Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

2019 reg SY > Corporate Taxation > Flashcards

Corporate Taxation Flashcards

Corporate Taxation

1
Q

Corp

Net Operating Loss:

A

Corp
NOL 2019:
No carry back, carry forward indefinitely (up to 80% of net income)
eg: Y3 Net capital loss 100,000USD
if Y4 income was 50,000USD,
only 80%=40,000USD loss can be carry forward and remainder 60,000USD is for Y6

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

meal

entertainment

A

meal : 50% deductible

entertainment:No more deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Corp formation is tax free if:

A

(1) Shareholders contribute property (boot paid), not services
(2) In exchange for stock (nothing else)
(3) After transaction, shareholders own 80% or more of stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Contribution of property subject to mortgage (debt) and debt relief is greater than the shareholder’s adjusted basis of asset ,

A

triggers gain recognition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Monette contributes building in exchange for 1,000 shares .
Adjusted basis of building $100,000
Mortgage 80,000
FMV of building 500,000

a.What is Monette’s gain?

A

Realized gain is 400,000USD.

but No gain recognized, tax-free exchange, because debt relief ($80,000) not greater that adjusted basis of asset ($100,000)
Notes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

C Corp : Monette contributes building in exchange for 1,000 shares .
Adjusted basis of building $100,000
Mortgage 80,000
FMV of building 500,000

b.What is Monette’s basis in the stock?

A

Basis of building $100,000 Boot paid 0
Boot received (debt relief) (80,000)
Gain recognized 0
Basis of stock $ 20,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

C Corp : Monette contributes building in exchange for 1,000 shares .
Adjusted basis of building $100,000
Mortgage 80,000
FMV of building 500,000

c.What is Corp’s basis in the building?

A

Basis of asset in hands of shareholder $100,000
Gain recognized by shareholder 0
Basis of asset in hands of corporation $100,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

C Corp : Monette contributes building in exchange for 1,000 shares

Adjusted basis of building $ 100,000
Mortgage 130,000
FMV of building 500,000

a. What is Monette’s gain?

A

Adjusted basis $ 100,000 Boot received (130,000) Taxable gain $ 30,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

C Corp : Monette contributes building in exchange for 1,000 shares

Adjusted basis of building $ 100,000
Mortgage 130,000
FMV of building 500,000

b. What is Monette’s basis in the stock?

A

Basis of building $ 100,000 Boot paid 0
Boot received (debt relief) (130,000)
Gain recognized 30,000
Basis of stock $ 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

C Corp : Monette contributes building in exchange for 1,000 shares

Adjusted basis of building $ 100,000
Mortgage 130,000
FMV of building 500,000

c. What is the corporation’s basis in the building?

A

Basis of asset in hands of shareholder $ 100,000
Gain recognized by shareholder 30,000
Basis of asset in hands of corporation $ 130,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Contribution=Charity

individual:
Corp:

A

individual:up to 60% of AGI
Corp:up to 10% of subpoint A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Proceeds from a key-person life insurance policy

corporation beneficiary is

A

excludable from gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Amortize $5,000 in the first year and the remainder (up to $50,000) straight-line over 15 years (180 months)

A

Phase-out: Lose $5,000 first-year deduction when costs exceed $50,000, dollar for dollar

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Organization fee include

A

a. Cost to draft corporate charter
b. Costs of organizational meetings (minutes, etc.)
c. Incorporation fees
d. Legal and accounting fees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Organization fee exclude

A

Costs to print and issue stock > reduction of APIC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Business Start-up Costs

(treat as same as orgnaize cost) include

A

a. Survey market
b. Advertise grand opening
c. Training employees before opening

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Business Gifts: Deductible up to

A

Business Gifts: Deductible up to a limit of $25 per person per year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Political Contributions is

A

Nondeductible!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Premiums for key-person life insurance policy is

A

Nondeductible!

Proceeds from the policy is non taxable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Capital gains are taxed

A

at a corp’s marginal tax rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Corp Capital loss

A

3 back 5

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Indivi Capital loss

A

up to 3,000USD for the year and carry forward indefinitely

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

General rule:

DRD is the lesser of:

A
  1. DRD percentage × taxable income before the DRD

2. DRD percentage × dividend received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Exceptions to General Rule:

A
  1. If a corporation has NOL before the DRD, then ignore the general rule, and take the full DRD
  2. If the full DRD creates NOL, then ignore the general rule, and take the full DRD (If full DRD does not create NOL, then use the general rule)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

DRD does not apply to

A

S corporations, real estate investment trusts (REIT’s), personal service corporations, and personal holding corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Distribution Rules

a. current E&P is positive, accumulated E&P is negative

A

Don’t net them!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Distribution Rules

b. current E&P is negative, accumulated E&P is positive

A

Net them!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

If appreciated property distributed,

A

If appreciated property distributed, gain recognized as if sold to third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Consolidated %

A

80%!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Tax free reorganization

A

a. stock for stock with acquiring corporation less than 80%

b. bankruptcy reorganization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Penalty tax of XX% on accumulated earnings beyond reasonable needs of business

A

20%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Personal Holding Company

A
  1. Five or fewer shareholders own more than 50% of shares

2. 60% or more of income from passive sources (e.g., rents)

33
Q

statute of limitation begins from

A

4/15 of the year of filing

34
Q

distributions are ordinary income.

distribution over E&P is

A

return of capital. it reduces shareholder’s basis

35
Q

distributions are

A

ordinary income

36
Q

Accumulated Earnings Tax

A

20% tax on accumulated earnings beyond reasonable needs of business

To C corp only
Not to S corp and PHC

37
Q

accumulated earnings tax credit

A

250,000 USD for c corp

150,000 USD for service corporation

38
Q

For S corp election,

A

All shareholders must consent to S corporation election (Form 2553)

39
Q

S corporation election is valid for current year, if made either

a. During preceding year

or

A

b. On or before 15th day of third month in current taxable year

40
Q

S corp

No more than 100 shareholders

A

Ineligible shareholders

a. Partnership
b. C corporation
c. Non-resident alien

41
Q

S Corporation Stock: One class of stock

A

Disallowed: Preferred stock

Allowed: Voting and non-voting common stock

42
Q

S corporation that was previously a C corporation may be subject to

A

Built-in gains tax

43
Q

S corp status will be terminated with

A
  1. Consent of more than 50% of shareholders
  2. Fail to satisfy eligibility requirements or
  3. Fail the passive investment income test
    a. If more than 25% gross receipts for 3 consecutive years is passive investment income, and
    b. S corporation previously was a C corporation with accumulated E&P
44
Q

New election cannot be made for

A

5 years unless IRS grants earlier re-election

45
Q

Form 1120S due is

A

3/15 (same as partnership)

46
Q

Schedule K-1 (for reporting the distributive share of a partnership income)

  1. Shareholder’s pro rate share of corporate income or loss
A
  1. Shareholder’s pro rata share of separately stated items, including:

a. Capital gains and losses
b. Section 1231 gains and losses
c. Interest income (both taxable & nontaxable)
d. Dividend income
e. Rental income or loss
f. Any other passive gain or loss
g. Charitable contributions
h. Section 179 expense
i. Foreign income taxes paid
j. Tax credits

47
Q

IF S corp has never been a C corp,
Distributions are tax-free to extent of shareholder’s basis(because shareholders pick up gain/loss of S corp)
but

A

Distributions reduces shareholders’ basis

Distributions in excess of basis are capital gains

48
Q

Accumulated Adjustments Account (AAA):

A

Cumulative amount of income while an S corporation minus distributions

49
Q

S corporation was previously a C corporation

Accumulated E&P as a C corporation $75,000 Distributions to shareholders 500,000
Accumulated adjustments account (AAA) 300,000

A
  1. Distribution is tax-free to the extent of S corporation’s AAA ($300,000), but reduces shareholders’ basis.
  2. Next $75,000 distributed is a fully taxable as dividend income (relating to former C corporation E&P) with no affect on shareholder’s basis.
  3. Last $125,000 distributed is tax-free (reduces shareholders’ basis) but if in excess of shareholder’s basis, then capital gain.
50
Q

Built in tax gain

Only applies to S Corps that were previously C Corps

A

only applies to the 5 years after the S election

tax rate is 35%,the highest corporate income tax

51
Q

Commerce Corp. elects S corporation status as of the beginning of the current year. At the time of
Commerce’s election, it held a machine with a basis of $20,000 and a fair market value of $30,000. In
March of the current year, Commerce sells the machine for $35,000. What would be the amount subject
to the built-in gains tax?

A

The built-in gain for the machine is $10,000, the difference, on the date of the election of S status, between the $20,000 adjusted basis of the machine to the C corporation and the $30,000 fair market value. That is the amount of the gain that occurred while the corporation was a C corporation, and it is also the amount that is subject to the built-in gains tax

52
Q

Contributing property to C corp:

Shareholder’s basis: contributed cash&property basis-COD
Gain realized: FMV - basis
Gain recognized: Only when boot is received(cash, COD)

A

2. FMV>basis, COD > basis gain is recognized : COD-basis

When boot recieved and
#1. FMV>basis, COD < basis NO gain recognized
eg) contributed property basis $5,000 COD $2,000
No gain recognized

eg) contributed property basis $5,000 COD $20,000
gain is $15,000

53
Q

Usually, distribution is ordinary income to shareholders.

but in a liquidating distribution,

A

Corporate recognizes gain.

Shareholders have capital gain or loss when FMV of property received (less liability
assumed) differs from basis of shares

54
Q

C: at a liquidated distribution, capital gain.
S:Distributions in excess of basis are capital gains

A

Partnership’s property distribution never causes gain or loss. gain is recognized only when boot(cash/COD) received!

Loss recognized only when boot recieved is lower than partner’s basis.

55
Q

S corp is not permitted to take a deduction of

A

Charitable contribution. it separately stated item and may be deducted by each partner level.

56
Q

Interest exp is ordinary exp

A

not separately stated!

investment interest exp is separately stated

57
Q

cash basis > don’t look AR balances!

A

collected amount = taxable income

58
Q

dividends from foreign subsidy to US parent

A

Non taxable to US parent

59
Q

Property dividends at taxable at

A

FMV!

60
Q

How does a noncorporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corporation?

A

Entirely as capital gain

61
Q

Kari Corp., a manufacturing company, was organized on January 2, Year 0. Its Year 0 federal taxable income was $400,000 and its federal income tax was $100,000 What is the maximum amount of accumulated taxable income that may be subject to the accumulated earnings tax for Year 0 if Kari takes only the minimum accumulated earnings credit?

A

$ 50,000

400K-100K=300K
300K-250K(accumulated earnings credit)=50K

62
Q

type B reorganization

I. Stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent
II. Acquiring corporation must have control of the target corporation immediately after the acquisition

A

= buy subsidiary by stock, not cash

both 1 and 2 are YES

63
Q

B Corp. owns 80% of S Corp.’s outstanding capital stock. S’s capital stock consists of 50,000 shares of common stock issued and outstanding, S’s Year 0 net income was $140,000. During Year 0, S declared and paid dividends of $60,000. In conformity with generally accepted accounting principles, B recorded the following entries in Year 0:

B’s dividend income is

A

ZERO
as this is from 80%-owned subsidiary=consolidated.
dividend income is zeroed out.

64
Q

Commerce Corp. elects S corporation status as of the beginning of year 2. At the time of Commerce’s election, it held a machine with a basis of $20,000 and a fair market value of $30,000. In March of year 2, Commerce sells the machine for $35,000. What would be the amount subject to subject to the built-in gains tax?

A

$10,000

built-in gain tax is the only corporate tax S corp needs to pay.

65
Q

Life premium beneficiary is

  • corp
  • employee
A
  • corp > non deductible (proceeds are non taxable)
  • employee > deductible
66
Q

Dahl Corp. was organized and commenced operations in Year 0. At December 31, Year 5, Dahl had accumulated earnings and profits of $9,000 before dividend declaration and distribution. On December 31, Year 5, Dahl distributed cash of $9,000 and a vacant parcel of land to Green, Dahl’s only stockholder. At the date of distribution, the land had a basis of $5,000 and a fair market value of $40,000. What was Green’s taxable dividend income in Year 5 from these distributions?

A

Gain of land increases corp’s E&P 40,000-5,000=35,000
A E+P is 9,000+35,000=44,000
44,000 is taxable dividend income.
excess portion of 5,000(49,000-44,000) = return of capital

67
Q

Aztec, a C corporation, distributed an asset to Burn, a shareholder. The asset had a fair market value of $30,000 and was subject to a $40,000 liability, assumed by Burn. The asset had an adjusted basis of $25,000. What amount of gain must Aztec recognize?

A

15,000USD

usually gain=FMV-basis
but when liability is bigger than FMV, gain is difference between liability and basis

Absent information to the contrary, we should assume this distribution is in the form of a dividend (especially because Fox is the sole shareholder). If the shareholder is an individual, the taxable amount of a property dividend from a corporation’s earnings and profits is the fair market value of the property received (and the property’s basis then becomes that fair market value). In this case, the shareholder is also taking on the responsibility for the mortgage on the property, but this affects only the amount of taxable income, as the debt is reported as a separate line item and does not affect the basis of the land. The tax journal entry follows and indicates that the basis of the land is $38,000.

distributions from a corp are ALWAYS FMV and you’d recognize the gain at corp level.

68
Q

For the collapsible corporation provisions to be imposed, the holding period of the corporation’s stock

A

Is irrelevant

69
Q

Elm Corp. is an accrual-basis calendar-year C corporation with 100,000 shares of voting common stock issued and outstanding as of December 28, 1996. On Friday, December 29, 1996, Hall surrendered 2,000 shares of Elm stock to Elm in exchange for $33,000 cash. Hall had no direct or indirect interest in Elm after the stock surrender. Additional information follows:

Hall’s adjusted basis in 2,000 shares of Elm on December 29, 1996 ($8 per share) $16,000
Elm’s accumulated earnings and profits at January 1, 1996 25,000
Elm’s 1996 net operating loss (7,000)
What amount of income did Hall recognize from the stock surrender?

A

Dr: cash 33,000
Cr:shares 16,000
capital gain 17,000

distribution beyond basis (after basis became zero) is capital gain!

70
Q

Acme Corp. has two common stockholders. Acme derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its stockholders. Acme is a

A

Personal holding company

  • only 2 shareholders
  • 100% of income is from passive activity(investment)
71
Q

Plant Corp. and Stem Corp. file consolidated returns on a calendar-year basis. In January Year 1, Stem sold land, which it had used in its operations, to Plant for $150,000. Immediately before this sale, Stem’s basis for the land was $90,000. Plant held the land primarily for sale to customers in the ordinary course of business. In July Year 2, Plant sold the land to Dubin, an unrelated individual, for $180,000. In determining the consolidated Section 1231 net gain for Year 2, how much should Stem take into account as a result of the Year 1 sale of the land from Stem to Plant?

A

6,000

the inter company gain 6,000 goes to suspense account
and will be recognized when the property is sold to third party.
>In determining the consolidated Section 1231 net gain for Year 2, how much should Stem take into account as a result of the Year 1 sale of the land from Stem to Plant?

72
Q

S corp cannot be consolidated with

A

C corp!

73
Q

Lane Inc., an S corporation, pays single coverage health insurance premiums of $4,800 per year and family coverage premiums of $7,200 per year. Mill is a ten percent shareholder-employee in Lana. On Mill’s behalf, Lane pays Mill’s family coverage under the health insurance plan. What amount of insurance premiums is includible in Mill’s gross income?

A

If you own more than 2% of corp’s share, the amount corp pay for the shareholder’s family’s health insurance premium that will be taxable.

74
Q

Adams, Beck, and Carr organized Flexo Corp. with authorized voting common stock of $100,000. Adams received 10% of the capital stock in payment for the organizational services that he rendered for the benefit of the newly formed corporation. Adams did not contribute property to Flexo and was under no obligation to be paid by Beck or Carr. Beck and Carr transferred property in exchange for stock as follows:

Adjusted basis Fair market value Percentage of Flexo stock acquired

Beck 5,000 20,000 20%
Carr 60,000 70,000 70%
What amount of gain did Carr recognize from this transaction?

A

B and C obtained 80% by contributing property in formation.

this makes B and C have no gain recognition

75
Q

Which of the following items should be included on the Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return, of Form 1120, US Corporation Income Tax Return, to reconcile book income to taxable income?

A

Premiums paid on key-person life insurance policy < non tax deductible

1120 is for corporation

76
Q

Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash?

A

Corp’s TI : increase (when corp distributed appreciated property, need to recognize gain)

Shareholder’s TI: No change (200,000cash or FMV 200,000 property)

Rule: The taxable amount of a dividend to a shareholder from a corporation’s earnings and profits is the amount received in cash or the fair market value of the property received.

Rule: The general rule is the payment of a dividend does not create a taxable event, unless the distribution is appreciated property. When the distribution is of appreciated property, the corporation recognizes gain as if the property were sold at fair market value.

77
Q

A corporation was completely liquidated and dissolved during the current year. The filling fees, professional fees, and other expenditures incurred in connection with the liquidation and dissolution are

A

Deductible in full by the dissolved corporation

78
Q

What is the tax treatment of net losses in excess of the at-risk amount for an activity?

A

Any losses in excess of the at-risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity.

79
Q

Shareholder forming C corp:

  • Shareholder’s basis=basis of contributed property-liability assumed by C corp
  • Contribution triggers gain only when boot is received (cash or COD) for shareholder
A

*Shareholder’s gain pattern A:cash received, cash amount becomes gain
*Shareholder’s gain pattern B:COD received, COD amount – contributed properties’ basis
Loss is NEVER allowed!
*C corp’s basis in noncash property: shareholder’s basis of the property=gain recognized by the shareholder

2019 reg SY (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions