Property Rules / Corp. Taxes Flashcards
Section 351(a) - Prop. transfers in exchange for stock
No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock (And thereafter there is 80% control)
How to compute Shareholder Tax Basis in a stock under 351
Net Book Val. of Property
(LESS) Debt Assumed by Corp
(PLUS) S/h-contributed Boot
(BookVal PLUS boot contribbed by sharehold) LESS (debt corp takes on and/or LESS money corp pays to sharehold)
How to compute Shareholder Realized Gain under 351
FMV (LESS) basis in prop.
How to compute basis received in non-cash Property from Stockholder under 351
Basis of property received, PLUS ADD ANY MONEY THE CORP PAID to that basis because it ups their basis.
Who pays penalty for underpayment of ES taxes?
Electing large corporations. Otherwise u have the 90% PY or 100%/110% CY decision.
General rule of gifted property?
Giftee receives rollover basis (so calculate FMVs accordingly along with realized gains from sale – sale gains less basis, Or sale gains less FMV if FMV is lower.
What are capital assets?
Name 9?
Investment assets of taxpayers that are NOT inventory.
1) Personal automobile
2) Furniture and fixtures in home of indiv. taxpayer
3) Stocks and securities
4) personal prop. held by taxpayer NOT USED in trade or business
5) Real Prop. not used in trade or business
6) interest in a partnership
7) Goodwill of a corp.
8) Copyrights PURHASED.
9) Other assets held for inv.
Related Party Rule
no deducting capital losses on sales of stock between:
1) brothers /sisters
2) husband/wife
3) lineal descendents (incl. grandparents.. not in-laws)
4) Entities that are more than 50% owned by indivs, Corps, Trusts, or Partnerships
Example Related Party Sale Formula
Dad sells - 30,000 basis
4 alice- 20,000 FMV
poss gain-on-sale reduction of (10,000)
EG Alice can sell for up to 30K and recognize no gains.
Or 40K, and recognize just 10K of gains.
Basically - FATHER’S basis transfers
Wash Sale Rule
When stock or bond is sold for a loss and repurchased within 30 days BEFORE or AFTER sale date (EG still a wash if purch. earlier)
However, new security basis is raised by any disallowed loss.
Like-Kind exchange: Allowed vs. non-allowed types of property
Allowed:
“Tangible Property” EG real estate
Disallowed:
Inventory, stock, securities, partnership interests, property in DIF. countries
Noncapital Assets
1) Property normally included in INVENTORY or held for sale to customers in course of business
2) Depreciable PERSONAL prop and real estate used in trade or business (SECTION 1231, poss. 1245 or 1250 as well)
3) A/R and Notes Rec. arising from sales or services to a taxpayer’s business
4) Copywrites held by original artist (Except if you sell music it gets capital gains treatment)
5) Treasury Stock (not ordinary asset, not subj. to capital gains)
Rules about receiving stock splits?
Receipt of non-taxable stock dividend will require the shareholder to SPREAD the basis of his original shares, over Original Shares and New Shares Received.
Gift basis rules:
Gift GENERALLY retains rollover cost basis
(EG mom gives stock w/ basis of $10K and FV $20K, basis is $10K)
Gift taxes PAID add to basis (EG mom pays $2K gift tax so basis now $12K)
What is the depreciable basis of a piece of equipment bought for business, comprised of?
Purch price PLUS costs associated with getting asset ready for its intended use.
Short-Term cap. gains and losses: Netting Rules
1) If there are short-term capital losses or carryovers, they are first absorbed by short-term gains.
2) Any remaining short-term capital loss, used to absorb Long-term capital gains from the 28% rate (EG Collectibles)
3) Any remaining short-term capital loss, used to offset Long-term Cap. Gains from 25% group (EG un-recaptured Section 1250 Gains)
4) Any remaining short-term capital loss, used to offset Long-term capital gains at the “regular rate” (lower rate) of 15%
Long-term Capital Losses against Gains: Netting Rules
1) If there are any long-term capital losses (INCL. carryovers of LT Cap. losses) in the 28% group, they are first offset against any GAINS at the 25% rate group, then the 15% rate group
2) If there are any long-term capital losses (incl. carryback or carryforward,) from 15% rate group, they first treat 28% group then 25% group
With LT Cap Losses, always treat Higher tax rate gains First!
How much of an S-Corp distribution an be tax-free?
Up to the extent of the Accumulated Adjustments Account Balance, and then it becomes Taxable Dividend up to current E&P Balance, and then it becomes Taxable Gain beyond the E&P balance.
Accumulated Adjustment Account (AAA) - definition and how it works
The tax effects of distributions paid to shareholders of an S corporation that has accumulated earnings and profits since inception (or since electing S status), are computed in the AAA.
AAA is Zero at inception of S-corp.
Increased with (Sep & non-sep-stated) Income and Gains; Decreased by corp distributions, sep/not sep items and losses, life insurance premiums that recognize corp as beneficiary.
AAA never goes below ZERO.
Tax Return Dates for:
1) C-Corp YE 6/30/01 ?
2) Partnership YE 9/30/01?
3) Statute of limitation rules for individual returns?
1) 9/15/02
2) 1/15/02
3) THREE YEARS from later of:
a. tax due date
b. date of filing (in case of extensions)
