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REG > Part XII: Corporate Taxes > Flashcards

Part XII: Corporate Taxes Flashcards

1
Q

control club

A

The people who have contributed property and are in control of the corp. immediately after corp. formation.

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2
Q

To be part of the control club, you have to…

A
  1. contribute property (money or property of value) to the corp.
  2. Property must be exchanged solely for corp. stock.
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3
Q

control

A
  1. owning 80+% of voting and nonvoting stock.

2. Can bee owned by one person or a group.

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4
Q

boot

A

anything received other than stock (cash, inv., etc.) for contributing property to the corp.

Ex) Contribute $100k of inventory to the corp and receive $80k of stock nad $20k of cash- the $20k is boot and triggers a gain of $20k.

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5
Q

If boot is received, the gain recognized by the shareholder is the lower of the…

A
  1. realized gain

2. OR, the FMV of boot received.

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6
Q

corp’s basis in property contributed

A

basis of transferor
+ gain recognized by transferor
= corp’s basis

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7
Q

What basis of accounting are corps required to use?

A

Accrual, unless:

1. Avg. gross receipts

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8
Q

Can corps choose when their fiscal yr. begins and ends?

A

Yes, unless it is an S-corp or personal service corp., which must use a calendar-year end.

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9
Q

M-1 Schedule

A
  1. Used by corps. to reconcile book income (BI) to taxable income (TI).
  2. Any non-deductible expenses would be added to BI to arrive at
    TI.
  3. Any non-taxable income is subtracted from BI to arrive at TI.
  4. TI not included in BI is added to BI.
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10
Q

NOL carryback/carryforward

A

Negative TI can be carried back 2 yrs. and carried forward 20 yrs. to offset future or past TI.

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11
Q

dividends received deduction (DRD)

A
  1. Occurs when a corp owns stock in another company that pays dividends.
  2. The corp gets to deduct a portion of the DI based on % of stock it owns in the other company.
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12
Q

If the corp owns less than 20% of dividend-paying corp’s stock, the DRD is…

A

70%.

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13
Q

If the corp owns 20-79% of dividend-paying corp’s stock, the DRD is…

A

80%.

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14
Q

If the corp owns less than 80+% of dividend-paying corp’s stock, the DRD is…

A

100%.

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15
Q

If the corp has TI less than the DI…

A

the DRD is limited to the TI amount.

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16
Q

organizational and startup cost deduction

A
  1. $5k of org. costs to form a corp. can be deducted from TI.
  2. The $5k is reduced dollar-for-dollar by amount of expenses over $50k.
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17
Q

How are org. costs remaining after the deduction treated?

A

Capitalized and amortized over 180 months.

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18
Q

Are stock issuance costs deductible?

A

No, they are syndication costs.

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19
Q

charitable contributions deduction & dividends

A

When computing the 10% allowed for charitable contributions , any DRD is left out; the full amount of income is used for the 10% calculation.

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20
Q

corporate AMT

A

A corp must pay the AMT tax amount in excess of the regular tax liability.

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21
Q

corporate AMT exemption formula

A

$40k - 25% of AMT taxable income in excess of $150k.

Ex) Exemption for corp w/AMT TI of $160k.
 40k - [(160k - 150k) * .25] 
= 40k - [10k * .25] 
= 40k - 2.5k
= 37.5k
22
Q

corp AMT limit & gross receipts test

A
  1. If avg. annual gross receipts do not exceed $7.5 million, then the corp is not subject to AMT.
  2. Then, for the first 3 yrs. of the corp’s existence, the gross receipts is $5 mil instead of $7.5 mil.
  3. Once this gross receipts test is failed for 1 yr., AMT applies to the corp in all future yrs.
23
Q

accumulated earnings tax

A
  1. A penalty tax when a corp. accumulates earnings and profits for the purpose of avoiding tax for its shareholders.
  2. Tax is 20% of corp’s accum. TI.
  3. Any DRDs received are added back to the income number as part of accum. earnings.
24
Q

accumulated earnings credit

A

Greater of:

  1. Amount of current earnings and profits reasonably needed for the business,
  2. OR, $250k ($150k for nonmfg. businesses) less than accum. earnings & profits at end of preceding yr.
25
Q

personal holding company (PHC) tax

A
  1. Penalizes a corp. that seems to hold a high level of stock investments for the DRD.
  2. 20% tax imposed.
26
Q

2 tests to determine if a corp is a PHC (both tests must be passed):

A
  1. Income test

2. Ownership test

27
Q

income test (PHC)

A

If passive income is 60+% or more of AGI.

28
Q

ownership test (PHC)

A

If 50+% of the corp’s stock is owned directly or indirectly by 5 or less people during the last half of the year.

29
Q

adjustments that either increase or decrease TI when assessing a PHC penalty:

A
  1. Accrued income tax reduces TI.
  2. Excess charitable contributions reduce TI.
  3. After-tax NCG reduces TI.
  4. Pro-rata dividends reduce TI.
  5. Deficiency dividends reduce TI.
  6. Adding back DRDs increases TI.
  7. Carryover from NOLs increase TI.
30
Q

deficiency dividend

A
  1. dividend paid w/in 90 days after a PHC penalty has been imposed.
  2. Deficiency dividends reduce TI.
31
Q

affiliate group

A
  1. When one C corp owns 80+% of the voting power of another C corp or multiple C corps.
  2. An affiliate group can file one consolidated tax return.
32
Q

Can an S corp be a member of an affiliate group?

A

No.

33
Q

3 main advantages to filing a consolidated return in an affiliate group setting:

A
  1. Intercompany dividends are excluded from TI.
  2. Losses from one member corp offset gain of another member.
  3. Intercompany profits are deferred until realized.
34
Q

What matters when considering the tax effects of distributions?

A

Accum. earnings and profits. (E&P)

35
Q
  1. A distribution that is larger than a corp’s accum. E&P is considered a…
  2. Is such a distribution taxable?
A
  1. return of capital.

2. No.

36
Q

How do corp gains on appreciated property affect a shareholder’s taxable dividend?

A

A corp’s gains on appreciated property are deferred, so when property gets distributed, that can add to a shareholder’s taxable dividend.

37
Q

When accum. E&P is neg. and current-yr E&P is positive, any distributions are…

A
  1. treated as dividends to the extent of current E&P.

2. Anything above that is a return of capital.

38
Q

redemption

A

when a corp. buys back its stock form shareholders

39
Q

When a corp. is completed liquidated, the distribution to shareholders is…

A

considered a cap gain, NOT an ordinary gain.

40
Q

Expenses related to a liquidation are…

A

deductible by the liquidating corp.

41
Q

How are corp reorganizations treated for tax purposes?

A

Generally tax-free to both the shareholders and the corp.

42
Q

4 main types of corp reorganizations:

A
  1. A
  2. B
  3. C
    4 D
43
Q

A

A
  1. Asset exchange for stock

2. Most assets of target firm are exchanged for stock in the acquiring firm.

44
Q

B

A
  1. Only stock for stock.
  2. Acquiring firm exchanges its stock for stock of the target and the acquiring firm must own 80% of the target stock after the acquisition.
45
Q

C

A
  1. Acquiring firm acquires 90% of net asset value of target’s assets in exchange for voting stock.
  2. Target firm distributes stock to its shareholders.
46
Q

D

A
  1. Divisive.

2. One corp. divides by transferring assets to a sub in exchange for stock in the sub.

47
Q

use tax

A

When property is purchased in state A but used in state B, state B will probably impose a use tax.

48
Q

Nexus

A

a business has a relationship w/another state to the point that the state has the right to impose taxes on the bus.

49
Q

Nexus & sales factor

A

When a business has sales among multiple states they also have nexus in, the sales factor each state is determined on a %-of-sales basis.

50
Q

A tax-exempt entity must file an information return if gross receipts exceed…

A

$50k.

REG (47 decks)

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