Corporate Tax Flashcards
When are gains and losses generally recognized in a qualifying reorganization
They are generally not recognized unless there is boot received or unlike property received (trading share for property)
What is the tax effect if you distribute a property dividend to your only shareholder
basis 5K FMV 35K
Company would recognize a gain on disposal of 35,000
the shareholder would have a total taxable dividend of 35,000
On your corporate tax return can you deduct
a fine
legal fees
political campaign contributions
No - fine
Yes - legal fees
No - political campaign contributions
which entity has the most flexibility in choosing its accounting period
C- corp - can choose 52 or 53 week fiscal calendar
does not have to end on the last day of the month
No reason needed
determined by the first income tax filing the c corp makes
If you are a shareholder can you have a capital loss as a distribution from a c corp
No
Distributions to a shareholder are taxable as dividends ( ordinary income) to the extent of Earning s and Profit
If you are a corporate shareholder - dividends are taxed at the ordinary income rate
An individual shareholder is generally taxed at a lower qualified dividend rate
anything given in excess of E&P is considered a return of capital
If you have a return of capital that is more than the shareholder’s basis they will have a capital gain
How are returns of capital taxed
If you get a dividend that is more than E&P then this is a return of capital
It is not taxable since it is a return of capital
If the distributed amount is more than your basis (the basis amount you put in) then you will have a capital gain
What is a qualifying stock redemption
This is a sale by a shareholder of her stock back to the corporation
a stock redemption reduced tax liability for individual shareholders
What is the rule on losses during a qualified redemption (sale of your stock back to the company)
If you own 50% or more of the company then losses are disallowed
How do you treat gains and losses when you have a corporate merger or takeover that qualified as a corporate reorganization.
What is the new basis?
No gain or losses are recognized
The basis of the target’s assets( the own being taken over) are transferred straight over without there being a any adjustment to FMV
Can a C- corp who owns 80% of a S-corp - have a consolidated tax return. what if it is an c-corp
No - this is not allowed
If C-sop owns 80% of another c-corp - then they may, but are NOT required to prepare a consolidated return
What gain or loss is recognized when a corporation makes a non liquidating distribution of its stock or property to a shareholder
No gain or loss is recognized when a corporation makes a non liquidating distribution of its stock or property
What does constructively own
This means that you own something based the virtue of the relationship. Husband and wives each constructively on the other’s stock
what is the difference between redemption and repurchase of stocks
when a company wants shareholder to turn in share for cash payments
Redemption - redeemable - have a call price that is set
repurchase - this is at the market price
what is an exchange treatment and when do you qualify for it
This is when a corporation does a stock redemption that substantially reduces the stock holders ownership interest in the corporation
Your new percentage ownership in the corporation have to be 80% less than what is was before the redemption to qualify
Example - You owned 25% of co. C and after redemption you own 15% of company C - you qualify for exchange treatment.
If shareholder qualifies for exchange treatment they do not have to pay tax on the redemption as dividend income
What is a personal holding company
A personal holding company is one that derived at least 60% of its revenue from passive sources
more than 50% is owned by 5 or less people
- taxable interest ((does not include muni - or nontaxable)
- dividends
- rentals
- royalty income
What can you do with the costs of organizing a corporation and what are they
State incorporation fees, accounting , and legal related to incorporation
- you can elect to deduct up to $5,000 in year of incorporation
- this amount is reduced when you hit $50,000 in org costs. you subtract from the 5K the amount over so if 51K in costs can deduct 4K in year 1 plus # of months
- Any costs not currently deductible are amortized over not less than 180 months
- You can also not deduct the $5K and instead amortize the whole amount over 180months
What are the rules on when distributions made by a corporation to it shareholders are taxable as dividends
Dividends are taxable to the extent of Earnings and Profit.
Example:
So if last year your E & P was -45K and this year your E&P is 15K and you distribute 18K. only the 15K is taxable. the rest is considered return of capital
What date do you use to calculate the value of a bond make a distribution as part of a dividend
You use the value on the date of the distribution
NOT date declared
NOT basis amount
For a corporation - how are capital losses treated
- They are always treated as a short term capital loss
- Even if it is a long -term capital loss or a short -term capital loss
- you can carry back 3 years and forward 5 years
What is the difference between a capital loss and a net operation loss
Net operating loss is when you company has negative taxable income (carry back 2 years and forward 30)
a Capital loss is when you sell a capital asset (stocks and bonds) for less than your cost. Its converted to short term capital loss and can be carried back 3 years and forward 5 years
If during formation - when a shareholder contributes property to obtain stock (less than 80%) - what are the rules
If they are getting less than 80% they do not have control
Therefore the property is transferred at FMV
- The shareholder will have a gain that is the difference between their basis and the FMV.
Taxable income is on the excess of the FMV over the tax basis of the property
What is a personal Holding company tax
You get penalized for for holding a lot of stock investments
its 20% tax
When you have 60% of income from passive sources
What are the two tests to see if you are a Personal Holding Co
1) Income test If passive income is 60% of adjusted gross income
2) Ownership test: If more than 50% of stock is owned by 5 or less people
during last half of year
What is a “small corporation exemption” for AMT
If a companies gross receipts are less than 7.5Million average for last 3 year
First year - automatically exempt
If in first year receipts are less than 5M - you are exempt in the second year
After this there is the 3 year average
If fail for 1 year - AMT plies for all future years
What is a constructive dividend
This is when a corporation sells property to a shareholder for less than the FMV.
The shareholder is considered to gave received dividend income equal to the difference
Example: corporation sell property to share hold for 75K with FMV of 100K. The shareholder will report dividend in come of 25K on this transaction
What are the charity rules with corporations
You can deduct up to 10% of Taxable income
You can add back the DRD to increase your taxable income for the purpose of calculating how much is your 10%
