CORPtax1

Question 1

What is tentative minimum tax

Answer 1

The same as Alternative minimum tax. AMTI times applicable tax rate.

Question 2

In a stock for land trade(Sec. 351) what does the corp’s basis in property equal?

Answer 2

CORPORATION=transferor’s adjusted basis + gain recognized by transferor

Question 3

In a stock for land trade(Sec. 351) what does the shareholder’s basis in property equal?

Answer 3

+adjusted property basis transferred,+ recognized gain,+ cash paid,+ liabilities assumed, +transaction costs and fees,-cash received,-FMV of property received,-liabilities transferred

Question 4

Are distributions to a shareholder in an S Corp taxable?

Answer 4

Distributions first are used to lower the shareholder’s basis in the company ( just like losses). Anything left over is taxable to shareholder.

Question 5

When a company makes distributions to shareholders, what limits the amount?

Answer 5

Distributions limited to corps earnings and profits plus accumulated earnings and profits.

Question 6

Name temporary differences between book and taxable income.

Answer 6

bad debt expense, warranty expense, depreciation differences

Question 7

Name permanent differences between book and taxable income.

Answer 7

muni bond interest, 50% meals and entertainment deduction, fines,penalties, premiums paid on key person life insurance

Question 8

EXCHANGES - when are they tax free (gain not recognized)?

Answer 8

1. When trading property for stock only 2. When transferor has 80% of ownership directly after exchange

Question 9

EXCHANGES - what if boot or additional property is received by shareholder?

Answer 9

Gain recognized at FMV of property or amount of cash received

Question 10

To go from book income to taxable income what adjustments are necessary?

Answer 10

To book value add: 1.)Federal inc tax, 2.)excess of capital losses over capital gains (net capital loss not deductible) 3.)Income items not included in book income (e.g., prepaid rent, royalties, interest 4.)Charitable contributions over 10% limit 5.)Expenses deducted on books but not on tax return(business gifts over $25, 50% meals and entertainment, Life insurance pms fokey company people) DEDUCT FROM BOOK INCOME: 1.0 Income reported on books but not on tax return(tax-exempt interest, life insurance proceeds) 2.)Expenses deducted on tax return but not on books(MACRS depreciation above straight line, charitable contribution carryover 3.)Dividends received deduction

Question 11

EXCHANGE-corp sells bonds, redeems in stock. Define it and is it taxable?

Answer 11

It is type E reorganization(i.e., a recapitalization), and it is NOT taxable.

Question 12

When stock is transferred for appreciated property AND boot, to what extent does the shareholder recognize gain?

Answer 12

To the extent of the boot.

Question 13

What are the carry-back and carry-forward limits of NOL?

Answer 13

2 years back, 20 years forward to reduce taxable income. MAY BE USED BOTH WAYS IN SAME YEAR on exam

Question 14

How is shareholder’s basis in S corp stock calculated?

Answer 14

Any income, including tax free, raises it; losses and distributions not included in shareholder’s income lowers it.

Question 15

Define Adjusted Taxable Income (ATI)

Answer 15

Net Income adjusted for Charitable contributions, DRD, NOL carryback, Capital loss carryback. Used in calculation of Charitable Contribution Allowance of 10%

Question 16

What is CEP? How is it calculated?

Answer 16

CEP is Current Earnings and Profit, similar to net income. Add Net Income, DRD and tax-exempt income to arrive at CEP.

Question 17

What is AEP? How is it calculated?

Answer 17

AEP is Accumulated Earnings and Profit. Sum of all previous years E&P; Similar to Retained Earnings at beginning of year

Question 18

What is ACE? How is it calculated?

Answer 18

ACE is Adjusted Current Earnings. To calculate, start with AMTI add S.L.I.M.:Seventy-five % DRD on dividends from unrelated corps, LIfe insurance proceeds on key employee’s death, Municipal bond interest except for private activity. Compare it to AMTI, multiply difference by 75%, may be negative number.

Question 19

How is corporate AMT calculated?

Answer 19

Regular taxable income,+/- Adjustments and preferences=AMTI before ACE adjustment,=/- ACE adjustment=AMTI before exemption,-exemption=AMTI*Tax rate (20%)=Tentative minimum tax.-regular tax=AMT

Question 20

What are the “adjustments & preferences” in the AMT calculation?

Answer 20

Mnemonic PILE-1.)Private activity bond interest2.)Installment sales of Inventory difference between accrual and installment method when installment method was used for regular tax purposes,3.) Long-term contract income using % of completion method, 4.)Excess depreciation on personal property over 150% declining balance when 200% used for tax purposes.