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Regulation > Federal Taxation of Entities > Flashcards

Federal Taxation of Entities Flashcards

1
Q

What is the deduction amount for organizational and start-up expenditures and its limitations?

A

$5,000
reduced by the amount of expenditures incurred that exceeds $50,000.

Expenses not deducted must be capitalized

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2
Q

What are syndication expenses and how are they treated?

A

cost of reissuing and selling stock

capitalized

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3
Q

How do you calculate dividend received deduction (DRD)?

A

1) Multiply dividends received by %
2) Multiply taxable income before DRD %
3) Subtract step 1 from taxable income
4) If step 3 is negative use Step 1
5) If step 3 is positive; DRD is the lower of Step 1 and 2

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4
Q

What are the DRD deduction %?

A

< 20% = 70%
>20%<80% = 80%
>80% = 100%

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5
Q

How is casualty losses treated for corporations?

A

Same as individual but without floor

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6
Q

How is R&D expenditures treated?

A

a. Currently expenses in year paid or incurred
b. Amortized over a period of 60 months
c. Capitalized and depreciated over determinable life

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7
Q

What type of insurance premiums can a corporation deduct?

A

a. casualty insurance
b. employee health or accident insurance

c. life insurance coverage for its employees and their beneficiaries

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8
Q

What is the Corporate Tax Formula?

A

1) Gross Income
2) Less Deductions (except charitable, DRD, DPD, NOL carryback, capital loss carryback)
3) Equals TI before Charity
4) Less Charitable (10% of TI)
5) Less DRD
6) Less DPD, NOL and STCL carryback

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9
Q

What is the small corporation exemption?

A

AMT does not apply to small corporations meeting a gross receipts test.

The tentative minimum tax is 0 if the corporation’s average annual gross receipts for all 3 previous years do not exceed $7,500,000

The first year the limit is $5,000,000

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10
Q

How to calculate AMT?

A

Regular TI before NOL + Tac preferences +(-) adjustments other than ACE and NOL +(-) ACE adjustment (75% of difference between pre-ACE AMTI and CE) - AMT NOL deduction (limited to 90% or pre NOL) - Exemptions($40,000 less 25% of AMTI over $150,000) * 20% - AMT foreign tax credit - regular income tax

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11
Q

What are AMT preferences?

A

Tax-exempt interest
Excess of % depletion
Excess of intangible drilling costs using a 10 year amortization over 65%

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12
Q

What are AMT Adjustments?

A

MACRS property
Differences in gains and losses between tax and AMT

Difference in % of completion over completed contract

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13
Q

What is NOL limited to?

A

90% of AMTI

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14
Q

What is AMT exemption?

A

$40,000

phased out > $150,000 by 25%

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15
Q

What is Accumulate Earnings Tax?

A

20& imposed on undistributed accumulate taxable income

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16
Q

What is the Accumulated Earnings Tax Formula?

A

T.I + DRD + NOL deduction - Federal and foreign income taxes - excess charitable contributions - Net Capital Loss - STCG - LTCG/STCL - Dividends paid - consent dividends - Accumulated earnings credit * 20%

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17
Q

What is the Accumulated Earnings Credit?

A

> of:

1) amount of current earnings needed for reasonable needs of business
2) $250,000 less accumulated earnings and profits

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18
Q

When does an affiliated group exist?

A

When a corporation owns at least 80% of the voting power of another corporation

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19
Q

How does cash distributions effect Earnings and Profit?

A

Reduces E&P

20
Q

How does distribution of property effect E&P?

A

reduces by the > of

1) value of property
2) adjusted basis

21
Q

How is dividend income treated for E&P?

A

1) taxable as dividend income to the extent of the shareholders’ pro-rata of E&P
2) excess is tax free to the extent of basis
3) remaining is capital gain

22
Q

How to calculate distributions from corporation?

A

Earnings and Profit + municipal interest & life ins proceeds + DRD + Deductions for carryovers+Domestic production + proceeds from corporate life insurance - federal income tax - related party losses - penalties, fines, lobbying, life insurance premiums

23
Q

When does a redemption of stock occurs?

A

When a corporation repurchases stock from a shareholder. The redemption is treated by the shareholder as a sale of stock that will trigger recognition of gain or loss

24
Q

What three methods must be met to qualify in order for a redemption to be taxed as a sale?

A

1) If distribution is not essentially equivalent to a dividend

2) substantially disproportionate redemption:
a. control test: own < 50% of voting shares after redemption
b. own < 80% of the shares that were own prior to redemption

3) a complete termination of shareholder’s interest

25
Q

When is gain recognized in current distributions?

A

When cash, receivable or land is greater than original basis

26
Q

When is loss recognized in current distributions?

A

Never

27
Q

What is the order of current distributions?

A

Cash
Inventory
Receivable
Land

28
Q

What are the elements of a liquidating distribution?

A
  1. Basis always has to be 0
  2. Loss can be recognized if there is only cash, inventory and receivables
  3. Can’t recognized loss if land was received.
29
Q

What are the types of reorganizations?

A

Type A - merger or consolidation
Type B - target owned by 80% after acquiring

Type C - assets exchanged for stock
Type D - parent and subsidiary

30
Q

How is Net Operating Loss treated?

A

Carried back 2 years forward 20 years

31
Q

What is included in M-1 reconciliation?

A

(1) Added to Book Income:
a. federal tax expense
b. net capital loss
c. expenses in excess of limits
d. prepaid income

(2) Subtract from Book Income:
a. municipal interest
b. life insurance proceeds
c. DRD
d. election to expense

32
Q

What are the requirements for Tax Exempt Organizations?

A
  1. Must file 990 if gross receipts > $50,000 (churches do not have to file)
  2. an excise tax of 5% for lobbying (can’t exceed $1 mil)
  3. Unrelated Business income taxed if > $1,000
33
Q

What is check the box?

A

unincorporated entities may elect to taxed as an association or a partnership. Election must be filed within 75 days

34
Q

What is the computation for Basis of Partnership interest?

A

Increases:

a. contribution of property
b. income
c. increases in liabilities

Decreases:

a. distributions
b. expenses

Cash + Land- Debt relief + New Debt (% of partnership)

35
Q

What are the elements of partnership losses?

A
  1. only deduct loss to the extent of basis
  2. At risk amount = passive loss - @ risk amount difference suspended
  3. limited to passive income
36
Q

What are guaranteed payments?

A
  1. made to partners without regard to partnership income
  2. are ordinary income
  3. reduces partnership income
37
Q

What is the character of built in gains?

A
  1. limited to 5 years - ordinary or capital

2. 7 years - distribute built in gains to partners

38
Q

When does a partnership recognize gain or loss on a distribution?

A

when cash is distributed

39
Q

What are hot assets?

A

a. Unrealized receivables
b. Inventory

If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income

40
Q

What are the requirements for an S Corporation?

A
  1. Have no more than 100 shareholders
  2. Issue only one class of stock
  3. Shareholder is a resident of the U.S.
  4. Shareholders have limited liability
41
Q

When can an S Corporation be elected?

A

If filed 2 1/2 months from the start of the tax year

42
Q

How to calculate the shareholder’s basis in an S Corporation?

A

Initial basis + Shareholder’s share of corporate income + exempt income - Cash, Inventory and Receivables, other property, non-deductible expenses, corporate losses

43
Q

When does an S Corporation generate gain?

A

by distributing appreciated property

44
Q

How is income determined in distribution of S Corporation?

A

Deduct from:

1) AAA
(2) E&P Account (amount deducted is dividend income
(3) reduce stock basis
(4) capital gain

45
Q

How does S Corporation treat built in gains?

A

If item is held for 5 years S- election made where gain is not taxed (35%)

Regulation (7 decks)

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