Corporate Tax

Question 1

What is calculation for basis in land for a corporation?

Answer 1

Original owners basis in the land + the lesser of the realized gain or boot received (Cash).

Question 2

How to calculate gain recognized for contributed equipment by the Shareholder?

Answer 2

Gain is recognized to the extent that the liabilities assumed by the corporation exceed the basis in the assets contributed by the shareholder. ex: The gain for this shareholder is $6,000 ($12,000 debt less $6,000 basis).

Question 3

How to calculate the initial basis in the stock of a corporation for a shareholder?

Answer 3

A shareholders initial basis in the stock of a corporation is the amount the shareholder paid for the stock.

Question 4

What percentage must a shareholder own to “Control” the corporation?

Answer 4

Shareholder must control at least 80% of the corporation’s voting stock and 80% of all the other classes of stock issued.

Question 5

What is a Section 351 transfer?

Answer 5

Under Section 351, no gain or loss is recognized if the property is transferred solely for the exchange of stock of the corporation, if immediately after the transfer the transferring taxpayer or taxpayers have control over the corporation.

Question 6

What are nondeductible expenses (added back to book income) for Schedule M-1?

Answer 6

Federal tax expense, net capital loss, expenses in excess of limits

Question 7

What are taxable but not included in book income (added to book income) for Schedule M-1?

Answer 7

Prepaid income

Question 8

What are nontaxable income that is included in book income (subtracted from Book income) for schedule M-1?

Answer 8

Municipal interest income, life insurance proceeds

Question 9

What are deductions not expenses in book income (subtracted from book income) for schedule M-1?

Answer 9

Dividends received deductions, election to expense

Question 10

What are the thresh hold limits to using the Cash vs. Accrual method of accounting?

Answer 10

C corporations cannot use the cash method of accounting unless their average gross receipts for the previous three years do not exceed $25M. Once the $25M test is failed, the accrual method must be used for all future tax years.

Question 11

When can partnerships use the Cash method of accounting?

Answer 11

Partnerships can use the cash method regardless of the amount of gross receipts as long as none of the partners are C corporations.

Question 12

When is the selection of the accounting method made for a newly incorporated C corporation?

Answer 12

The initial selection is made on the initial tax return by using the chosen method.

Question 13

What are the Dividend Received Deduction limitations?

Answer 13

<20% = 50% DRD
>20% but <80% = 65% DRD
>80% = 100%

Question 14

What is accumulated earnings tax?

Answer 14

A tax imposed on corporation that accumulate earnings beyond reasonable amounts. Accumulated earnings tax tend to be applied more often to closely-held corporations. The tax is equivalent to 20% of the corporations accumulated taxable income.

Question 15

What is the personal holding company stock ownership test?

Answer 15

50% or more of the corporation’s stock was directly or indirectly owned by five or fewer individuals.

Question 16

What is the personal holding company income test?

Answer 16

The income test is satisfied if 60% or more of the corporation’s adjusted ordinary gross income is personal holding company income: dividends; interest; annuities; rents; mineral, oil and gas royalties; copyrights and patent royalties; produced film rents

Question 17

What groups may elect to file a consolidated corporate return?

Answer 17

Member of an affiliated group are eligible to file a consolidated tax return. An affiliated group contains a parent corporation and other corporations that own at least 80% by other members of the affiliated group.

Question 18

What are the three primary advantages of filing a consolidated return?

Answer 18

1. Losses of one affiliated member offset gains of another member
2. Inter-company dividends are excluded from taxable income
3. Inter-company profits are deferred until realized.

Question 19

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

Answer 19

In a complete liquidation, shareholders generally recognize capital gains and losses from corporate distributions.

Question 20

The filing fees, professional fees, and other expenditures incurred in connection with the liquidation and dissolution are…

Answer 20

Deductible in full by the dissolved corporation.

Question 21

Corporate reorganizations are generally tax-free to what parties?

Answer 21

Both Shareholders and Corporations

Question 22

How much dividend received deduction can a Corporation claim for dividends received from a foreign company?

Answer 22

A 100% dividend received deduction may be claimed for a dividend received from a foreign corporation in which ownership exceeds 10% and the stock was owned for more than 365 days.

Question 23

When is an excise tax equal to 1.4% of net investments income imposed on private colleges and universities?

Answer 23

Have at least 500 students, more than 50% of the students are located within the U.S. and have assets equal to at least $500,000 per student.

Question 24

What is the corporate tax formula?

Answer 24

Gross Income
Less: Deductions (except charitable, dividend received, and Capital Loss Carryback).
Less: Charitable Contributions (<= 10% of above)
Less: DRD
Less: Capital Carryback
= Taxable Income

Question 25

What are the DRD percentages thresholds?

Answer 25

Less than 20% ownership = 50%
Owns 80% or more = 100%
Between 20% and 80% = 65%

Question 26

What is the organizational expense deduction?

Answer 26

$5,000, but then reduced by the amount of expenditures incurred that exceed $50,000. Expenses not deducted must be capitalized and amortized over 180 months.