Corporate Taxation - General Flashcards
What is Sec. 1244?
Sec. 1244 permits a shareholder to deduct an ordinary loss of up to $50,000 per year ($100,000 if married filing jointly) if qualifying stock is sold, exchanged, or becomes worthless.
Sec. 1244 permits a shareholder to deduct an ordinary loss of up to _____ per year (____ if married filing jointly) if qualifying stock is sold, exchanged, or becomes worthless.
$50,000
$100,000
What is qualifying stock under Sec. 1244?
Qualifying stock must have been issued in exchange for money or other property and must have been issued to the individual or partnership sustaining the loss
T/F
Ordinary loss treatment under Sec. 1244 is available to a shareholder sustaining the loss that was not the original holder of the stock, perhaps they acquired the stock by purchase, gift, or inheritance
FALSE
Ordinary lost treatment under Sec. 1244 is only available for qualifying stock, which means that the stock must have been issued to the individual or partnership sustaining the loss - it must be the ORIGINAL HOLDER
If stock does not qualify under Sec. 1244, but a loss does occur, how is the loss recognized?
It will be recognized as a LTCL or STCL, but NOT as an Ordinary Loss
T/F
“The stock must be issued to an individual or to a partnership” is a requirement for stock to qualify as Sec. 1244 small business corporation stock
TRUE
T/F
“The stock was issued for money or property other than stock and securities” is a requirement for stock to qualify as Sec. 1244 small business corporation stock
TRUE
T/F
“The stock must be common stock” is a requirement for stock to qualify as Sec. 1244 small business corporation stock
FALSE
Any type of stock can qualify whether common, preferred, voting, or nonvoting
T/F
“The issuer must be a domestic corporation” is a requirement for stock to qualify as Sec. 1244 small business corporation stock
TRUE
T/F
Omitting income as a result of inadequate recordkeeping will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result
FALSE
This does not constitute deliberate actions with the specific intent of evading tax
T/F
Failing to report income it erroneously considered not to be part of corporate profits will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result
FALSE
This does not constitute deliberate actions with the specific intent of evading tax
T/F
Filing an incomplete return with an ammeded statement, making clear that the return is incomplete, will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result
FALSE
This does not constitute deliberate actions with the specific intent of evading tax
T/F
Maintaining false records and reporting fictiious transactions to minimize corporate tax liability will result in a civil fraud penalty being imposed on a corporation that underpays tax as a result
TRUE
A corporation’s penalty for underpaying federal estimated taxes is ________ (not deductible/partially deductible/fully deductible)
Not Deductible
A large corporation is one with taxable income of ___________ or more in any of its three preceding tax years, must make its estimated tax payments at least equal to _____ of its current year liability to avoid the estimated tax underpayment penalty
$1M
100%
T/F
A corporation may recognized gain/loss on the receipt of money or other property in exchange for its stock, including treasury stock
FALSE
A corporation will NEVER recognized gain/loss on the receipt of money or other property in exchange for its stock, including treasury stock
T/F
Professional fees to issue the corporation’s stock is a deductible organizational expenditure
FALSE
The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible
T/F
Commissions paid by the corporation to underwriters for stock issue is a deductible organizational expenditure
FALSE
The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible
T/F
Printing costs to issue the corporation’s stock is a deductible organizational expenditure
FALSE
The costs incurred in issuing and selling stock and securities do not qualify as organizational expenditures and are not tax deductible
T/F
Expenses of temporary directors meetings is a deductible organizational expenditure
TRUE
Organizational expenditures include fees for accounting and legal services incident to incorporation, expenses of organizational meetings and of temporary directors meetings, and fees paid to the state of incorporation
A corporation may deduct up to _____ of organizational expenditures for the tax year in which the corporation begins business, however this amount must be reduced by the amount by which organizational expenditures exceed _____. Remaining expenditures are deducted ratably over the ____ period beginning with the month in which the corporation ______ (is organized/begins business)
$5000
$50,000
180-month
Begins Business
Assume a corporation was organized and began business in year x1. They incurred $4,800 of organizational expenditures. How much can they deduct of organizational expenditures?
The entire $4,800 because it is under the $5,000 limit
Assume a corporation was organized and began business in year x1. They incurred $6,000 of organizational expenditures. How much can they deduct of organizational expenditures?
Because they have more than $5,000 of organizational expenditures, but less than $50,000 of organizational expenditures, they will deduct:
$5,000 + [(6000 - 5000) * months-in-x1/180]
Assume a corporation was organized and began business in year x1. They incurred $60,000 of organizational expenditures. How much can they deduct of organizational expenditures
Because they are over the limit of $50,000 or organizational expenditures they will deduct:
$60,000 * months-in-x1/180
A corporation’s charitable contributions deduction is limited to ____ of its taxable income
10%
A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the deduction for charitable contributions
BEFORE
A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the dividends received deduction
BEFORE
A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the the deductions for a NOL carryback
BEFORE
A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the capital loss carryback
BEFORE
A corporation’s charitable contributions deduction is limited to 10% of its taxable income computed _____ (before/after) the domestic production activities deduction
BEFORE
Accrual method calendar-year corporations may deduct contributions actually made in the year plus they can elect to deduct any contribution authorized by the board of directors during the year so long as the contribution is subsequently made no later than ____ months after the end of the tax year
2 1/2 months
To maximize a corporation’s deduction, accrual method calendar-year corporations may deduct contributions actually made in the year plus they can elect to deduct any contribution authorized by the board of directors during the year so long as the contribution is subsequently made no later than 2 1/2 months after the end of the tax year. The deduction is still limited to ____ of taxable income ____ the charitable contribution deduction. The remaining deduction can be carried over a maximum of ____
10%
Before
5 years
Dividends received from less than 20%-owned corporations are generally eligible for a ___ Dividend Received Deduction (i.e., ____% * Dividend). However, if the corporation’s taxable income before the DRD is less than the amount of the dividend, the DRD will be limited to ___ of ____
70%
70%
70%
Taxable Income
Dividends received from less than 20%-owned corporations are generally eligible for a 70% Dividend Received Deduction (i.e., 70% * Dividend). However, if the corporation’s taxable income before the DRD is less than the amount of the dividend, the DRD will be limited to 70% of taxable income. The exception is if the full DRD (70% * Dividend) creates or increases a _____
Net Operating Loss
T/F
The corporate dividends received deduction must exceed the applicable percentage of the recipient shareholder’s taxable income
FALSE
The DRD may be LIMITED to the applicable percentage of the investor corporation’s taxable income
T/F
The corporate dividends received deduction is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period
TRUE
To qualify for a DRD, the investor corporation must own the investee’s stock for more than 45 days (90 days for preferred stock if the dividends received are in arrears for more than one year)
T/F
The corporate dividends received deduction is unaffected by the percentage of the investee’s stock owned by the investor corporation
FALSE
A 70% DRD applies to dividends from less-than-20%-owned corporations, an 80% DRD applies to dividends from unaffiliated corporations that are at least 20%-owned, and a 100% DRD applies to dividends from corporations that are at least 80%-owned when a consolidated tax return is not filed
T/F
The corporate dividends received deduction may be claimed by S corporations
FALSE
To qualify for a DRD, the investor corporation must own the investee’s stock for more than ____ days (___ days for preferred stock if the dividends received are in arrears for more than _____)
45
90
One year
A ____ DRD applies to dividends from less-than-20%-owned corporations, an ____ DRD applies to dividends from unaffiliated corporations that are at least 20%-owned, and a ____ DRD applies to dividends from corporations that are at least 80%-owned when a consolidated tax return is not filed
70%
80%
100%
T/F
Dividends paid by mutual savings banks are eligible for a DRD
FALSE
So-called “dividends” paid by mutual savings banks are reported as interest and are not eligible for the dividends received deduction
A C Corporation’s Net Capital Losses are carribed back ____ and forward ____ as a _____ (STCL/LTCL) to offset capital gains in those years
3 years
5 years
STCL
A Net Operating Loss is generally carried back ____ and forward ____ to offset taxable income in the carryback and carryforward years
2 years
20 years
T/F
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it retains its original identity as short-term or long-term
FALSE
T/F
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it is treated as a STCL whether or not it was short-term when sustained
TRUE
T/F
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it is treated as a LTCL whether or not it was long-term when sustained
FALSE
T/F
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year, it can be used to offset ordinary income up to the amount of the carryback or carryover
FALSE
Given that deductions in a tax return exceed gross income, in computing the NOL, DRD’s are ____ (fully allowed/partially allowed/disallowed)
Fully Allowed
Given that deductions in a tax return exceed gross income, in computing the NOL, NOL deduction carryovers are ____ (fully allowed/partially allowed/disallowed)
Disallowed
T/F
The $100 floor and the 10% of AGI limitations for personal casualty losses also apply to business casualty losses
FALSE
If business property is completely destroyed, the amount of casualty loss deduction is the property’s adjusted basis immediately before the casualty
If business property is completely destroyed, the amount of casualty loss deduction is the property’s _____ (FMV/adjusted basis) immediately before the casualty
Adjusted Basis
For the first taxable year in which a corporation has qualifying R&D expenditures, the corporation has a choice of ______
Either
1) deducting such expenditures as current business expenses or
2) capitalizing these expenditures
For two companies to qualify for the filing of consolidated returns, at least what percentage of one’s total voting power must the other own?
80%
For two companies to qualify for the filing of consolidated returns, at least what percentage of one’s total value of stock must the other own?
80%
T/F
A corporation cannot deduct a net capital loss
TRUE
Distributions pay out a corporations ______ (positive/negative/both) AEP
Positive
Distributions ______ (can create/do not create) a deficit of AEP
Do Not Create
Distributions _____ (increase/decrease/do not affect) a deficit of AEP
Do not Affect
Distributions are treated as a dividend to the extent of ______
Current & Accumulated Earnings & Profits
When a company gives a cash distribution in excess of its accumulated earnings a profits this is treated as a ________ with any distribution in excess of a shareholder’s stock basis treated as ____
Nontaxable return of stock basis which reduces the shareholders’ adjusted basis in the stock
Capital Gain
A corporation’s distributions to shareholders on their stock will be taxed as ______ to the extent of
Dividend Income
The corporation’s current and accumulated earnings and profits
What is the amount of loss recognized by a corporation on a nonliquidating distribution of property to shareholders?
No loss can be recognized on nonliquidating corporate distributions to shareholders
T/F
Like a loss, a gain would not be recognized on a nonliquidating distribution of property to shareholders
FALSE
A gain would be recognized and taxable
Assume a corporation has a large deficit in Accumulated Earnings & Profits but a much smaller positive amount for Current Earnings & Profits, causing an overall deficit. If the corporation gives out a cash distribution, this ____ (is/is not) a taxable distribution to the extent of the smaller positive amount of CEP
IS
For example, even if AEP is -$50k and CEP is only $10k, so there is an overall deficit, the distributions for the current year will be taxable as dividend incme to the shareholders up to $10k
When a corporation distributes appreciated property to shareholders they ____ (will/will not) recognize a gain to the extent that _____
WILL
FMV exceeds basis/cost
When a corporation distributes appreciated property to shareholders, they will recognize gain to the extent that FMV exceeds basis/cost. This will _____ (increase/decrease/not affect) their AEP
Increase
T/F
A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation entirely as a capital gain
TRUE
T/F
A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation entirely as a dividend
FALSE
T/F
A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation partly as capital gain and partly as a dividend
FALSE
T/F
A noncorporate shareholder treats the gain on a redemption of stock that qualifies as a partial liquidation of the distribution corporation as a tax-free transaction
FALSE
A corporate stock redemption is treated as an ____
Exchange
A corporate stock redemption is treated as an exchange which generally results in ______ as long as the redemption meets any one of 5 tests. If none of these five tests are met, the redemption proceeds are generally treated as ____
Capital gain/loss treatment
A dividend
A corporate stock redemption is treated as an exchange which generally results in capital gain/loss treatment as long as the redemption meets any one of what 5 tests?
1) Redemption that is not essentially equivalent to a dividend
2) Redemption that is substantially disproportionate
3) A redemption that completely terminates a shareholder’s interest
4) A redemption of a noncorporate shareholder in a partial liquidation
5) A redemption to pay death taxes
T/F
“Redemption that is not essentially equivalent to a dividend” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
TRUE
T/F
“Redemption that is substantially disproportionate” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
TRUE
T/F
“A redemption that 50% terminates a shareholder’s interest” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
FALSE
“A redemption that COMPLETELY terminates a shareholder’s interest” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
T/F
“A redemption of a noncorporate shareholder in a full liquidation” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
FALSE
“A redemption of a noncorporate shareholder in a PARTIAL liquidation” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
T/F
“A redemption to pay death taxes” is one of the 5 tests to determine whether a corporate stock redemption is treated as an exchange which results in capital gain/loss treatment
TRUE
T/F
Generally, no deduction is allowed for any amount paid or incurred by a corporation in connection with the redemption of its stock
TRUE
Generally, no deduction is allowed for any amount paid or incurred by a corporation in connection with the redemption of its stock except for ____
Interest expense on loans used to repurchase stock
Legal and accounting fees incurred in connection with the repurchase of stock is _____ (Deductible/Not Deductible
Not Deductible
General expenses incurred in the complete liquidation and dissolution of a corporation _____ (are/are not) deductible by the corporation
ARE
General expenses incurred in the complete liquidation and dissolution of a corporation are deductible by the corporation as ____
Ordinary & Necessary Business Expenses
General expenses incurred in the complete liquidation and dissolution of a corporation are deductible by the corporation as ordinary and necessary business expenses. Examples include:
Filing Fees
Professional Fees
The usual result to the shareholders of a distribution in complete liquidation of a corporation is _____ (capital/ordinary) gain/loss.
Capital Gain/Loss
T/F
When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily be subject to capital gains tax of the long-term gain
FALSE
T/F
When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily be subject to ordinary income of the long-term gain
FALSE
T/F
When a parent corporation completely liquidates its 80%-owned subsidiary, the parent (as a stockholder) will ordinarily not recognize gains or loss on the liquidating distributions, because they are a consolidated entity
TRUE
