R3 - C Corp

Question 1

What’s corp’s basis in property received?

Answer 1

Greater of:

1. Adj Basis (NBV) + gain recognized by shareholder, or
2. Debt assumed by the corp

Question 2

What’s shareholder’s basis in common stock?

Answer 2

• Cash = amount contributed
• Property = NBV
  
  • Adj Basis is reduced by debt on the property assumed by the corp
  • Gain recognized by shareholder (when debt exceeds asset’s NBV) is added to stock basis.
• Services = FMV

Question 4

Corp book inc vs tax inc: what are you temporary difference?

Answer 4

Temporary differences:

• Cash received in advance
• Retnal income received in advance
• Royalty income received in advance

Question 5

Corp book inc vs tax inc: what are your permanent diffs?

Answer 5

• Interest income from municiapl or state obligations/bonds
• Life insurance on life of an officer
• Federal income taxes are NOT deductible on tax retursn

Question 6

What is QPAI and how do you calculate it?

Answer 6

Qualified production activities income.

Domestic production gross receipts

< Cost of goods sold >

< Other directly allocable expenses or losses >

< Proper share of other deductions >

= QPAI

Question 7

How do you calc domestic production deduction?

Answer 7

Limited to 50% of W2 wages paid by corp for the year.

Deduction is 9% of the lesser of:

1. QPAI
2. Taxable income disregarding QPAI deduction

Question 8

How much is the executive compensation deduction?

Answer 8

Deduct up to $1M or four most highly compensated officers.

Question 9

Can a corp deduct bonus accruals?

Answer 9

Yes, bonuses paid by an accrual basis taxpayer are deductible in the tax year when all events have occurred and if they are paid within 2.5 months after y/e

Question 10

Can a corp deduct bad debts?

Answer 10

Yes and no.

Accrual basis taxpayers = yes but they must use specific charge-off method for taxes. Note the allowance method is GAAP but is not allowed under tax.

Cash basis taxpayers = no, they cannot deduct bad debts.

Question 11

Can a corp deduct business interest expense?

Answer 11

Int exp on business = deduct amt incurred and paid

Int exp on investments = up to taxable investment income

Prepaid int exp = deduct later when incurred.

Note: int on tax-free bonds is not deductible

Question 12

Can a corp deduct charitable contributions?

Answer 12

Yes, but only up to 10% of taxable income. Any disallowed amounts are carried forward FIVE YEARS.

Question 13

Business loss / casualty loss deduction:

• Partially destroyed
• Fully destroyed

Answer 13

• Partially destroyed: lesser of
  
  • Decline in value of property, or
  • Adj Basis (NBV) immediately before the loss
• Fully destroyed: NBV

Question 14

How much can a corp deduct for organizational and business start-up costs?

Answer 14

$5,000 for org costs

$5,000 for business start-up costs.

Any excess is amortized over 180 months.

Allowable costs: legal fees to draft corp charter, bylaws, minuts, accounting services, fees to state of incorp

Dissallowed costs: issuing and selling stock, commissions, underwriter’s fees, transfer of assets to corp. Basically anything related to cost of raising capital.

Question 15

Can a corp deduct intangible asset amortization?

Answer 15

Yes. Goodwill, covenants not to compete, franchises, trademarks, and trade names can be amortized S/L over 15 years beginning in month acquired.

Question 16

Can a corp deduct life insurance premiums?

Answer 16

Yes and no.

Premiums paid by corp for life insurance policies on key employees are NOT deductible when the corp is the beneficiary.

Question 17

How much can a corp deduct for business gifts?

Answer 17

Maximum $25.00 per recipient per year.

Question 18

How much can a corp deduct for business meals and entertainment?

Answer 18

50% tax deductible

Question 19

Can a corp deduct taxes?

Answer 19

Yes and no.

Allowed to deduct the following taxes:

• State income
• City income
• Federal payroll tax

Federal income taxes are NOT deductible

Foreign income taxes may be used as a credit

Question 20

Is there a capital loss deduction for corporations like there is for individuals?

Answer 20

No. There’s no capital loss deduction for corporations.

Question 21

What’s the capital loss carryover period for corporations?

Answer 21

Net capital losses for corporations are carried back 3 years and forward 5 years.

Corporation can only use capital losses to offset capital gains.

Question 22

How are net operation losses (NOL) treated for corporations?

Answer 22

Carryback 2 yrs and carryforward NOLs 20 years.

Question 23

How do you calc the General Business Credit for corp?

Answer 23

Credit may not exceed net income tax (which is regular tax plus alternative minimum tax less nonrefundable tax credits) less the greater of:

• 25% of regular tax liability above $25,000 or
• Tentative miniimum tax for the year

Question 24

How do you treat unused General Business Credits for a corp?

Answer 24

Unused cretis may be carreid back 1 year and carried forward 20 years.

Question 25

What are the % rates for Dividends Received Deduction?

Answer 25

0-19% ownership = 70% DRD

20-79% ownership = 80% DRD

80-100% ownership = 100% DRD

Note, if the question says it is an “unrelated investment” then this is a small investment (less than 20%) and you would use 70% DRD.

Question 26

How do you calc the amount of the Dividends Received Deduction?

Answer 26

DRD is equal to the lesser of:

• DRD % x dividends you received, or
• DRD % x taxable income before the DRD, NOL, capital loss carryback, and domestic production activity deduction

But if taking one would create a loss, then you must use the smaller one of the above.

Question 27

What types of entities may NOT apply DRD?

Answer 27

• Personal service corporations
• personal holding companies
• S corps

Question 28

How many months does a Corp get when they ask for a filing extension?

Answer 28

Six months

Question 29

Business losses or casualty losses

Answer 29

Partially destroyed property: limited to the lesser of decline in value or the NBV just before the destruction

Fully destroyed property: NBV

Note: these rules are different for individuals where you get a $100 reduction and there’s a 10% of AGI limit for individuals

Question 30

What are the statue of limitations for corp tax filings?

Answer 30

• 3 years or if there’s a 25% misstatement then it’s 6 years

This is measured from the later of:

• due date of the return or
• date return is filed (includes amended returns)

Question 31

How do you calculate the estimated payments due for a corp?

Answer 31

All corporations must pay 25% of the estimated tax due with each payment. You determine the estimated tax due as follows:

Small corp: lesser of:

• 100% tax owed for current year or
• 100% tax owed for prior year

Larg corp: $1M or more in taxable income in any of 3 preceeding years

• 100% tax owed for current year (only one option)

Question 32

When do you consolidate for tax?

Answer 32

Must be an affiliate group. Brother/sister corps are not allowed to consolidate

Consolidate when a corporation owns 80% or more of another corporation’s stock (note GAAP consolidates when 50% owned).

Question 33

What’s the treatment of Section 1244 stock: ordinary loss or capital loss?

Answer 33

When corp’s stock is sold or becomes worthless, an original shareholder can be treated as having an ordinary loss (fully tax deductible) instead of a capital loss up to $50k (100k if MFJ). Any excess over this $50k is treated as a capital loss, which would offset capital gains and then a maximum $3,000 MFJ or $1,500 MFS per year would be deductible

Question 34

What happens if you transfer property and you DO NOT own 80% in the company after the transfer?

Answer 34

This is a taxable transaction.

If you transfer property and you don’t meet the 80% control test then it is a taxable event AND the corporation’s basis in the property is based on FMV instead of your basis.