Federal taxation of Entities - 28-38% Flashcards
How do you calculate the tax basis of property contributed, when a corporation is formed?
The new corporation’s tax basis in the property is the contributing party’s Adj basis , plus any gain recognized.
The recognized gain = the lesser of
1. realized gain, or
2. Boot received.
When an S-corp is formed, how do you calculate the gain a shareholder must recognize on contributed property?
A gain is recognized to the extent that liabilities assumed by the corporation exceed the basis in the asset contributed by the shareholder.
How are bad debts recorded on a corporate tax return?
On the schedule M-1 adjustments, the deduction for bad debts is limited to the amount allowed under the direct write-off method.
Bad Debt expense, less the amount written off for uncollectible receivables.
What type of differences (temporary, or permanent) are considered for the M-1 reconciliation?
Both temporary, and permanent.
Temp = accelerated depreciation
Perm = tax-exempt interest
When must a corporation file the return on the accrual method instead of cash?
When the average annual gross receipts for the previous 3 years exceed $27M
For accrual-based taxpayers, when is income reported on the tax return?
Income is earned when:
1. All the events have occurred to attach the taxpayer’s right to receive the income,
AND
2. The amount of income can be determined with reasonable accuracy.
Ex; Prepaid rental property. If an accrual-based taxpayer in year 1 receives a prepayment for 3 years worth of income, for rent commencing in years 2, 3 & 4; the entire amount received is subject to taxable income in year 1.
What is the breakdown for the DRD?
<20% = 50% deduction 20-79% = 80% deduction >80% = 100% deduction
How do you calculate charitable donations deduction limit for a corporation?
Taxable income, plus dividends. The DRD is not included in the calculation.
The accummulated earnings tax is equivalent to what percent of the corporation’s accumulated taxable income?
20%
What is included in PHC income tests?
dividends, interest, annuities, rents, mineral, oil & gas royalties, copyright & patent royalties, produced film rent, compensation for more than 25% use of corporate property by shareholders, amounts received under personal service contracts, and amounts received from estates & trusts.
A corporation distributed land with a basis of $20,000 and a FMV of $60,000, but was subject to a non-recourse liability of $70,000 to its shareholder. What is the corporation’s gain on the distribution?
$50,000
If the non-recourse liability attached to property EXCEEDS FMV, the FMV is deemed to be equal to the amount of the liability. When the corporation distributes the appreciated property, it must recognize a gain equal to the liability over the basis.
How do you determine the basis in a taxable property distribution?
FMV of the property
Dividend income must be reported for distributions to what extent?
Current & accumulated earnings and profits
When accumulated E&P are negative and current E&P is positive, distributions are treated as dividends to the extent of what?
Current E&P
If a corporation has a cash distribution equal to total E&P, and distributes appreciated land as well, what is the amount of the taxable distribution?
The distribution is taxable to the extent of the cash distribution, plus the difference between NBV & FMV.
When a corporation distributes property to a shareholder in a non liquidating distribution, how are losses recognized?
Losses are not recognized as part of the distribution, only gains are recognized.
During a liquidation, a corporation distribution, land, inventory, and (at a loss) marketable securities. How would you caluclate the capital gain/ loss, if any from the distribution?
Inventory is not included in the calculation, since it is not a capital asset.
The remaining distribution is calculated, ignoring normal distribution rules for losses, and applying the loss into the overall calculation.
How does a noncorporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corp?
Entirely as a capital gain
How does a corporate shareholder treat the gain on a redemption of stock that qualifies as a partial liquidation of the distributing corp?
Corporate shareholders receive dividend treatment on a partial liquidation.
What is the usual result to the shareholders of a distribution in complete liquidation of a corporation?
Capital gain or loss.
The capital gain or loss recognized by a shareholder equals the total distribution less the shareholder’s basis
In a type B reorganization what two events MUST take place?
- The stock of the target corp is acquired solely for the voting stock of either the acquiring corporation, or its parent.
AND - The acquiring corp must have control of the target corporation immediately after the acquisition.
What is another name for Type A reorganizations?
Merger or Consolidations
For PHC which deduction(s) must be made from taxable income to determine undistributed PHC income prior to the dividend-paid deduction?
Federal Income taxes, charitable contributions, and excess capital gains.
What amount of a DRD can a corporation take, based on what ownership percentage?
A 100% DRD can be taken when a corporation owns > 10% and the stock was owned for more than 1 year.
