Mod 38: Corporate Taxation Flashcards
Transfers to a Controlled Corporation (Sec. 351):
Property includes everything but…
Services
Control means ownership of…2
1 80% of total combined voting power
2 80% each class of nonvoting stock
Transfers to a Controlled Corporation (Sec. 351):
Boot 3 examples
1 cash
2 short term notes
3 securities
Transfers to a Controlled Corporation (Sec. 351):
Receipt of boot will cause…2
1 Recognition of gain
2 but not loss
Transfers to a Controlled Corporation (Sec. 351):
Shareholder recognizes gain if liabilities assumed by corporation…
exceed basis of property transferred by shareholder
Transfers to a Controlled Corporation (Sec. 351):
Shareholder’s basis for stock calculation (3 components)
Adjusted basis of property transferred
+ recognized gain
- boot received
= shareholders basis for stock
Transfers to a Controlled Corporation (Sec. 351):
Assumption of liability is always treated as…
Boot for determining stack basis
Transfers to a Controlled Corporation (Sec. 351):
Corporation’s basis for property calculation
Corporation s basis for property =
Transferor’s adjusted basis
+ gain recognized to transferor
What forms do a C corp and S corp file?
C-corp = form 1120
S-corp = form 1120S
Aumptioj of liability by corporation is not recognized as a gain but is…
Added to basis of the stock
If you don’t get control (80%) when property is transferred…
Gain or loss is recognized
If you transfer property that is less than 80%, basis of property transferred to corporation will…
Be FMV
If you transfer property that is 80% or more of transfer to corporation, basis of property will…
Equal original basis
If you receive stock for services rendered, you will have taxable income equal to…(equation for taxable income)
Taxable income = (FMV of shares at date of distribution) x (# of shares)
Stock received for services rendered, amount included in taxable income will be…
Basis of stock
What does AMTI stand for?
Alternative minimum taxable income
NOL are a deduction and expense on…
Current year corporate return
If large corporation, you can’t base estimated payments on…
2) you must base estimated payments on…
Last year’s tax
2) 100% of current year’s tax
Penalties are…
Interest on penalties are…
Penalties are not deductible
Interest on penalties are deductible
If corporation’s taxable income is $1 million or more in any of the 3 prior years, they must make estimated payments equal to…
100% of current year’s tax liability
Only compute AMT for…2
1 C-corp
2 don’t compute AMT for S-corp
AMT:
Preference items added back 2
1 tax-exempt interest (except 2009, 2010)
2 excess ACRS depr. Before 1987
AMT:
Adjustments 3
1 Real estate MACRS depreciation
2 must use percentage completion method
3 personal property after 1986
AMT:
Adjustment of Real estate MACRS depreciation for property placed into service…
After 1986 but before 1999
AMT:
Adjustment of Real estate MACRS depreciation for property placed into service after 1986 and before 1999, must use…
1 depreciation over 40 years instead of 27.5 years
AMT:
Adjustment of Real estate MACRS depreciation for property placed into service after 1986 and before 1999. There is no adjustment if…
Placed into service after 1999
AMT:
Personal property after 1986 (regular tax uses 200% declining balance) must recompute to use…
150% declining balance
What does ACE stand for?
Adjusted current earnings
AMT:
Adjusted Current Earnings (ACE), 3 items added
1 tax exempt interest of bonds
2 tax exempt life insurance death benefits
3 70% dividend received deduction
AMT:
Adjusted Current Earnings (ACE), municipal bonds/tax exempt interest, what are 2 exceptions?
2009 and 2010 interest is not added back
AMT:
2 Other ACE item added
1 capitalized organizational expenditures and
2 start up costs
Small corporation exemption from Corp. AMT tax:
Corporation is exempt from corporate AMT in…
First tax year
Small corporation exemption from Corp. AMT tax:
Small corp is exempt in second year, if first year’s gross receipts don’t exceed…
$5 million
Small corporation exemption from Corp. AMT tax:
Small corp is exempt in third year, if 1st and 2nd year’s gross receipts don’t exceed…
$7.5 million
Small corporation exemption from Corp. AMT tax:
Small corp is exempt in 4th year, if 1st, 2nd and 3rd year’s gross receipts don’t exceed…
$7.5 million
Adjustment for accelerated depreciation taken on 2013 5-yr. property is the excess of…
200% MACRS depreciation over 150% depreciation
Use of percentage completion method of accounting for LT contracts is…
An adjustment
If a corporation buys and resells treasury stock it is…
Not taxed
Any event where a corporation is transferring its own stock is…
Not a taxable event
If you don’t amortize organization expenditures in first year, they…
can’t be amortized and remain capitalized
Don’t calculate amortization for organizational expenditures until…
Month you begin business
Stock issue cost is not…
Not an organization cost
You calculate limited 10% taxable income for charitable contributions before what 3 items?
1 contribution deduction
2 dividend received deduction
3) NOL carryback
You calculate limited 10% taxable income for charitable contributions before NOL carryback but after…
Carryover
What does DRD stand for?
Dividend received deduction
Contributions exceeding 10% limit can be carried forward…
5 consecutive years
If you own 80%, what percent of dividends received can you exclude?
100% dividends received
If you own 20%-79.99%, what percent of dividends received can you exclude?
80% dividends received
If you own less than 20%, what percent of dividends received can you exclude?
70% of dividends received
For dividends received deduction to apply, the dividends must be from…
Domestic unaffiliated corporation
If dividend received deduction doesn’t create a loss, when there is an operating loss, the reduction would be…
80% of taxable income before DRD
Losses are disallowed between corporation and…
Related party
Corporation’s capital loss carryback =
3 yrs
Corporation’s capital loss carry forward =
5 years
Capital loss is always carried back as…
Short term
Business bad debt can be deducted against ordinary income if…2
1 corporation is on accrual basis
2 debt is uncollectible
Corporate casualty losses are treated the same for individual except there is no…
No $100 floor
Corporate casualty losses are treated the same for individual except if property is completely destroyed, the amount of the loss is…
The property’s adjusted basis
Corporate casualty losses:
partial loss is measured the same as…
For individual’s Nonbusiness loss
Corporate casualty losses:
partial loss is measured the same as for an individual’s Nonbusiness loss which is…2
1 Lesser of decrease in FMV or
2 property’s adjusted basis
NOL is carried back how many years? Carried forward?
Carried back 2 years
Carried forward 20 years
Must carry NOL back if you…
Can carry it back
When a company with an NOL makes no special election to waive NOL carryback, it means…
They will use the carryback
3 expenses that can be deducted on form 1120?
1 MACRS depreciation
2 sec. 179 depreciation
3 amortization of organization costs
R+D costs can be treated 3 ways
1 currently expensed in year paid or incurred
2 amortized over 60 months
3 capitalized + depreciated over determinable life
R+D costs can be amortized over 60 months or…
More if life not determinable
If corporation takes out life insurance policy on key person, if the beneficiary is the corporation then…
Corporation can’t deduct the premiums
If corporation takes out life insurance policy on key person, if the beneficiary is not the corporation then…
Corporation can deduct the premiums
Estate franchise tax occurs if you pay…
Estate corporate tax
If you pay estate franchise tax on federal return you can…
Deduct amounts for state franchise tax
On schedule M-1, you reconcile book income with taxable income before…2
1 NOL deduction and
2 dividend received deduction
To file schedule M-1, the corporation must have…
Less than $10 million in total assets
Provision for state income tax is deductible on…2
1 Book income and taxable income
2 so don’t add or subtract
Interest expense on bank loan to purchase US Treasury Bonds is considered…
Investment interest expense
Interest expense on bank loan to purchase US Treasury Bonds is considered investment interest expense, it is…
Deductible on books and from taxable income
Corporation’s can deduct investment income expense…
Whether they have investment income or not
2 items that are deductible on the books, but not deductible on the tax return?
1 federal income tax
2 net long term capital loss
Life insurance proceeds from death of corporate officer are…
Not deductible on federal tax return
When determining net income per books, items not deductible on federal tax return are…
Added back in determining net income per books
Schedule M-2, related to…
Balance of retained earnings available for books
Transfers to a Controlled Corporation (Sec. 351):
No gain or loss is recognized if property is transferred to corporation…
2) and immediately after exchange those persons transferring property…
solely in exchange for stock
2) control corporation
Affiliated group 2
1 parent owns at least 80% of combined voting power
2 total value of all stock owned by includible corporation
2 other names for dividends
1 current distributions
2 nonliquidating distributions
Total liquidation, what occurs?2
1 sub sells stock back to parent company and
2 is totally liquidated
When a corporation distributes appreciated property to shareholder, order of 3 ways the distribution is treated?
1 dividend income
2 return of basis
3 capital gain
If liability is assumed by stockholder it…
Reduces the amount of distribution
No loss can be recognized on…
Nonliquidating distribution to shareholders
If liability distribution by corporation exceeds basis of property, it is…
Recognized as gain to corporation
Net accumulated earnings are negative, a distribution of cash is…2
1 A return of basis
2 doesn’t effect acc. E+P
It FMV of property distributed exceeds basis, that becomes…
Current E+P
In a complete liquidation, if the stockholder assumes debt, the debt is… Show equation
FMV property distr. - FMV
Basis of property to stockholder is always its FMV ignoring the…
Liability
In a total liquidation a corporation can recognize…
A gain as well as a loss
When current E+P isn’t positive, you should…
Net them
When net of Acc. E+P and current E+P are negative, the distribution is…
Reduction in stock basis
Stock redemption 2 conditions
1 all stock is redeemed
2 redemption from individual shareholder
When Stock redemption is from individual shareholder, it is a…
Partial liquidation
Stock redemption:
A distribution is a stock redemption when used to…
Pay death taxes
Stock redemption:
When all stock is redeemed or redemption is from individual shareholder it is treated as…
Capital gain or loss
Interest on borrowings used to repurchase stock are…
Deductible
Legal and account fees in connection with repurchase of stock are…
Not deductible
In liquidation of subsidiary, subsidiary is selling its stock…
Back to parent company
No gain or loss is recognized to parent corporation under sec, 332 on receipt of property in complete liquidation of…
80% or more owned subsidiary
No gain or loss is recognized to a subsidiary corporation on the distribution of property to its parent if…
Sec. 332 applies to parent corporation
Company is considered a personal holding company if…
Over 60% of income is portfolio or passive income
What does PHC stand for?
Personal holding company
Personal holding companies are subject to…
Penalty tax on undistributed PHC income
2 tests for personal holding company
1 stockholder test
2 income test
Consent dividends reduce…
Adjusted taxable income
Tax exempt interest earned is not considered income for personal holding company because it is…
Non taxable
One requirement for personal holding company is that 5 or fewer stockholder’s own…
Over 50% of company
Investment company
All of its business is to buy and sell investments
What does AET stand for?
Accumulated earnings tax
Accumulated earnings tax (AET) is assessed by…
IRS (not self assessed)
Accumulated earnings credit for manufacturing company?
Personal service corporation?
1 manufacturing company = $250,000
2 personal service corporation = $150,000
Acc. Earnings credit is a lifetime minimum credit
Once used up you don’t get it again
Net capital loss for current year is allowed as deduction to calculate…
Accumulated earnings tax
Accumulated earnings credit is the greater of…2
1 reasonable business needs or
2 remaining minimum deduction
S-corp, how many classes of stock does it have?
1
4797 gain
Depreciation is recaptured as ordinary income
4797 gain goes on…
Line 4 of 1120S
Foreign taxes paid of an S-Corp is…
Not deductible to arrive at ordinary income
S-Corporation’s:
For both Ordinary loss and capital loss, amount of loss deducted is limited to…
Basis in S-Corp stock
A loss on an S-corp can…
Be carried forward indefinitely
Fringe benefits paid to an over 2% shareholder of an S-corp are…2
1 taxable to shareholder
2 deductible to S-Corp
Family coverage under the health insurance plan for an S-corp is…
Taxable to 2% shareholder in full
S-election can be revoked voluntarily with over 50% of stock, it doesn’t matter if…
Stock is voting or nonvoting
How long must a terminated S-corp wait to become an S-corp again?
5 years
An S-corp is not permitted to deduct for…
Charitable contribution
What does AAA stand for?
Accumulated adjusted account
Ordinary income + losses go…
Into AAA
Accumulated Adj. Account
Order of Distribution 4
1 distribution out of AAA
2 E+P
3 return of stock basis
4 capital gain
Accumulated Adjustment Account (AAA):
Distribution out of AAA is…
Non taxable
Accumulated Adjustment Account (AAA):
E+P was from…
2) how is it treated?
Previous C-corp
2) taxed as dividend income
Accumulated Adjustment Account (AAA):
Distributions of E+P do not…
Do not reduce stock basis
If transfer of assets from C-corp to S-corp, you have to…
Recognize built in gain
Built in gain of S-corp. is compared to…
Taxable income as if corp was C-corp
If you have built in gain or taxable income, you should…
Take lesser of built in gain or taxable income
Untaxed built in gain is…2
1 suspended and
2 taxed 1 year later
Whichever is less, taxable income or LT capital gain untaxed in previous year is multiplied by…
35%
Corporate reorganization so generally result in…
Non-recognition treatment
Corporate reorganization:
Type B
Acquiring 80% of stock
Corporate reorganization:
Type C
Use voting stock to acquire all target’s property
Corporate reorganization:
Type A
Statutory merger
Statutory merger
2 corps combine to form new corp
Corporate reorganization:
Type D, 2
1 transfer by corp to another corp/shareholders
2 after corp has control
Corporate reorganization:
Type E, define
Recapitalization to change capital structure of single corp
Recapitalization to change capital structure of single corp, example
Bond holders exchange old bonds for new bonds
Corporate reorganization:
Type F
Change of identity, form or place of organization
Corporate reorganization:
Type G
Transfer of assets by insolvent corp, where creditors become
owners
