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REG - My own > Corporation taxation > Flashcards

Corporation taxation Flashcards

1
Q

Basis of Common stock to shareholders FOMULA

A 
Adjusted basis of transferred property
\+FMV of service rendered
\+ Gain recognized by shareholder
- Cash received
- Liability assumed by corp
- FMV of non-money boot received
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Basis of common stk

If basis below zero –> gain to shareholder. basis of asset in Corp = 0.

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2
Q

Domestic production deduction

A

9% lesser of Qualified production activity income (QPAI) or Taxable income

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3
Q

How to calculate Qualified production activity income (QPAI)

A 
Domestic production gross receipt
(COGS)
(Other directly allocable expense or losses)
(Proper share of other deduction)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Qualified production activity income
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4
Q

Dividends Received Deduction do not apply to what kind of company?

A

personal service corp
personal holding company
(personally taxed) S corp
“ Don’t take it personally”

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5
Q

DRD limitation? What happen wen NOL created?

A

Lesser of 70% or 80% of dividend received
Or 70% or 80% of taxable income computed without DRD or NOL

When subtract 80% of DRD & NOL created, 80% of Taxable Income limitation doesn’t apply. Use 80% dividend received.

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6
Q

Amortization for Intangible; Business Start-up; Research

A
  • Intangible (Goodwill, licenses, franchises): amortize 15 year S/L
  • business start-up exp : expense $5000 and remainder amortize S/L 180months
  • Research exp : Amortize S/L 60months
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7
Q

Entities required to use accrual basis

A
  • accounting for purchases and sales of inventory (manufacture)
  • Tax shelter
  • Certain farming corp
  • C-corp with more than 5million avg. gross received in the past 3 yrs
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8
Q

Corporation AMT Adjustment LIE

A

L - Long term contracts
I - Installment sale dealer
E - Excess Depreciation

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9
Q

Corporation AMT Preference PPP

A

P - Percentage depletion
P - Private Activity
P - Pre ‘87 ACRS excess depr Tax exempt interest income

Preference always add back

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10
Q

Corporation AMT Adjusted current earning “MIND is your ACE”

A

M - Municipal interest income
I - Incerase CSV life insurance
N - Non S/L depreciation
D- Divident rec. deduction

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11
Q

AMT Exemption

A

= $40,000 - (25% AMTI in excess of $150K)

Example: 
Exemption                    40,000
Min Tax. Inc   210,000
Allowable     (150,000)
Excess =        60,000
                  x  25%
Disallowed         (15,000)         
Exemption allowed       25,000
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12
Q

Life time credit Limit

A

Regular C corp = 250,000

Service Corp = 150,000

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13
Q

Corp Earning & Profit Negative Adjustments

A
  • Federal income tax expense
  • Non-deductible penalties, fines, political contribution, M&E
  • Officer life insurance premiums (Beneficiary = Corp)
  • Expenses for production of tax exempt Income
  • Non-deductible charitable contribution
  • Non-deductible capital losses
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14
Q

Corp Earning & Profit Positive Adjustments

A

+ Refunds of Fed Income tax paid
+ Tax Exempt income
+ Refunds of items that not subject to regular tax
+ NOL deduction
+ Life insurance proceeds where corp is beneficiary
+ Dividends Received Deduction
+ Carryovers of capital losses
+Carryovers of charitable contribution
+ Non-taxable cancellation of debt not used to reduce basis of property

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15
Q

C Corporation’s Net Capital Losses are

A

Carried back 3 yrs and forward 5yrs.
Expired after 5 years
Can not deduct capital losses from ordinary income

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16
Q

How gain and deduction from Illegal business activity treated?

A

Gain from illegal activity is includible in income. Deduction for cost of merchandise are allowable. Other business expenses other than cost of merchandise are not allowed

17
Q

What condition must be satisfied to expense, under IRC Section 179, the cost of new or tangible depreciable personal property

A

Property must be purchased in use of the active conduct of a trade or business
Property must be purchased from an unrelated party

18
Q

What is consider capital assets

A

Real and personal property held by taxpayer:

  • Personal automobile of taxpayer
  • Furnitures and fixtures in the home of the tax payer
  • stocks and securities of all types (except those held by dealers
  • personal property of taxpayer NOT used in a trade or business
  • Real property NOT used in trade or business
  • Interest in a partnership
  • Goodwill in a corp
  • copyrights, literary, musical that was PURCHASED
  • Other assets held for investment
19
Q

What is consider non-capital assets

A
  • Property normally included in inventory or held for sale to customer in the ordinary course of business
  • Depreciable personal property and Real estate used in a trade ( section 1231)
  • Accounts and note receivable
  • copyrights, literary, musical that was held by the ORIGINAL artists
  • Treasury stock.
20
Q

What’s real property?

A

Land and all items permanently affixed to the land (building, paving..

21
Q

What’s personal property?

A

Machinery and equipment

- all property not classified as real property

22
Q

What is Section 1231 property?

A

Machinery and equipment

Land and building

23
Q

What is the characteristic of Treasury Stock

A
  • Non- capital asset

- Not an ordinary asset and not subject to capital gain treatment.

24
Q

Depreciation of Machinery and Equipment

A
  • Salvage value ignored
  • Half year convention
  • Mid-quarter convention (40% or more of its serive in the last quarter)
25
Q

Depreciation of Building

A
  • Residential rental property : 27.5 year S/L
  • Non-residential real property : 39 yrs S/L
  • Midmonth convention: Half month is taken in the month in services, half mont is taken in the month of disposal
26
Q

What is the usual result of shareholders of a distribution in complete liquidation of a corp?

A

Capital gain or loss.
Shareholders treat property received in a company liquidation as full payment of their stock. therefore shareholders must recognize capital gain or loss equal to the different btw FMV of property received and Basis of the stock surrendered.

27
Q

How does Corporate Liquidation - Sell Asset and distribute cash to shareholder - work?

A 
\+ Corp recognize G/L on sale of assets
Sale price
(- Basis)
\_\_\_\_\_\_\_\_\_\_
taxable G/L
\+Shareholder recognize G/L to extend of cash excess adjusted basis
Proceed
(- Stock Basis)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxable G/ L  (Capital)
28
Q

How does Corporate Liquidation - distribute assets to shareholder - work?

A

+ Corp recognize G/L at FMV as if it had sold the asset
Amount realized ( Greater of FMV or liability assumed by shareholder)
Less: Basis
_______________________________
Taxable G/L

\+Shareholder recognize G/L
FMV 
Less: Stock basis
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxable G/L (Capital)
29
Q

What entities entitle to Net operating Loss deduction?

A

Individual (Form 1040)
Estate and Trust (Form 1041)
Taxable C corp (1120)

30
Q

MARCS 5-year property include?

A

Automobile, light trucks, computers, typewriters, copiers, duplicating equipment, ect.

31
Q

MARCS 7-year properties include?

A

Office furnitures and fixtures, equipment and property with no ADR midpoint.

32
Q

Gain from sale of depreciable property recaptured under Section 1245 ?

A

Section 21245 require the lesser of the accumulated depreciation taken or the gain recognized to be recaptured as ordinary income.
Remaining gain is section 1231 Long term capital gain.

33
Q

Compute shareholder basis in a S-corporation

A

Intial basis
Add: Income items (include tax free income)
Add: Add’l shareholder investment in corp stocks
Less: Distribution to Shareholders
Less: Loss or exempt items
= Ending balance.

** Loss limitation = Basis + direct loan - distribution

34
Q

Corp capital Gain/Loss treatment?

A

Capital Gain is taxed at ordinary income

Capital loss can only be used to offset capital gain. No deduction allowed. Carried back 3 and fwd 5 years

REG - My own (11 decks)

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