Corporate Tax Special Topics

Question 1

WHAT is considered a “protected in-state activity?”

Answer 1

(1) Missionary Sales Activities
(2) Consigning goods for sale
e. g. manufacturer’s solicitation of retailers to buy the manufacturer’s goods from the manufacturer’s wholesale customers

Question 2

WHAT is considered the “usual” result to shareholders of a distribution in complete liquidation of a corporation?

Answer 2

A Capital Gain OR Loss

Note: THE shareholder gain or loss is the difference between the amount realized and the basis in the stock

Question 3

WHAT is a result of a subsidiary corporation that is liquidated into the parent corporation?

Answer 3

The tax attributes of the subsidiary corporation carry over to the parent corporation

(Sec. 332)

Question 4

WHEN would the distribution of stock or rights to acquire stock in the distributing corporation be included in the recipient’s gross income?

Answer 4

WHEN it is either (1) a disproportionate distribution; OR

(2) a distribution instead of money or other property

Question 5

True or False.

A shareholder recognizes gains or losses in a reorganization on an exchange of stock or securities in a corporation.

Answer 5

FALSE.

A shareholder does NOT recognize any gain or loss in a reorganization on an exchange of stock or securities in a corporation.

Note: The reorganization is tax-free to the Shareholders’ and the corporation

Question 6

WHAT is “Nonbusiness income?”

Answer 6

ALL income other than business income

Note: This type of income is “Allocated” NOT “Apportioned”

Question 7

WHAT is a Shareholders’ tax basis in a nonliquidating distribution (e.g. Land)?

Answer 7

THE FMV at the date of distribution

Note: In the event there is a liability assumed (which exceeds the FMV of property received), the liability is the shareholder’s basis in the property

Question 8

True or False.

A shareholder may treat a distribution as a capital loss.

Answer 8

FALSE.

A shareholder will NEVER treat a distribution as a capital loss.

i.e. The amount of a distribution may be treated as ordinary dividend income, capital recovery, or gain on sale

Question 9

True or False.

The definition of property excludes stock.

Answer 9

FALSE.

The definition of property excludes stock, but only if issued by the corporation.

Question 10

WHAT are considered “taxable dividends?”

Answer 10

For the purposes of taxable income, they are generally any distribution of money or property made by a corporation to its shareholders with respect to their stock out of the corporation’s earnings and profits

Question 11

BY what date must a corporation (required to) file Form 1099-DIV for a tax year with the Internal Revenue Service?

Answer 11

February 28 of the following year (not considering leap year)

Question 12

WHAT is the value of Property rented by the taxpayer?

Answer 12

Eight

i.e. the value is Eight times the “net annual rental rate”

Question 13

WHEN would a distribution of stock or stock rights generally NOT be considered a taxable dividend?

Answer 13

WHEN it is a “Proportionate distribution”

i.e. It would NOT be included in the gross income of the distributee

Question 14

WHAT is considered a “Type A” reorganization?

Answer 14

A statutory merger or consolidation.

i.e. two corporations merge into one (Under state law)

Question 15

WHAT is the characteristic of a “Type C” reorganization?

Answer 15

One corporation acquires substantially all the assets of another in exchange for its voting stock (or its parent’s).

Question 16

WHAT are the characteristics of a “Type D” reorganization?

Answer 16

A corporation transfers all or part of its assets to another in exchange for the other’s stock

Question 17

WHAT is “nexus?”

Answer 17

Substantial presence to tax a “nonresident”

i.e. A “minimum presence” in the taxing state by the nonresident that must be established

Question 18

WHAT is the “base erosion” minimum tax rate?

Answer 18

5%

i.e. IT is the minimum tax amount for the tax year in excess of the modified taxable income of the applicable taxpayer for the tax year over the applicable taxpayer’s regular tax liability (reduced by certain specified tax credits)

Question 19

HOW would a noncorporate shareholder treat (i.e. report) any gain(s) on a redemption of stock qualified as a partial liquidation of the distributing corporation?

Answer 19

Entirely as capital gain

Question 20

WHAT would NOT be taken into account when determining the amount of the recognized gain or loss on a transfer of property to a corporation (in exchange for a controlling interest in stock of the corporation)?

Answer 20

THE Fair market value of property transferred