Corporate Tax Flashcards
What are rules for Section 351 exchange?
Contribute cash or property and control is >=80% =
Tax free
Carryover basis and holding period
Contribute services or <80% control =
Taxable income at FMV
Wage expense for corporation
Receive cash or other property besides stock = boot
Recognize gain equal to lesser of gain realized or boot received
Contribute property with liability = reduce S/H basis in amount of liability relief
If liability > S/H basis, recognize gain on excess and S/H basis is 0
How is S/H basis calculated under Section 351?
S/H basis in stock received = \+ Adjusted basis of property transferred \+ Recognized gain \+ Cash paid \+ Liabilities assumed \+ Transaction costs and fees - Cash received - FMV of property received - Liability relief
How is corporation basis calculated under Section 351?
Corporation basis in property received =
+ Adjusted basis of property of transferor
+ Gain recognized by transferor
When can accrual basis taxpayer accrue an expense?
When it meets BOTH:
All Events Test - liability is established and can be reasonably estimated
Economic Performance Test - property or services are provided, certain accrued items can be deducted if paid within 2.5 months of close of tax year
What is the treatment for organizational expenses?
May deduct up to $5,000
Amount reduced by amount expenses >$50K
Remaining costs can be amortized over 180 months
Must elect to amortize during organization
Does not include costs of issuing or selling stock
How is Dividends Received Deduction calculated?
Own <20% - 70% deduction
Own >=20% to 80% - 80% deduction
Own >=80% - 100% deduction
When would a corporation not qualify for the DRD?
Received from foreign corporation
Borrowed money to buy investment
Received from tax exempt organization
Owned for <46 days
What are the rules for corporate charitable contributions?
Limited to 10% of ATI - NI before charity, DRD, NOL CB, and Capital Loss CB
Unused amount CF 5 years
What are the rules for corporate capital gains and losses?
Only offset capital losses against capital gains
Unused amount CB 3 years and CF 5 years, considered S/T
What is the Accumulated Earnings Tax?
20% tax on undistributed income to penalize corporations to accumulating too much earnings
Not self assessed tax
Can reduce or eliminate tax if pay actual or constructive dividend, or paid PHC tax
Safe harbor allows $250K manufacturing, $150K for PSC + amount to pay federal taxes owed
What is the Personal Holding Company Tax?
20% tax to discourage sheltering passive income in corporations
Self assessed tax
Can eliminate tax if pay actual or constructive dividend
Owe tax if meet BOTH:
1) 5 or fewer individuals own >50% of stock AND
2) >=60% of revenue from passive sources
What are the corporate supplementary schedules?
M-1 - reconciles book to tax income
M-2 - statement of R/E
m-3 - reconciles book to tax income for corporations with assets >=$10M, separately reports temporary and permanent differences
What is included in Current Earnings and Profits?
Taxable Income \+ Tax exempt income \+ DRD \+ Deferred gain on CY installment sales \+ Excess MACRS depreciation over S/L \+ 4/5 CY Section 179 expense - 1/5 PY Section 179 expense - Recognized gain on PY installment sales \+ Excess of LIFO over FIFO COGS \+ Excess of % depletion over cost \+ Proceeds from key man life insurance \+ Increase in cash surrender value of key man insurance - Federal income taxes - Nondeductible expenses - Excess charitable contribution >10% limit - Net CL CY - Foreign taxes paid
How are corporate distributions treated?
Distribution taxable to extent of EP, remainder is nontaxable return of investment that reduces S/H basis
CEP + AEP - = +
CEP - AEP + = NET
CEP + AEP + = ++
CEP - AEP - = 0
When are stock redemptions treated as exchanges with capital gain and loss treatment to S/H?
Must meet ONE:
Redemption not essentially a dividend
Redemption substantially disproportionate
All S/H stock is redeemed
Redemption from non corporate S/H in partial liquidation
Redemption used to pay death taxes
