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Regulation > Corporate Taxation > Flashcards

Corporate Taxation Flashcards

1
Q

How is shareholder basis calculated for a new interest in a Corporation?

A

Adjusted basis of property transferred
+ Gain recognized (if less than 80% ownership)
- Boot received
= Shareholder basis.

Liabilities > basis on contributed property to a Corporation, a gain is recognized.

shareholders >80% control after a property transfer, no taxable event occurs.

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2
Q

How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?

A 
Transferor's basis 
\+ Gain recognized by shareholder 
= Basis OR FMV of Corporate Interest 
- Adjusted basis of property 
= Gain
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3
Q

What basis do shareholders and Corporations use for property?

A

They both use ADJUSTED BASIS.

NOT FMV of property.

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4
Q

Describe how loss is taken on Section 1244 small business Corporation stock?

A

A loss on worthless stock is an ordinary loss.

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5
Q

What are the requirements for taking an ordinary loss on Section 1244 small business Corporation stock?

A

Taxpayer must be original stock owner, and either an individual or partnership $50k (single) or $100k (MFJ) limit - remainder is a capital loss

Must have been issued in exchange for money or property (not exchanged for services)

Shareholder equity must not be in excess of $1 million

Both common and preferred stock is allowed

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6
Q

What are the basic rules for filing a form 1120?

A

Return is due regardless of income level
Return is due 4/15 if on a calendar year basis, or 3 1/2 months after end of fiscal year
An automatic six-month extension is available

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7
Q

When are Corporate federal tax estimated payments required, and how are they calculated?

A

Required if more than $500 in tax liability expected

25% per quarter current year liability (2Q, 3Q, 4Q)

100% PY liability or 25% of PY tax in 1Q

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8
Q

What is the exemption in AMT tax for C-Corporations?

A

$40,000 Exemption

Reduced 25% if Taxable Income over $150k

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9
Q

What are the pre-ACE adjustments for C-Corporation tax AMT calculations?

A

Real Estate purchased 1986-1999 using Straight Line Depreciation must depreciate over a useful life of 40 years

Personal Property - use 150% MACRS, not 200%

Construction must use % completion method

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10
Q

What are the ACE adjustments in the C-Corporation AMT tax calculation?

A 
Municipal Bond 
Interest 
Life Insurance Proceeds 
70% Dividends Received Deduction 
Organizational Expenditures must be capitalized, not amortized

Note: AMT paid gets carried forward indefinitely, but never carried back

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11
Q

When are C-Corporations exempt from AMT?

A

Year 1 exempt
Year 2, if year 1 gross receipts were less than $5 Million
Year 3, if the average gross receipts for years 1 and 2 were less than $7.5 Million
Year 4 and beyond, if the average from the previous 3 years is less than $7.5 Million

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12
Q

How are gains and losses handled with respect to a Corporation’s transactions involving its own stock?

A

Corporations have no gain/(loss) from transactions involving their own stock, including Treasury Stock.

If Corporation gets property in exchange for stock, there is no gain/(loss) on the transaction.

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13
Q

How are a C-Corporation’s deductible charitable contributions calculated?

A

10% of Taxable Income

Do not include in Taxable Income:
Charitable contributions, Dividends Received Deductions (DRD), or NOL Carrybacks allowed

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14
Q

How are excess charitable contributions treated in a C-Corporations?

A

Excess charitable contributions get carried forward 5 consecutive years

(No Carryback)

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15
Q

When can a board of directors authorize charitable contributions for a tax year?

A

The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year

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16
Q

How is the dividends received deduction (DRD) calculated, and what are the limitations?

A

Ownership >80% Interest = 100%
DRD 20-79% = 80%
DRD < 20% = 70% DRD

Only allowed if no consolidated return is filed.

Qualified dividends from domestic Corporations only.

Take lessor of % per taxable or % per Dividends

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17
Q

What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?

A

Only take DRD % x Taxable Income

Note: If DRD brings a loss situation, then you can take the full DRD
If Taxable Income remains after DRD, only a partial DRD (T.I.. x DRD %) is allowed

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18
Q

How are Corporate losses on a sale to a Corporation where a taxpayer owns a 50% or more interest handled in a C-Corporation?

A

A loss on a sale to a Corporation where taxpayer owns a 50% or more interest is disallowed

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19
Q

How are capital losses handled in a C-Corporation?

A

Capital Losses are deductible only to the extent of Capital Gains

20
Q

How are net short term capital gains taxed in a C-Corporation?

A

Net Short Term Capital Gains are taxed at ordinary income rates

21
Q

How are Corporate losses carried back/forward?

A

Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss

22
Q

How are bad debt losses handled in a Corporation?

A

Accrual basis: Bad debt losses are classified as ordinary (Direct method)

Cash basis: No deduction

23
Q

What is the casualty loss floor for a C-Corporation?

A

No floor on Corporate casualty loss like there is with an individual taxpayer

If destroyed, the loss is the property’s basis (minus proceeds)

Calculation: Adjusted basis - Proceeds from Insurance = Loss If partially destroyed, take the lesser of FMV or adjusted basis reduction (minus proceeds)

24
Q

How are net operating losses handled in a C-Corporation?

A

Carryback 2 years where income; forward 20 years.

25
Q

How is investment interest expense handled in a C-Corporation?

A

Unlike individual taxation, investment interest expense is not limited to investment income.

Investment interest on tax-free investments are NOT deductible.

26
Q

What is the purpose of Schedule M-1 on a Corporate tax return? Which items are included?

A

Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction

Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation, straight-line, etc.

27
Q

What is the purpose of Schedule M-2 on a Corporate tax return? How is it calculated?

A

Reconciles beginning to ending retained earnings Beginning Unappropriated Retained Earnings
+ Net Income
+ Other Increases
- Dividends paid
- Other decreases
= Ending Unappropriated Retained Earnings

28
Q

What is the purpose of Schedule M-3 on a Corporate tax return?

A

Like M1, but for Corporations with $10M+ in assets

29
Q

How are affiliated (80%) Corporation tax returns handled?

A

Consolidation election is binding going forward Dividends between them are eliminated,
Advantage- Gains are deferred.

Disadvantage:
losses are deferred.
One AMT exemption
One accumulated earnings tax allowed

Note: In order to consolidate, the parent must have 80% voting power and own 80% of the stock value

30
Q

How are Corporate distributions to shareholders handled?

A

Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income)

Remainder (if any) is a return of capital.

31
Q

What is the basic calculation for accumulated earnings and profits in a Corporation?

A

Beginning Accumulated Earnings and Profits
+ Net Income
+ Gain on Distribution (if not already in book income)
- Distribution (but cannot create a deficit)
- NOL of prior years
= Ending Accumulated Earnings and Profits

32
Q

What is the treatment of a gain in a complete Corporate liquidation?

A

If Capital Property, then Capital Gain

If Non-Capital Property, then Ordinary Income

Gain characterization is the same for both the Corporation and the shareholder

33
Q

What is the treatment of a loss in a complete Corporate liquidation?

A

Corporation: Depends on if property is capital in nature, otherwise ordinary loss

Individual: capital loss only

34
Q

What is the treatment of the liquidation of a subsidiary?

A

No Gain/Loss to parent company

35
Q

What is a consent dividend? How is it treated?

A

Consented by the Board of Directors but not yet paid

Treat as if distributed by the end of the year

36
Q

Describe the requirements for a personal holding company.

A

No banks or financial institutions can be PHCs

5 or fewer individuals own more than 50% of the stock

60% of the PHC’s income must be from passive means

PHC tax is self-assessing - 20% tax rate on undistributed PHC Income

37
Q

How is Corporate accumulated earnings tax (AET) different from PHC (Personal Holding Corp) taxation?

A

Not Self-Assessing like a PHC

38
Q

How is the accumulated earnings credit (AEC) calculated for a Corporation?

A

Take greater of $250,000 ($150,000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)

39
Q

What is a Personal Service Corporation (PSC)? What is the tax rate?

A

Health, Law, Accounting, etc (service organizations - must be licensed)

Flat rate of 35%

40
Q

When can a C-Corporation use the cash method?

A

Personal Service Corporations (PSC)

Less than avg annual revenue of $5 million for 3 prior tax years

41
Q

What is excluded from gross income for a C-Corporation?

A 
Capital Contributions (from non-shareholders)
Treasury Stock
42
Q

What amount of Start-up and organization costs are deductible for a C-Corporation?

A

$5k startup and $5k organizational

Over $5k amortized 15 years (180 months)

Over $50k reduced

Organizational costs: not qualified costs related to transfer of assets or issuance/sale of stock

43
Q

What is deduction for Charitable contribution for C-Corporation?

A

Capital Gain Property - deduction is the property’s FMV but must be used to related to org purpose

All limited to 10% of taxable income before:
Charitable Contribution
DRD
NOL Carryback
Capital Loss Carryback
44
Q

What deductions are allowed when a C-Corp has an NOL?

A

NOLs from other years
Charitable contributions
Allowable Depreciation

Disregard Income limitations for DRD deduction

45
Q

How much can a corporation deduct with the Foreign Tax Credit?

A

Applied to gross tax liability after AMT before toher credits.

Limit = US income tax x (Foreign taxable income / worldwide taxabale income)

Excess: Carryback 1 year; forward 10 years

46
Q

How is a gain or loss of a Corporate Distribution to Shareholders handled?

A

Basis < FMV = Loss realized not recognized

Basis > FMV = Gain recognized

(Shareholder basis = FMV)

Regulation (14 decks)

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