CPA Reg R5 Flow through Flashcards
M1: what are the fundamental rules of filing to become an SCorp
If you file form 2553 before the 15th day of the third month (march 15th) of the current tax year then the S Corp election is effective the first day Jan 1) of the current tax year.
If you filed after 3/15, you have 75day ( 3 months and 15 days or oct 15 and its effective for full business year.
If you file after September of current year, than Scorp is effective the following year.
Scorp can have no more than 100 shareholders. Family members count as one share. Family includes: descendants of common ancestors ( father, wife, son daughters, grandchildren) former spouses and estates.
SCorp must screen all potenetial shareholders to make sure they are eligible. Ineligible includes: nonresident aliens( for example, if u s citizen but living in canada they are not eligible), partnerships, corporations, and certain types of trusts (Grantor trust, sections 678 trusts, qualified subchapter s trusts (QSSTs), certain testamentary trusts, and voting trust).
SCopr may not have more the one class of stock: Common. Can Have difference in voting rights among shres of stock are permissible.
No Preferred stock;
when both shareholders have 500 shares of stock each in the Scorp how are following distrbuted: how is it distributed and does it increase of decrease basis
Loan to company 750000 share of ordinary business income 136,000 share of tax-exempt income 8000 Share of dividend income 6500 Distributions 29000, 29000 share of expense 900 Shares of charitable contribution 5000
Basis Sarah 100,000 Ida 250,000
Loan to company: no increae/decrease basis. partnership yes
share of ordinary business income : increase basis and split 50/50: 68000 s 68000 i
share of tax-exempt income: increas basis and split 50/50 4000 s 4000 i
share of expense; decrease basis and split 50/50 (-450) s (-450) i
Charitable contri: decrease basis and split 50/50 ( -2750) s (-2750) i
Share of dividend income: increase basis and split 50/50 3250 s 3250 i
cash Distributions: reduce basis (29000 )s ( 29000) i
What is y-e basis
Sarah add and subtract all transaction 143,050
Ida 293,050
Can a loss from capital be include in the adjusted basis of an shareholder in a Scorp
No.
what are separately stated items that flow onto sch k1 frrom SCorp
Ordinary Income (not subject to FICA) which include recapture of income and unearned rvenue not related to rental activities and mark-to-market income.
Rental income/loss
Portfolio income ( interest rev, div, royalties, and all capital gains/losses)
Tax exempt interest
Percentage depletion
Foriegn income tax
Section 1231 g/l
Charitable contribution
Expense deduction for recovery property (section 179)
unrecapture section 1250 income
g/l on sales of collectables.
what is a built in gain: C Corp elected to become an Scorp on beginnin of tax year. has asset with basis of $40K and FMV of $85 elected date of SCOrp 1/1 yr 1. Sold assest when on 9/1/yr 1 when FMv was $95K was is built in gain tax
New Scorp meets built in gan tax: FMV was higher than basis at election dates. C corp elected to become Scorp.
Gain= 85 FMv use at date of election - 40 basis = 45 (amount subject ot built in gain)*35% tax = 15.750 tax liab.
For S corp is interest exp separtely stated
No. part of ops.
for shareholders in SCorp how much losses can shareholder dedcut on tax retrun
up to amount in basis.
Can sole propiretor who elected Scorp get built in gain
no.
Which one increase the accum adjment account: capital contribution by shareholders or interest and div income
interest and div income. these separately and nonseparately stated income that incre RE. FYI do not include tax-exempt int income and life insurance proceeds.
When can an S corp that terminated re-elect
the fifth year of the current year.
Is enterainment exp tax deductible
No. Just Travel and Meals @ 50%.
Is the built in gain tax at the highest or lowest corp rate
taxed at 21% at the highest income tax rate.
An SCorp shareholder/employee owns 10%. the Scorp pay his health premuin of $7200. what is the amount of insurance premium that shareholder/employee must incluude in gross income
All $7200. was not a 2% or lower sharehold. and was an employee. When I see shareholder with 20share of 2000 shares = 1% this shareholder would have no impact on gross income for insurance prem paid by corp.
what is tax basis calc for SCorp
+ initial basis
+share of net income
+ share of separately stated income ( wheather taxable or tax exempt)
- distribution (dividend and withdrawl from basis)
- share of losses/expense
(No mortgage/liab assumed)
If Scorp shareholder made a loan to Scorp of 13. Scorp paid 3 of the loan. sharehld basis 25 . Share year loss 40 what amt of loss can shareholer deduct
can deduct loan to corp and loss up t o basis
laon 13-3 = 10. loss 25
25+10= 35
In regards to written consent to be elected a s corp,must all shareholders give written consent
Yes.
The process for built in gains is a corp level tax on Scorp that disclose of an asset
That appreciate while company was a C Corp.
Can a Scorp have shares in a C Corp
Yes.
What makes up non-separetly stated when there is separetly stated items. Net income 72 Section 179 15 charitable 11 CEO gross income 84
Net income 72
Section 179 15 sep stated exp add back
charitable 11 sep stated exp add back
Non sep stated income 98
can loss be part of taxable income when basis is higer than loss
no
A SCorp sharehold terminatd on 4/1/yr 1. during a 365 year. Scorp had income of $310,250. if no election made what amt of income was alloc in shrt Scorp year
Only time a Scorp
Incoem 310,250/365 days*90 days terminate = 76,500
An Copr that elect S corp status terminated give a reason why
if CCorp had invest income the exceeded 90% of gross receipts 3 consecutive yeras it will terminate.
There are 30K voting stockholders and 20K nonvoting stockholder. s selction was revoked voluntary. how many stockholder needed to consent
combine of more the 50% of both.
M2: What are the impact of partnership interest when exchange for services
When services are exchange for interest in partnership they are exchange at FMV. The parnter will have taxable income and then used as part of partner interst. the exchange will be expense deduction to partnership
A partnership by J and R are share liab equally. they have an increas liab of 15
Is the increase liab and increase or decrease to basis
Increase to basis
If partnership paydown liab. what impact on partners
decrease basis.
M3- What are the requirements for partnership election for things such as 179 depreciation deductions. for the k1
Partnership election include: organizaton startup cost and expenditures: or 709b election ; form 1065 line20: Up to $5000 and remaining amortize 15years or 180 months ( be award if start up date is 7/1 can only amortized 6 months in that year) can be deducted (phase out at partnership first $50K
accounting method ( cash or accrual): can use either but if they change method must file form 3115
tax year ( fiscal, if not calander): if both partner are calander taxpayers, the partnership is required to use that. Can make an election of 444 t change y-e no later than 3 months prior to calendar year-end Sept 30 Oct 31 or Nov 30.
Depreciation method( MACRS, straight-line, etc DDB 179 deduction) bonus year form 4562, : same depreciation method must be used for asset in the same asset class.
Election out of installment sale treatment; 1065 line 12 on Sch b
Section 754 election for optional basis adjustments of partnership assets the write up or write down of partner leavaing partnership/ so new partner basis increase
Which list of revenue and expense are oridinary income, separately stated or both and what is total ordinary income (loss) and Partner A % of ordinary income > 2 partners A @ 40% and B @60% Sales $100,000 COGS (12000) MACRS (4000) Wage Exp (25000) Guarantee Paymnt (6000) Rent Exp (8000)
Charity contr (2000) Section 179 deduct (10000) S-T capital gain 5000 Div income 4000 Section 1231 gain 3000
Sales $100,000 ordinary COGS (12000) ordinary MACRS (4000) ordinary Wage Exp (25000)ordinary Guarantee Paymnt (6000) both Rent Exp (8000) ordinary Net ordinary income Loss 45,000 Partner A % @ 40% 18000
Charity contr (2000) Separate Section 179 deduct (10000)Separate S-T capital gain 5000Separate Div income 4000Separate Section 1231 gain 3000Separate
Are accounting to fees to prepare organization material for new corp start up costs.
No
M4-What is the taxation for Corp and Partnersip during discontinuance
Corp Double taxed (1) Corp and (2) Shareholders
Partnership. No Tax.
Corp: Liquidate and shareholder has 20% ownership received land with FMV of $100K and basis of $65K. Shareholder basis is $50K.
Corp FMV 100- 65 = $35K taxed
Shareholder 100 - basis 50 = 50 tax.
Partnership no tax zero out transaction.
Liquidate and partner has 20% ownership received land with FMV of $100K and basis of $65K. Shareholder basis is $50K.
No gain partner no gain partnership.
It is deferred until partner sales.
M3 Partner with a $9K basis received $5K in cash and Land with a adj basis of $7K and a FMV of $10 what is his new basis.
Partner reduce the basis $9K by the cash $5K = $4K thenuse the lesser of $7K land basis and new basis $4K = new basis $4K.
A partner has a $50K basis. He receives a cash distribution of $20K and land with a adj basis of $40K and FMV of $35K. What is his taxable gain
With a $20K cash distribution from $50 basis = $30K . Land basis is $40K. New basis can’t be below $30K. taxable gain = 0
Which of the following does the partner make on elections rather than partnership: 179 election, deduction for foreign tax credit for tax payment,
foreign tax credit paid
Would interest free loans be part of income taxable to partner
No.
Are at-risk and passive losses a determination in partners deductions for losses
Yes.
A partnership distributed land to a partner . land had a $20 basis to partnership and the partner had a $10K basis. what are the consequenses to partner
No gain due to nonliquidation, basis will be reduce to 0 due to no cash involved and partner basis will be land basis $10 and not $20K.
What is a advantage of a LLC that is a partnership.
It is not double tax.
