EA Part 2-Passkey 13-14 Corporations Flashcards
IRS requires these businesses formed after 1996 to be treated as corporations:
- business that refers to itself as a corp.
- joint-stock company or joint-stock assocation
- insurance companies and certain banks
- business owned by state or local govnt.
- certain foreign businesses
- any business that elects to be corp. by filing Form 8832 Entity Classification Election
All domestic corporations in existence for any part of a tax year __
must file an income tax return, including corps. in bankruptcy
Form 1120-A
used by small corps. with gross receipts, total income and total asset each under $500,000
Corporation filing deadline
15th day of 3rd month after end of its tax year
EFTPS is mandatory for C corps. with $__ million or more in assets and at least ___ or more any type return (including W-2’s or 1099’s).
$10 million
250 returns
A corp. files Form ___ to request a __month extension of time to file its income tax return.
- Form 7004 Automatic Extension of Time to File Certain Business Income Tax, information and Other Returns
- 6-month extension
A penalty for late filing is assessed at __% of any unpaid tax for each month return is late, up to a maximum of __% of unpaid tax
5% penalty
25% maximum.
The minimum penalty for any return that is over __ days late is the smaller of the tax due on the return or ___
60 days late
smaller of tax due or $135
The penalty for late payment of corporate income tax is one half of 1% of the unpaid tax for each month that the tax is not paid,
up to a maximum of 25% of the unpaid tax.
Corporations are required to make estimated tax payments if they expect their tax due to be __
$500 or more during the taxable year.
Estimated payments are due __
4th, 6th, 9th and 12th month’s of corp.’s taxable year
There is no penalty for underpayment of estimated tax if the tax is less than $__
$500, or if each quarterly estimated tax payment is at least 25% of the corp.’s current-year tax OR
if each est. tax installment is at least 25% of the income tax on the prior year return.
To apply for a tax refund, a corporation may use __
Form 1139 Corporation Application for Tentative Refund or
Form 1120X Amended U.S. Corp. Income Tax Return
If a corporation accidentally overpays its estimated tax, it may use Form __
Form 4466 Corporation Application for Quick Refund of Overpayment of Estimated Tax
*if overpayment at least 10% of anticipated tax liability and at least $500
A corporation does not receive a tax deduction for the distribution of __
dividends to its shareholders.
Accumulated Earnings Tax
If a corp. does not distribute enough of its profits to shareholders.
Levied at 15% of accumulated taxable income
Accumulated earnings of $ ___ or less allowed for most businesses, or $___ for PSC’s.
$250,000
$150,000 for PSC’s
Small corps. are exempt from corporate AMT; small if __
ave. annual gross receipts for prior 3 years (or portion therefore) do not exceed $7.5 million, or $5 million for its first 3-year period.
Form 4626
Alternative Minimum Tax - Corporations
Form 8827
Credit for Prior Year Minimum Tax - to figure min. tax credit carry forwards.
AMT may be carried forward indefinitely.
A corporation with more than $5 million in ave. annual gross receipts is required to use __
the accrual accounting method.
If corporation produces inventory, then the accrual method is generally required for sales and purchases of merchandise, unless __
ave. gross receipts are $1 million or less.
A business may use Nonaccrual Experience Method for Bad Debts for amount earned for performing services.
It is not required to accrue service-related income it expects to be uncollectible.
The difference in book and taxable income are reconciled in ___
Schedule M-1 of Form 1120 for small corps. (<$10 million in assets) or
Schedule M-3 for large corporations.
A shareholder will not recognize gain when __
a cash contribution is made for stock. It becomes the shareholder’s basis in the stock.
If a shareholder contributes property to a corp, he generally __
recognizes gain, and the basis of the contributed ppt to the corp. is the same as the basis shareholder had in ppt.
The basis of ppt contributed to capital by anyone other than a shareholder is __
zero (to the corporation).
Nontaxable Corporate Transfers: Section 351
If a taxpayer transfers ppt to a corp. in exchange for stock and immediately afterward the taxpayer controls the corp., the exchange may not be taxable.
In order to be considered in control of a corp. immediately after the exchange, transferors must own at least __%
80% of total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock.
Reporting requirement: Both the corp. and certain stockholders involved in a nontaxable exchange of ppt for stock must attach a statement/report if they own __
5% or more of a public company or
1% or more of a privately held company.
In the case of a Section 351 exchange, a corp. may assume a shareholder’s liability without triggering any gain, __
so long as the liability is less than the shareholder’s adjusted basis.
Capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred, and __
must be capitalized. The cost is then amortized or depreciated over the life of the asset.
Capital gains of corporations are taxed at the same rate as ordinary income. In C corporations, capital losses are only deductible __
up to the amount of its capital gains. A C corp. cannot offset capital losses against its other income like individuals can (in limited way).
If a corp. has an excess capital loss, it may carry the loss back or forward and deduct it from __
any net capital gains that occurred in those years.
The default election is for corps. to carry back its capital losses to the earliest of __ preceding years in which it had net capital gain. Any remaining losses maybe carried forward a maximum of __ years.
3 years
5 years
All capital loss carryforwads and carrybacks are treated as __
short-term losses.
A long-term loss does not retain its character as a long-term loss.
A corporation figures and deducts NOL the same way an individual, estate or trust does. Carryback __ years and carryforward __.
2 year
up to 20 years
A NOL carryover is entered on __
Form 1120, Schedule K.
C corporation may deduct charitable contributions, up to __% of taxable income
10%.
Taxable income figured without regard to:
*deduction for charitable contributions
*dividends-received deduction
*domestic production activities deduction
*any NOL carryback
If a corp. claims donation of ppt. that exceeds $5,000, must attach Form ___
Form 8283 Noncash Charitable Contributions
A corp. using the accrual method of accounting can deduct unpaid contributions if __
BOD authorized the contributions, and they are paid within 2.5 months after close of year.
A corp. can carry over charitable contributions that exceed the 10% limit __
5 years.
If not used, it’s lost.
No carryback allowed.
Dividends-Received Deduction
for dividends received from other corps. in which it has an ownership stake.
DRD for C corporations:
80% ownership, 100% DRD
If 100% DRD bracket, no taxable income limitation. But if in 70 or 80% bracket, DRD can only be taken up to its__
taxable income without the regard to:
- DRD
- NOL deduction
- DPAD
- any capital loss carryback to the tax year
- any adjmt due to nontaxable part of dividend
Corporations cannot take a deduction for dividends received from:
- a real estate investment trust (REIT)
- a tax-exempt corporation
- a corp. who stock was held <91 days
If a Dividends-Received Deduction creates a NOL, the taxable income limit does not apply.
The corporation can take the full DRD.
A closely held corporation generally has a small number of shareholders (usually family) and __
no public market for its corporate stock.
A controlled group is a group of corporations that are related through common ownership,
typically as either parent-subsidiary or brother-sister.
A brother-sister controlled group:
in which five or fewer individuals, estates or trust own 80% combined voting power, and have identical common ownership within individual corporations of at least 50%.
A parent-subsidiary controlled group:
80% owned by parent
A controlled group is allowed __
- a single set of graduated income tax brackets,
- a single AMT exemption amount,
- a single accumulated earnings credit of $250,000
