Corporation Flashcards
For a corporation, what is the SH basis of property received from a corp as a dividend?
SH basis is always the property’s FMV
When a total distribution is made from a Corporation, how is that Cash/Property distribution handled?
The total distribution made to each SH first reduces Current E&P (to $0) then reduces the remainder of Accumulated E&P
What happens when, at formation, a corporation assumes a SH liability and the amount of the liability is greater than the Adj. Basis of the property?
SH must recognize a gain for the amount the liability is greater than the Adj. Basis
Liability > Basis = Gain of excess
Determine if the amount is fully, partially, or non-deductible for regular tax purposes:
1) Business entertainment expense
2) Indirect costs (i.e. advertising expense to promote new product line)
3) Interest expense incurred on a loan to purchase municipal bonds
4) Penalty on underpayment of taxes
5) On 12/9/2022, the BoD voted to pay a bonus to each non-stockholder employee. Bonuses were paid on 2/3/2023
1) Nondeductible - business entertainment expense is not deductible
2) Fully deductible
3) Nondeductible b/c proceeds of loan were used to purchase muni-bonds which generate tax-exempt income
4) Nondeductible
5) Accrual method can deduct when there is an obligation to make payment, performance has occurred, amt is reasonable, pmt is made not later than 2.5 months after end of Tax Year
Which items (gain/loss) on non-liquidating CORPORATE distributions would be recognized by the Corp.?
Gain’s = recognized
Losses = Cannot be recognized on non-liquidating corporate distributions to shareholders
What event is recognized when a Corporation issues preferred stock in exchange for its bonds, and no cash/boot is received?
no gain would be recognized since no boot was received. This event is a non taxable ‘Type E’ reorganization.
What is the Corporation’s basis in property contributed by a shareholder who does not meet the 80% (property) test?
Corp’s basis will be the FMV of property contributed if the 80% test is not met.
The accumulated earnings tax can be imposed:
Regardless of the # of stockholders of a corporation. It will be imposed only on corporation’s (not pships)
It cannot be imposed on personal holding companies nor on companies that make distributions in excess of accumulated earnings (there would be no retention of Accum. Earnings)
For tax years FY21 and FY22, what percent of business meals are deductible?
100% are deductible. no need to adjust/add-back for meals in this timeframe
The personal holding company (PHC) tax:
1) Should be self-assessed by filing a separate schedule with the regular tax return.
2) Depends on stock ownership test (can only be imposed if 5 or less people own 50%+ of a corp’s stock)
3) PHC - only on corporations
4) Tax can only me mitigated by sufficient dividend distributions
Are net capital losses added/subtracted to book income when computing TI?
net cap. losses = added back to book income to calc. TI b/c a net capital loss is not deductible in computing TI
What is the calc for charitable contribution base for a corporation?
For example, a corp has operating income of $160k, after deducting $10k for charitable contribution, but not including $2k of dividends received. What base amount should the Charitable contribution be based on?
It is TI computed before the charitable contributions deduction, the DRD, and Capital Loss Carryback
Limited to 10%.
Answer is $160k income + $10k contribution + $2k dividends = $172k
What is the calc for when a corporation makes a non-liquidating distribution
Corp must recognize a gain as if property were sold at its FMV - Adj Basis.
Liability increases the gain only when the amt of Liab exceeds FMV
Are life insurance premiums added/subtracted when calculating taxable income?
Added back as life insurance premiums are not deductible in computing taxable income because life insurance proceeds are excluded from gross income
When a corporation exchanges its own stock for money/other property, how is the gain/loss computed?
For example, a Corp exchanged 5k shares of $10 par value C/S for land with FMV of $75k. What gain should be reported on the Corp’s CY TR?
no gain or loss is EVER recognized by a corporation on the receipt of money/other prop. in exchange for its own stock (including treasury stock)
Answer = $0 as no Gain is recognized
A non-corporate SH will treat a distribution as a capital gain under what 5 tests?
1) Redemption = not equivalent to dividend
2) Redemption = substantially disproportionate
3) Redemption terminates SH interest
4) Redemption = completely terminates SH interest
5) Redemption to pay death tax
If none of the above are met –> treat redemption proceeds as dividend
Which of the following are reported on schedule M-1, reconciling book income to taxable income?
1) Deduction for net capital loss
2) Business meals for executive out of town travel
1) yes
2) no
When is it acceptable for a corp to make a deduction for an amount incurred in connection with the redemption of its stock?
Generally no deduction is allowed EXCEPT for interest expense on loans to repurchase stock
In 2022 and beyond, hhow are research and experimental expenses incurred treated?
Must be AMORTIZED over 60 months.
For the year these expenses are incurred, they can be amortized for 6 months regardless of when incurred during the year
The minimum accumulated earnings credit is:
non-service corporations: $250,000
service corporations: $150,000
The accumulated earnings tax (AET)
Cannot bee imposed on a corporation that has undistributed earnings and profits of less than $150,000
For purposes of determining the accumulated earnings tax, what item is allowed as a deduction in determining accumulated taxable income?
net capital loss for current year
How does a non-corporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corporation?
Entirely as a capital gain
Would the following expense items be reported on Schedule M-1 showing the reconciliation of income per books with income per return?
1) Deduction for Net Capital Loss
2) Business meals for executive out of town travel
1) Yes
2) No
Only 50% of business meals is deductible for tax purposes (for 2021 and 2022 100% of business meals purchased at a restaurant are deductible)
