Corporate_Taxation Flashcards
How is shareholder basis calculated for a new interest in a Corporation?
Adjusted basis of property transferred
- *+** Gain recognized (if less than 80% ownership)
- *-** Boot received (assumption of liability always treated as boot for purposes of determining stock basis)
- *=** Shareholder basis
- If shareholders have 80% control after a property transfer or cash,→ no taxable event occurs
- If consideration other than stock is received, a realized gain must be recognized to the extent of the boot received
- If liabilities exceed basis on contributed property to a Corporation, →a gain is recognized
- Service → FMV, taxable compensation for shareholder
What basis do shareholders and Corporations use for property?
They both use ADJUSTED BASIS, NOT FMV of property
AB (same as shareholder)
- *+** Gain recognized to shareholder
- *= Corporation basis **
Describe how loss is taken on Section 1244 small business Corporation stock?
A loss on worthless stock is
- an ordinary loss up to $50,000 /yr ($100,000 MFJ)
- any excess is treated as capital loss
What are the 5 requirements for taking an ordinary loss on Section 1244 small business Corporation stock?
- Taxpayer must be original stock owner, and either an individual or partnership
- Stock must have been issued in exchange for money or property (NOT for services) by domestic corporation
- Shareholder equity must not be in excess of $1 million
- the stock can be common or preferred, voting or nonvoting
- Limti ordinary $50k (single) or $100k (MFJ) limit - remainder is a capital loss
What are the basic rules for filing a form 1120?
- Return is due regardless of income level Return is due 3/15 if on a calendar year basis, or 2 1/2 months after end of fiscal year
- An automatic six-month extension is available
When are Corporate federal tax estimated payments required, and how are they calculated?
- Estimated payments are required if estimated tax is more than $500 - including the alternative minimum tax and tax credits
- Estimated payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year
-
No penalty if
- tax paid is 100% current year liability OR
- **100% previous year liability **→ EXCEPTION: large corporation $1million TI or no PY tax
- If fraud a penalty of 75% of the portion of underpayment portion attributable to the fraud will be assessed
Describe the AMT calculation for C-Corporations
Regular Taxable Income
+Tax Preference Items
+/- Adjustments
= Pre-ACE AMTI
+/- ACE Adjustments
= AMTI
- 40,000 Exemption (phase-out)
= Tax Base
x 20%
= Tentative Minimum Tax
- Regular Tax Liability
= AMT
What are the pre-ACE adjustments/preferences for C-Corporation tax AMT calculations?
PILE
PILE
- Interest income for _P_rivate activity bond (preference)
- Installment sale method cannot be used for sale of inventory type items (adjustments)
- Long term contract income must be calculated using % of completion method (adjustments)
- Excess depreciation on personal property over 150% DB when 200% DB was used for regular tax purpose (adjustments)
What are the ACE adjustments in the C-Corporation AMT tax calculation?
SLIM
-
SLIM
- Seventy 70% Dividends Received Deduction
- Life Insurance Proceeds on the death of key employee (must be capitalized)
- Municipal Bond Interest on general obligation bonds
- ACE adjustment = 75% x (ACE - PreACE AMTI)
- The ACE adjustment can be positive or negative, **but a negative ACE adjustment is limited in amount to prior years’ net positive ACE **
When are C-Corporations exempt from AMT?
- In year 1, first year of incorporation no amount limit
- In year 2, if year 1 g**ross receipts were $5 Million or **less than
- In year 3, if the average gross receipts for years 1 and 2 were less than $7.5 Million
- In year 4 and beyond, if the average from the previous 3 years is less than $7.5 Million
How are gains and losses handled with respect to a Corporation’s transactions involving its own stock?
- 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.
How are Corporate organizational expenditures handled?
- May deduct up to $5,000 of organizational expenditures and startup costs - reduced by excess of costs over $50,000, and amortized remaining cost over 180 months beginning with the month that business begins.
- Cost of issuing, printing and selling stock are NOT organizational expenses
- If the Corporation doesn’t amortize organization costs in year one, they can never be amortized
- Costs associated with offerings are neither deductible nor amortized
How are a C-Corporation’s deductible charitable contributions calculated?
Deduction limited to10% of TI _BEFORE _
- Charitable Contribution deduction ,
- DRD,
- NOL carryback ,
- captigal loss carryback, and
- domestic production activities deduction
Note When unsolicited samples of items that are normally inventoried and sold in the ordinary course of business are received from a supplier, and later donated as a charitable contribution, the fair market value of the items received must be included in gross income. The taxpayer is then allowed a charitable contribution equal to the fair market value of the items donated
How are excess charitable contributions treated in a C-Corporations?
Excess charitable contributions get carried forward 5 consecutive years (No Carryback)
When can a board of directors authorize charitable contributions for a tax year?
The Board of Directors can authorize charitable contributions paid within 21/2 months after year and have them count in the previous tax year
How is the dividends received deduction (DRD) calculated, and what are the (4) **limitations **?
Calculation
- 80% owenership/control = 100% DRD- Only allowed if NO consolidated return is filed
- 20-79% owenership = 80% DRD
- less than 20% unaffiliated = 70% DRD
Limitation: investor doesn’t qualify for DRD if
- from an foreign corporation
- borrow the money to buy the investment (interest expense)
- received from a tax exempt organization (muni-bond interest, not taxable)
- owned less than 45 days (minimum holding period)
Dividends Received Deduction (DRD) calculation
- when there is a loss from operations
- when the income before DRD is less than the amount of dividend
- When the income before DRD is less than the amount of dividend itself, but If Taxable Income remains after DRD, only a partial DRD (T.I.. x DRD %) is allowed
- ** If DRD** brings a loss situation, then you can **take the full DRD **
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 loss on a sale to a Corporation where taxpayer owns a 50% or more interest is disallowed
How are capital losses handled in a C-Corporation?
- Capital Losses are deductible only to the extent of Capital Gains
- Unused capital losses are carried back 3 year, carried forward 5 years to offset capital gain.
- All corporate loss carryback and carry forwards are treated as short-term.
How are bad debt losses handled in a Corporation?
Bad debt losses are classified **as ordinary deduction **
What is the casualty loss floor for a C-Corporation?
Calculation of Loss if total destruction or partial destruction
• No floor on Corporate casualty loss like there is with an individual taxpayer
• If totaly destroyed, the loss is the property’s basis (minus proceeds)
Calculation: Loss=**Adjusted basis - proceeds from insurance **
• If partially destroyed, take the lesser of decrease in FMV a time of destruction OR adjusted basis reduction (minus proceeds)
