Corporate Taxation Flashcards
T or F, the rules for the formation of an S corp are the same as for a C corp.
T
is the penalty for underpayment of federal estimated taxes deductible?
Hell NO
what is the key indicator that a business must use the accrual method of accounting?
business has greater than 25,000,000 of avg annual gross receipts for the preceding 3 years
how are organization costs (e.g., legal fees) of a corporation treated?
amortized over a period of not less than 180 months beginning in month business begins. TP may elect to deduct up to 5,000 immediately, subject to limitations (50,000 total expenditure, deduction reduced dollar for dollar over the 50,000)
*this rule also applies to partnerships
can corporations deduct any capital losses in excess of capital gains in a year?
NO
which entities are required to use the accrual method of accounting?
tax shelters, large C corps, and manufacturers
what are the corporate dividend-received deductions?
80% owned sub in a consolidated return = 100% deduction
less than 20% owned (unrelated) = 50% deduction
all other = 65% deduction
*S corps cannot take this deduction
what is the charitable contribution deduction of a corp limited to?
10% of taxable income without regard to:
contribution deduction
dividends received deduction
NOL carryback
capital loss carryback
T or F, a corp can only use net capital losses to offset net capital gains.
*net capital g/l are short term and long term netted together
T
3 year carryback and 5 year carryforward
when are accrued charitable contributions not paid by the end of the year deductible in the year of accrual?
BOD authorizes the contribution during the tax year AND the accrual-basis corp pays the accrued amount within 3 and 1/2 months following the end of the year
when is rental revenue received in advance taxable?
in the year of receipt
are business gifts deductible?
Yes, up to 25 per recipient per year
the dividends-received deduction equals the lesser of:
50% or 65% of dividends received OR 50% or 65% of taxable income without regard to: the DRD any NOL carryforwad any capital loss carryback
*limitation does not apply if taking the full DRD deduction (% x dividends received) results in a NOL
to find taxable income, what do you do with this situation: tax depreciation > book depreciation?
subtract the difference from book income
is interest expense to carry municipal bonds tax deductible?
NO. deduction per book, but not tax
is the book/tax difference in the bad debt deduction considered a temporary or permanent difference?
temporary
when are expenses owed by an accrual-basis corporation to a cash-basis shareholder who owns at least 50% of the corporation’s stock deductible by the corporation?
when the corporation actually pays the shareholder cash
what type of business can the accumulated earnings tax be imposed on?
regular corporations (acc RE in excess of 250,000) and personal service corporations (acc RE in excess of 150,000)
when does the personal holding company status apply?
if a corporation is owned more than 50% by 5 or fewer individuals at any time during the last half of the tax year and if at least 60% of adjusted ordinary gross income for the tax year is personal holding company income
*stock ownership 50% ; income 60%
PHC is not subject to accumulated earnings tax, but is subject to regular tax on corporate income and 20% tax on its undistributed PHC income
what sources of income must be considered to determine if the income requirements for a personal holding company have been met?
dividends (no DRD allowed)
taxable interest
royalties, but not mineral, oil, gas, or copyright royalties
net rent, if less than 50% of ordinary gross income
what are some examples of a personal service corporation?
accounting, law, consulting, engineering, architecture, health, and actuarial science
how do you determine the required estimated tax payments for a C corp?
just remember least of 100% off prior liability (preceding year method), current liability, estimated current liability (annualized income method)
when will no penalty be imposed on a corp for underpayment of estimated tax?
underpayment is less than $500
what 2 things must be deducted from a PHC’s taxable income to determine undistributed PHC income prior to the dividend-paid deduction?
federal income taxes AND net LT capital gain (net of tax)
which corporations are not allowed to file a consolidated return?
S corps, foreign corps, most REITs, some insurance companies, brother-sister corps (individual owns 80% or more of the stock of two or more corps)
when a consolidated return is filed, what happens to intercompany gains and losses?
they are eliminated
a corporation’s capital loss carryback or carryover is…
always treated as a ST capital loss
what are the characteristics of a Type B reorganization?
the target is acquired using the stock of the acquiring corp or the acquiring corp’s parent
AND
the acquiring corp must be in control of the target immediately after acquisition
when a C corp liquidates, how is the recognized G/L of the corp on the property distributed to the shareholders calculated?
FMV of property - adj basis of the property
*treated as a sale
what is the special rule that applies to section 1244 small business stock regarding a loss?
when the stock is sold or becomes worthless, an ORIGINAL SHAREHOLDER can be treated as having an ordinary loss (fully deductible), instead of a capital loss, up to 50,000 (100,000 MFJ). Any excess is a capital loss.
when a parent, who owns at least 80% of the stock, liquidates its subsidiary, who recognizes a G/L?
neither parent nor sub recognizes a G/L.
parent assumes the basis of the sub’s assets as well as any unused NOL carryover, capital loss carryover, or charitable contribution carryover
when a corporation distributes appreciated property to its shareholders (nonliquidating dividend), does the corporation recognize a gain?
yes.
FMV - adj basis
when a corp makes multiple distributions to shareholders, how are current and acc E and P allocated?
current: pro rata (distribution/total distribution x current E and P)
acc E and P: first come first serve
how is a proportional stock redemption treated?
as a dividend
what is a guaranteed payment?
payment to partner for services provided to partnership without regard to partnership income or partner’s profit and loss-sharing ratio
can an S corp distribute appreciated property to its shareholders without gain?
NO, neither can a C corp. It is treated as the sale of an asset.
*generally, a partnership can though
what assets are considered hot assets?
unrealized receivables and appreciated inventory
