Corporate Taxation - General, Part 2 Flashcards
A corporation is a personal holding company if:
1) ___ or fewer individuals owns more than ___ of its stock at any time during the ____ of its taxable year
2) At least ____ of its AGI is personal holding company income (dividends, interest, rent, etc.)
5
50%
Last Half
60%
T/F
A series of adjustments must be made to a corporation’s taxable income to arrive at undistributed personal holding company income (UPHCI). One of these adjustments is the deduction of federal income taxes (including AMT & foreign income taxes)
TRUE
T/F
A series of adjustments must be made to a corporation’s taxable income to arrive at undistributed personal holding company income (UPHCI). One of these adjustments is the deduction for a net capital gain less the amount of federal income taxes attributable to the net capital gain
TRUE
This deduction prevents a personal holding company from paying the PHC tax on its net LTCGs
What 2 steps can a corporation take to eliminate or reduce accumulated earnings tax?
1) Demonstrate that the reasonable needs of its business require the retention of all or part of the accumulated taxable income
2) Reduce accumulated taxable income by paying a dividend to its shareholders by the first 2.5 months of the following tax year
What is the Accumulated Earnings Tax?
The AET is a penalty tax that can be imposed (in addition to regular income tax) on a corporation if it accumulates earnings in excess of reasonable business needs
T/F
AET can be imposed on partnerships
FALSE
T/F
AET can be imposed on personal holding companies
FALSE
T/F
A corporation that distributes all of its accumulated earnings tax is subject to AET
FALSE
T/F
AET can be imposed regardless of the number of stockholders in a corporation
TRUE
What is the minimum accumulated earnings credit for non-service corporations? For service corporations?
$250,000
$150,000
T/F
The accumulated earnings tax applies to personal holding companies
FALSE
The accumulated earnings tax does not apply to personal holding companies
T/F
The personal holding company tax should be self-assessed by filing a separate schedule with the regular tax return
TRUE
T/F
Like the personal holding company tax, the AET is self-assessing
FALSE
The AET is assessed by the IRS after finding a tax avoidance intent on the part of the taxpayer
T/F
The AET can be imposed on an S-Corporation
FALSE
Because the S Corporation’s earnings pass through and are taxed to shareholders regardless of whether the earnings are actually distributed
T/F
In determining accumulated taxable income for the purpose of the accumulated earnings tax, a capital loss carryover from the prior year is allowed as a deduction
FALSE
This would be added back to taxable income in arriving at accumulated taxable income
T/F
In determining accumulated taxable income for the purpose of the accumulated earnings tax, a DRD is allowed as a deduction
FALSE
This would be added back to taxable income in arriving at accumulated taxable income
T/F
In determining accumulated taxable income for the purpose of the accumulated earnings tax, NOL deduction is allowed as a deduction
FALSE
This would be added back to taxable income in arriving at accumulated taxable income
T/F
In determining accumulated taxable income for the purpose of the accumulated earnings tax, a net capital loss for the current year is allowed as a deduction
TRUE
The accumulated earnings credit is the greater of:
1) the earnings & profits of the tax year retained for reasonable business needs
2) The minimum tax credit ($150k/$250k) less the accumulated earnings and profits at the end of the preceding year
T/F
An S corporation is permitted to own 90% of the stock of a C Corporation
TRUE
T/F
An S corporation is permitted to own 100% of he stock of another S Corporation
TRUE
T/F
An S corporation is permitted to be a partner in a partnership
TRUE
T/F
A partnership is permitted to be a shareholder of an S Corporation
FALSE
The eligibility requirements restrict S corporation shareholders to individuals, estates, and certain trusts
Distributions from an S corporation are generally treated as first coming from its ____, and then are treated as coming from its ____
Accumulated Adjustment Account
Accumulated Earnings & Profits
A positive balance in an S Corporation’s Accumulated Adjustment Account is generally _______ (taxable/nontaxable)
Nontaxable
A positive balance in an S Corporation’s Accumulated Earnings & Profits is generally _______ (taxable/nontaxable)
Taxable - must be reported as dividend income
If an S election is filed after _____, the election is generally effective as of the first day of the corporation’s next taxable year
The 15th day of the 3rd Month
T/F
A shareholder’s basis in the stock of an S Corporation is increased by the shareholder’s pro rata share of income from Tax-Exempt Interest
TRUE
T/F
A shareholder’s basis in the stock of an S Corporation is increased by the shareholder’s pro rata share of income from taxable interest
TRUE
A revocation of an S election may be filed by shareholders owning more than ____ of an S Corporation’s Outstanding stock.
50%
T/F
A revocation of an S election may be filed by shareholders owning more than 50% of an S Corporation’s Outstanding stock. For this purpose, only voting shares are counted
FALSE
For this purpose both voting and nonvoting shares are counted
T/F
Generally, in order to be an S Corporation, a corporation may have any number of classes of stock outstanding and have any number of shareholders, as long as those shareholders are individuals, estates, or certain trusts
FALSE
Generally, in order to be an S Corporation, a corporation may have only one class of stock outstanding and have no more than 100 shareholders who are either individuals, estates, or certain trusts
If an S corporation has no AEP, distributions are generally _______ (taxable/nontaxable) & ______ (increase/reduce) a shareholder’s basis for stock
Nontaxable
Reduce
An S corporation’s items of income and deduction are allocated on a ____ (daily/monthly/quarterly/yearly) basis to anyone who was a shareholder during the taxable year
Daily
An S Corporation who terminates their S status must wait how many years before making a new S election, n the absence of IRS consent to an earlier election
5 years
T/F
An S Corporation may deduct foreign income taxes
FALSE
This must separately pass through to shareholders so that the shareholders can individually elect to treat the payment of foreign income taxes as a deduction or as a credit
T/F
An S Corporation may deduct a net Section 1231 loss
FALSE
This must be separately passed through to shareholders so that the Sec. 1231 netting process can take place at the shareholder level
T/F
An S Corporation may deduct investment interest expense
FALSE
This must be separately passed through to shareholders so the deduction limitation (limited to net investment income) can be applied at the shareholder level
T/F
An S Corporation may deduct the amortization of organizational expenditures
TRUE
Items having no special tax characteristics can be netted together in the computation of the S Corporation’s ordinary income or loss with only the net amount passed through to shareholders. Thus ordinary items, such as amortization of organizational expenditures, can be deducted by an S corporation
When is a calendar-year S Corporation’s income tax return due date if they do not request an automatic 6-month extension of time to file?
March 15
The 15th day of the 3rd month following the close of the taxable year
T/F
An S corporation is permitted to take a deduction for compensation of officers
TRUE
T/F
An S corporation is permitted to take a deduction for interest paid to individuals who are not stockholders of the S corporation
TRUE
T/F
An S corporation is permitted to take a deduction for charitable contributions
FALSE
Since this is subject to a percentage limitations at the shareholder level, this must be separately stated and is not deductible in computing an S corporation’s ordinary income or loss
T/F
An S corporation is permitted to take a deduction for employee benefit programs established for individuals who are not stockholders of the S Corporation
TRUE
A type-A reorganization is tax-free to the _____
Shareholders & the Corporations
What is a type A reorganization?
A consolidation
What kind of gain/loss is recognized to a shareholder if stock in one party to a reorganization is exchanged solely for stock in another corporation that is party to the reorganization?
NO Gain or Loss is recognized
An F Reorganization is what?
A mere change in identity, form, or place of organization of one corporiation
T/F
A stock redemption is a reorganization
FALSE
Instead this results in dividend treatment or qualifies for exchange treatment
A Type E reorganization is what?
A recapitalization
T/F
Securities in corporations not parties to a reorganization are always “boot”
TRUE
For two corporations to qualify for the filing of consolidated returns, at least what percentage of the subsidiary’s total a) voting power and b) total value of stock must be directly owned by the parent?
a) 80%
b) 80%
How do you calculate a company’s accumulated earnings & profits at the end of the year?
a) Beg AEP + Taxable Income
b) Beg AEP + Taxable Income - Deductions
B
How does a company’s distributions of land affect their AEP?
Lands FMV - Adjusted Basis (gain on distribution) will be recognized as an increase in AEP
