R3 C and S Corporations Taxation Pt 2 Flashcards
What are the requirements to file a consolidated return?
All corporation in group:
- Must have been members of an affiliated group at some time during the tax year.
- Each member must file a consent (act of filing a consolidated return is considered consent)
Affiliated Group:
Common parent owns 80% or more of the voting power of all outstanding stock and 80% or more of the value of all outstanding stock of each corporation.
Identify the advantages of filing a consolidated return.
- Capital losses of one corporation offset capital gains of another corporation.
- Operating losses of one corporation offset profits of another corporation.
- Elimination of tax on intercompany transactions.
- Income from certain intercompany sales may be deferred.
- Certain tax deductions and tax credits may be better utilized when subject to the limitations of the overall consolidated group rather than individual members.
- Dividends received are 100% eliminated in consolidation bc they are intercompany dividends.
Describe the corporate AMT.
- AMT rate of 20% of AMTI
- Exemption is $40K less 25% x (AMTI - $150K)
- Exemption is completely eliminated at AMTI of $310K
- Calculated similarly to individual AMT
Name some corporate AMT preferences.
- Percentage depletion
- Private Activity Bonds
- Pre-1987 ACRS excess depreciation
The ACE adjustment requires two steps:
- Determine ACE and 2. Calculate the actual ACE adjustment
ACE is equal to unadjusted AMT income adjusted by what items.
M-O-L-D-D
- Municipal bond interest is added back
- Deductions for organizational expense amortization are added back to AMTI
- Life insurance proceeds on key employee are added back
- The difference between AMT depreciation and ACE depreciation may need to be added back or subtracted from AMTI depending on which is the larger amount (If AMT depreciation is higher than ACE, the difference is added back)
- The 70% DRD is added back
What is the ACE adjustment.
75% of the difference (positive or negative) between ACE and AMTI before this adjustment and the alternative tax NOL deduction. Note that a negative adjustment in a particular year cannot be greater than cumulative positive adjustments.
What is the accumulated earnings tax?
The accumulated earnings tax is a tax on accumulated earnings beyond the reasonable needs of the business.
Corporations can accumulate up to $250K or an amount reasonable to the needs of the business without penalty. For personal service corporation, the amount is up to $150K
The tax is a flat 20% of the unreasonable accumulated earnings.
Define personal holding company
A personal holding company must meet both of the following:
- At any time during the last half of the taxable year, more than 50% of the value of the corporation’s outstanding stock is owned by 5 or fewer individuals;
- At least 60% of the corporation’s adjusted ordinary gross income consists of personal holding company income (dividends, rents, royalties, annuities, interest, adjusted rental income, and certain other investment income sources) [NIRD]
What is a personal service corporation? What is the tax rate?
A personal service corporation is a corporation primarily involved in the performance of one of the following fields:
Accounting, law, consulting, engineering, architecture, health and actuarial science.
The tax rate is a flat 35%
What are the tax implication of a tax-free reorganization?
A tax-free reorganization is a nontaxable transaction except of boot received.
What are the eligibility requirements for an S Corporation election?
- Domestic Corporation
- One class of stock (differences in CS voting rights are allowed)
- Eligible shareholders must be individuals (no nonresident alien shareholders) estate, or certain or certain types of trusts (not corporations or partnerships)
- One hundred shareholder limit
