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REG > CORPORATE TAX > Flashcards

CORPORATE TAX Flashcards

1
Q

When forming a corp, under what circumstances is no gain or loss recognized?

A
  1. only property received from the corporation is stock
  2. the stock is received in exchange for property or cash
  3. the group transferring property and receiving stock owns at least 80% of voting power
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2
Q

What is the control club

A

the people who contribute property or cash to form the corporation. cannot contribute services

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3
Q

What if stock is received for services?

A
  • FMV of stock is reported as wages

- The corp has a salary expense deduction

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4
Q

Boot and recognizing a gain

A

Anything received other than stock

Gain is recognized as the lower of

  • FMV of boot received OR
  • realized gain (amount realized - ab)
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5
Q

What happens when the liabilities assumed by the corporation is more than the total AB of property received?

A

Recognize a gain

= liabilities assumed - AB of received property

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6
Q

Shareholder basis in stock received by corporation formula

A 
= 
AB of property transferred to corp
\+ gain recognized 
- boot received
- liabilities assumed by the corp
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7
Q

Corporate capital losses

A

Can only be used to offset gains

CB 3; CF 5

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8
Q

Corporations are required to use accrual method unless:

A
  1. average gross receipts are less than 5m
  2. personal service corp
  3. it is an S Corp
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9
Q

M-1 adjustments for corporations

A

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)

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10
Q

Personal service corporation

A

corp whose principal activity is to perform personal services by employees who own substantially all of the stock

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11
Q

Passive loss rules

A
  • no limits for a corp
  • closely held can offset corp income but not portfolio income
  • PSC cannot offset against active or portfolio income
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12
Q

DRD

A

Dividends Received Deduction

When corp owns stock in another company, and the other company pays dividends

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13
Q

DRD ownership % for dividends

A

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

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14
Q

Charitable Contribution Rules if Inventory is contributed

A

Lower of
AB of property + 50% (FMV-AB)
OR
AB * 2

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15
Q

Deduction for charitable contributions

A

limited to 10% of taxable income before special deductions

CF 10 years only; No CB

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16
Q

Organizational costs that can be deducted

A

accounting services, organizational meetings of directors and shareholders, fees paid to incorporate, legal fees, temporary director fees

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17
Q

Organizational and startup cost rules

A

$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

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18
Q

Domestic Production Deduction

A

9% of the lower of :

  • qualified production activity income OR
  • taxable income
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19
Q

Qualified production activity income formula

A

Gross Receipts

  • COGS
  • Direct fees, allocable to the income, including wages
  • prorated share of indirect expenses
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20
Q

AMT Exemption rule

A

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

21
Q

AMT Formula with Exemption

A

40,000 - [25%*(AMTI - 150,000)]

22
Q

When tentative minimum tax is more than regular tax, you do what?

A

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

23
Q

Accumulated earnings tax

A

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

24
Q

Accumulated earnings credit

A

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
25
Q

PHC standards

A
  • own more than 50% of stock by 5 or fewer individuals

- substantial portion 60% or more must be passive income (dividends, interest, rents, royalties)

26
Q

Affiliate Group

A

C Corp owns at least 80% of voting power of another C - or multiple C Corps and can file consolidated return

S Corp, foreign and insurance co. is NOT allowed to be a member

27
Q

How are dividends and gains/losses treated for affiliated groups

A

Dividends are eliminated

G/L are not recognized until sold to an outside party

28
Q

General rule for corporate distributions

A

depends on accumulated earnings and profits

if distributions are larger than AE&P the remaining is return of capital and NOT taxable except when corp gain on appreciated property is deferred and then distributed = taxable

29
Q

Difference between affiliated and controlled groups

A 
Affiliated = every day of the year; 80% for voting AND value
Control = by last day of the tax year; 80% for voting OR value
30
Q

Ordinary Distributions

A
  1. taxable as dividend income to the extent of E&P
  2. Excess is tax-free to extent of stock basis and decreases the basis
  3. Any remaining is treated as capital gain
31
Q

Increases and Decreases to E&P

A

Increased by all income and decreased by all deductions/non-deductibles

reduced by cash distribution and property using greater of FMV less liabilities or AB less liabilities

32
Q

When property distribution from corp to shareholder has appreciated value

A

Recognize a gain on the corp for the amount that the basis increased to FMV

i.e. Basis = 5
FMV = 40
Gain on corp = 35 + beginning basis less cash distributions

33
Q

Redemption

A

When corp buys back stock from shareholder; qualifies as a sale/exchange treatment if ends up owning less than 80% or 50% of total combined voting power

When corp is completely liquidated, distribution is capital gain NOT ordinary

Partial liquidiation - non-corp shareholders = capital gain, corp shareholders = dividend

34
Q

Expenses related to corp distributions and to a liquidation

A

are deductible

35
Q

What is the usual result to the shareholders of a distribution in complete liquidation of a corp?

A

capital gain or loss

36
Q

If a subsidiary is liquidated under a parent, how is the G/L calculated?

A

In general nothing is recognized

37
Q

How is reorganization treated for tax purposes?

A

It is generally tax-free to the corporation and its shareholders

38
Q

How are losses recognized in liquidation

A

They may not be if:

  1. property was contributed in the last 5 years OR
  2. property is distributed to a related party
39
Q

General definition of corporate reorganization

A

where two corps (acquiring and target) choose to merge or consolidate, or one spins off part of its operations as a separate corp

40
Q

Summarize the types of reorganizations

A
  1. Assets of target are exchanged for stock in acquiring (statutory merger - target is dissolved)
  2. Stock for stock (acquiring must own 80% after this - otherwise recognize gain)
  3. Acquiring gets 90% of net assets of target in exchange for voting stock. target distributes to shareholders
  4. Divisive - one corp divides by transferring assets to a sub in exchange for stock in a sub
41
Q

Consequences to a Corp in reorganizaiton

A
  1. gain or loss is generally not recognized
  2. if acquiring transfers appreciated property to target a gain - but NO loss is recognized
  3. if target distributes appreciated property to shareholders, gain but NO loss is recognized
42
Q

Nexus

A

taxing corporate income does not exist if limited to:

  1. sale of tangible personal property that are shipped and accepted outside of the state
  2. advertising
  3. determining reorder needs of customers
  4. furnishing auto to sales staff
43
Q

How are foreign currency exchange gains and losses treated?

A

If through investment/person = capital

If through course of business = ordinary

44
Q

Describe exempt organization

A

charities, labor orgs, social clubs, pension and profit-sharing trusts, political orgs and private foundations

may be a corporation or a trust, and must apply for an receive exemption from taxation

must not engage in political campaigns/activities

45
Q

Filing requirements for exempt organization

A

Must file if gross receipts are more than $50,000

46
Q

How is an exempt organization taxed?

A

based on its unrelated business income (UBI):

  1. substantially all work is performed for no compensation
  2. business carried on for the convenience of students or members
  3. sale of merchandise received as contributions
  4. in general, investment income
  5. rents from real property
47
Q

Types of personal service corps

A

health, law, engineering, architectures, accounting and consulting

48
Q

When a corporate material event occurs, what is the filing that must be completed

A

8-K within 4 days of the event

REG (17 decks)

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