000 (150,000 for nonmanuf business) less than accumulated earnings and profits at the end of the preceding year