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CPA Self-Made > R3 > Flashcards

R3 Flashcards

1
Q

C-Corp Formation…Basis of Property is…

A

Greater of adjusted basis (NBV PLUS Cash given or debt assumed by corp

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2
Q

Are certain proceeds from life insurance on key person’s taxable?

A

No.

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3
Q

Domestic Production Deduction

A

1Domestic Production Deduction—9% of the lesser of taxable income or Qualified Production activities income.

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4
Q

For tax purposes, do we use specific charge-off method for bad debts or allowance method?

A

Specific Charge-Off

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5
Q

Charitable Contribution Limit for C-Corps?

A

10% limit on adjusted taxable income by March 15. Taken before any special deductions. 5 year carryforward.

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6
Q

How do we handle business casualty losses?

A

100% deductible at NBV. If partially destroyed, take lesser of NBV or FMV loss.

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7
Q

How does a business treat goodwill?

A

Amortized over 15 years

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8
Q

Is interest expense to carry municipal bonds deductible?

A

No.

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9
Q

Business Expenses: tax deductibility of life insurance expense on key persons?

A

Not deductible

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10
Q

Business Expenses: tax deductibility of life insurance expense when employee owns the policy?

A

Deductible

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11
Q

Name deductible business taxes

A

State income, city income, and federal payroll tax deductible

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12
Q

Business Capital G/L

A

a. Capital loss deduction not allowed
b. Only offset capital gains
c. Net capital losses are carried 3 years back, 5 years forward
d. Capital gains at ordinary tax rates

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13
Q

What are the rules for Net Capital Losses?

A

We don’t know, except that we have a 2 year carryback, 20 year carryforward.

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14
Q

Individual net capital loss rules

A

3,000 against ordinary income, no carryback, indefinite carryforward

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15
Q

General Business Credit

A

a. May not exceed net income tax less 25% of regular tax liability above 25,000 OR tentative minimum tax for the year.

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16
Q

Entities for which DRD does not apply

A

a. Personal service companies
b. Personal holding companies
c. (Personally taxed) S corporations

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17
Q

Accrual basis method is required for the following

A

i. Accounting for purchases and sales of inventory
ii. Tax shelters
iii. Certain farming corps
iv. Business has greater than $5 million of average annual gross receipts for the 3 year period ending with the tax year

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18
Q

Estimated Payments of Corporate Tax

A

i. Small Corps—Lesser of 100% tax shown for current year or 100% of tax shown for preceding year (as long as you owed tax)
ii. Large Corps ($1 million or more 3 preceding years)—must pay 100% of tax shown for current year

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19
Q

d. Consolidated Tax Returns

A

i. Common parent directly owns 80% of voting power AND value of all outstanding stock for each corporation.

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20
Q

AMT -

i. Adjustments—Put a “LID” on it

A
  1. Long-Term contracts
  2. Installment sales—dealer
  3. Depreciation adjustment for property after 1986 but before 1998
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21
Q

ii. AMT Preferences

A
  1. Percentage Depletion
  2. Private Activity Bonds
  3. Pre-1987 ACRS Depreciaion
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22
Q

AMT–Adjusted Current Earnings (MOLDD)

A

a. Municipal bond interest
b. Organizational expense amortization
c. Life insurance proceeds on key employee
d. Different between AMT depreciation and ACE depreciation
e. 70% Dividends Received Deduction

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23
Q

iv. Exemption amount

A
  1. $40,000 less 25% of AMTI in excess of $150,000
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24
Q

AMT Corp Tax Rate

A

20%

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25
Q

What is the carryforward for AMT?

A

No carryback, indefinite carry forward

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26
Q

f. Accumulated Earnings Tax

A
  1. Business need
  2. Lifetime credit of $250,000 ($150,000 for service corps)
  3. Excuses
    a. Taxable income less ALL CHARITY less ALL CAPITAL LOSSES less ALL TAXES less ALL DIVIDENDS
  4. Whatever is left is taxed at the 20% rate
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27
Q

i. Definition of a Personal Holding Company (NIRD)

A
  1. 50% owned by 5 or fewer individuals and having 60 % of their adjusted ordinary income consisting of the following…
    a. Net rent (if less than 50% of ordinary gross income)
    b. Interest that is taxable (nontaxable is excluded)
    c. Royalties
    d. Dividends from an unrelated domestic corporation
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28
Q

Personal Holding Company Tax

A

20% in addition

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29
Q

Classification of E&P Distributions

A

i. E&P = Taxable Dividend Income
ii. No E&P = Return of Capital (not taxed)
iii. No basis = Capital Gain Distribution

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30
Q

IV. Stock Dividends

a. Generally not taxable
b. Unless shareholder has choice of receiving cash or property (at FMV)

A

a. Generally not taxable

b. Unless shareholder has choice of receiving cash or property (at FMV)

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31
Q

Taxability of Property Dividends for a corporation

A

i. Exception for property dividends. For property dividends, treat the recognized gain as if the property had been sold. The gain INCREASES CURRENT E&P.
ii. FMV Property less NBV = Corp Gain

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32
Q

Taxability of stock redemption for shareholder

A

Proportional–taxable dividend income

Disproportional–taxable capital gain or loss

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33
Q

c. Worthless Stock—Section 1244 Stock (small business Stock)

A

i. Sold or becomes worthless, an original shareholder can count as an ordinary loss up to $50,000 ($100,000 if MFJ)
ii. Any excess is treated as a capital loss subject to the $3,000 ($1,500 if

34
Q

How do you treat non-liquidating appreciated property dividend?

A

Gain for the corporation paying out the dividend

35
Q

Corporate carryback or carryforward is ALWAYS treated as a…

A

short-term capital loss

36
Q

How are a C-Corp’s Net Capital Losses used?

A

3 year carry back

5 year carry forward

37
Q

Basis of Property for a C Corporation is…

A

Greater of NBV or Debt assumed by corporation

38
Q

Corporate Charity Carryback/Carryforward Rules?

A

Carry forward indefinitely. No carry back

39
Q

What does a personal holding company deduct before arriving at its amount for the personal holding company tax?

A

Both Federal income taxes and net long term capital gains less related federal income taxes

40
Q

What is the usual result to the shareholders of a distribution in complete liquidation of a corporation?

A

Capital gain or loss (difference between FMV of property received and basis in stock)

41
Q

What is the accumulated earnings credit for manufacturing companies? For service companies?

A

$250,000 and $150,000

42
Q

Given a shareholder who contributes property to a C-Corp in exchange for common stock, what is the amount of gain recognized?

A

Lesser of cash received (boot) or gain realized (FMV common stock + cash received)

43
Q

Which type of entity is entitled to the net operating loss deduction?

A

Trusts/Estates

44
Q

Which three types of corporations may not file consolidated tax returns?

A

S Corps
Exempt Organizations
Insurance Companies

45
Q

How is basis calculated for a stock dividend?

A

Original basis / # of shares (original # shares + (original shares *1.1)

46
Q

For whom is the accural basis of accounting required?

A
  • accounting purchase and sale of inventory
  • tax shelters and certain farming organizations
  • C Corps with annual gross receipts of greater than $5million annually for the preceeding 3 years starting with the end of the tax year
  • trusts with unrelated income
47
Q

C-Corp net capital loss carryforward / carryback rules?

A

3 back

5 forward

48
Q

An individual shareholder will be taxed on property dividends at what amount?

A

Fair Market Value of the property received

49
Q

What is the proper treatment for advertising costs?

A

Expense them as necessary and normal business expenses.

50
Q

Intangibles (goodwill, covenant not to compete, licenses, franchises) are amortizable over how long a period?

A

15 years

51
Q

The selection of an accounting method for tax purposes by a newly incorporated C-Corporation…

A

Is made as a selection on the corporation’s initial tax return.

52
Q

In order for an S Corp to be subject to the built-in gains tax, what two situations must be in place?

A
  1. A C-Corp elects S-Corp status.

2. FMV of the corporate assets exceeds the adjusted basis at the election date.

53
Q

What conditions must be in place for an S-Corp election to be allowed? (100 US people are common)

A

a. Must be individual, estate, or certain type of trust
b. May not be a resident alien
c. Neither corporations nor partnerships are eligible shareholders
d. No more than 100 shareholders
e. Preferred stock not permitted (voting stock is)

54
Q

What condition must be met for fringe benefits for a shareholder be deductible for an S-Corp?

A

Fringe benefits are deductible for non-shareholder employees. Own 2% or more, however, and the benefits are no longer deductible (thus, include in the shareholder’s K-1)

55
Q

Where is an individual’s S-Corp income included?

A

Schedule K-1, 1040 Schedule E

56
Q

Do non-recourse loans increase your basis in an S-Corp?

A

NO NO NO. must be recourse (non-qualified)

57
Q

When will the corporation’s status as an S-Corp be terminated?

A
  1. Majority of stockholders consent to voluntary revocation
  2. Corporation fails to meet any or all of the eligibility requirements
  3. More than 25% of the corps gross receipts come from passive income for three consecutive years and the corp had c-corp E and P at the end of each year. S corp terminated at the beginning of the 4th year.
  4. Corp owner, foreign owner.
58
Q

How long will a terminated S Corp be required to wait before re-electing as an S-Corp?

A

5 years

59
Q

What amount is subject to the S-Corp “Built-In Gain’s Tax”?

A

The difference between basis and FMV at the time of election (actual sell price is insignificant)

60
Q

What is one advantage of a limited liability company over an S-Corp?

A

Appreciated property can be distributed tax-free to the owner.

61
Q

Tap, a calendar-year S corporation, reported the following items of income and expense in the current year:
Revenue $ 44,000
Operating expenses 20,000
Long-term capital loss 6,000
Charitable contributions 1,000
Interest expense 4,000
What is the amount of Tap’s ordinary income?

A

20,000

44-20-4

Leard about separately and non-separately stated items!!!

62
Q

An S corporation shareholder is permitted to deduct (on a personal income tax return) the pro rata share of the S corporation loss subject to the following limitation…

A

Loss limitation = Basis + Direct shareholder loans - Distribution (excess carried FORWARD indefinitely)

63
Q

For which of the following entities is the owner’s basis increased by the owner’s share of profits and decreased by the owner’s share of losses but is not affected by the entity’s bank loan increases or decreases?

A

S Corporations. The owner’s basis in an S Corporation is increased by the owner’s share of profits and decreased by the owner’s share of losses. It is not affected by any bank loans increased or decreased by the corporation. It is only increased by direct loans made to the corporation by the owner.

64
Q

When is the information return for an exempt organization due?

A

May 15th

65
Q

What types of income are NOT considered UBI?

A

Bingo, handicapped, unpaid

66
Q

Which exempt organizations do NOT have to file form 990?

A

b. Exceptions—do not have to file annual return 990 if…($50 and CHRIST)
i. Churches
ii. High Schools-Religious
iii. Religious Orders
iv. Internal Support Auxiliaries
v. Societies—missionary related
vi. Tax exempt—organized by Congress

67
Q

To qualify as an exempt organization other than a church or an employee’s qualified pension or profit sharing trust, the applicant:

A

Must file a written application with the IRS

68
Q

A binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return for a covered year consistent with the agreed transfer pricing method is called a(n)

A

Advance Pricing Agreement Program

69
Q

How does one compute after-tax cash flow?

A

Multiply pre-tax cash flow by (1-tax rate)

70
Q

nder the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986:

A

Salvage Value is ignored.

71
Q

The common parent must directly own stock possessing at least (?) of the total voting power of at least one of the other includible corporations and having a value equal to at least (?) of the total value of the stock of the corporation in order to file a consolidated return?

A

80%

72
Q

Charitable contributions from corporations can be carried

A

Forward indefinitely

73
Q

Is interest earned on US treasury bonds taxable? Deductible?

A

YES

74
Q

Can S Corps take the dividends recieved deduction?

A

NO

75
Q

How long must stock be held for the dividends received deduction to be in effect?

A

45 Days

76
Q

True or False. Foreign Income Taxes may only be claimed as a credit?

A

False. They also may be a deduction.

77
Q

Do dividends paid for the purposes of the personal holding company tax include dividends?

A

YES

78
Q

No tax penalty will be imposed on a corporation if…

A

the tax liability is less than $500

79
Q

How do you calculate Gain realized for a shareholder who contributes property to a corporation?

A

Gain = FMV Property less Basis of Property

80
Q

How do you calculate recognized gain for a shareholder who contributes property to a corporation?

A

Gain is the lesser of gain realized (FMV Property less shareholder’s adjusted basis) or Boot Received

81
Q

How do you calculate shareholder’s basis in shares when property is given to the corporation?

A

NBV of Property less Debt assumed by corporation Plus cash contributed for purchase

CPA Self-Made (7 decks)

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