R3 C Corporations Flashcards
What is the half year conversion?
Six months is taken in the year of acquisitions and year of disposal
Even in straight line is used instead of MACRS and the same methods must be used to all personal property acquired that year in a given property class
For assets acquired after 1986 what is the recovery method for 3-, 5- 7- and 10-year property?
MACRS 200% declining balance and salvage value is not considered
Taxpayer may choose s/l depreciation in lieu if 200% declining balance
20-year property used 150% deluding balance (15 year too)
What is the mid quarter convention?
Mid quarter convention replaces the half year convention if 40% or more of property was placed during the last 3 months of the year
Mid quarter convention treats all property placed during any quarter as if it was placed in the middle of the quarter
What is the mid month conversion?
Mid month convention is used for calculating depreciation of real property (residential rental 27.5 years and commercial 30 years)
The real estate property is treated as if it was placed in the middle of the month
What is the expense deduction (section 179) in lieu of depreciation?
$500,000 of acquisition cost of personal property not land or real estate used in the trade of business may be deducted in any one year. New bad used property qualifies
Reduced $1 for each $1 of property placed in service in excess of $2,000,000
179 deduction is no allowed when a net loss exist or if the deduction will create a net loss you can still decrease the basis of the asset but can carry the deduction unlimited
What are section 1231 assets?
Depreciable or real property used in the the trade or business and held over 12 months
Net all section 1231 gains and losses
Net gains = capital gains
Net losses = ordinary losses
What is the tax treatment of section. 1245 assets?
Depreciable personal property used in the trade or business held over 12 months (machinery and equipment)
Recapture as ordinary income the lesser of all accumulated depreciation taken or gain recognized (sp-nvb)
The remaining is section 1231 gain
Identify the tax treatment given section 1250 assets
Real property used in a trade of business and held over 12 months (buildings)
If placed after 1986 ordinary income is 20% of accumulated depreciation and the rest is section 1231 gain
If placed before 1987 ordinary income is the recapture of the excess ACRS over S/L depreciation
When does a shareholder contributing property in exchange for corporate common stock have no gain or loss recognized?
Transferors/shareholder own at least 80% of the voting and non voting stock (not including shareholders that provided services)
Boot (cash or other property) or cancellation of debt was not involved
What is the basis of common stock received by shareholder?
Cash = amount given
Property = NBV plus any gain recognized less debt assumed by corporation
Services = FMV and generates ordinary income to shareholder
For corporations are bad debts deductible?
Bad debts are deductible up to the extent that bad debts were previously in included in income. The charge off method must be used (not allowance method)
How are charitable deductions treated by corporation?
The max deduction is 10% of ATI before the following deductions:
- charitable contributions
- dividend received deduction
- NOL carry back
- capital loss carry back
- US production activities reduction
What is the bonus depreciation and which property qualifies?
Only for new property not used, it is taken after 179 deduction and the deduction is:
- 50% for equipment placed between 2012 to 2014
- 100% for equipment placed between 2010 and 2011
- 60% for equipment placed before 2010
When are life insurance premiums deductible?
Policies for key employees are not deductible if the corporation is the beneficiary
Policies for employees where they name the beneficiaries as their relatives are deductible as employee benefits
If life insurance premium cover more than $50,000 in proceeds it must be included as compensation anything above $50,000
Identify the corporate tax treatment for capital gains and losses
Net Capital gains = ordinary income
Net Capital losses can be carried back 3 forward 5 as short term capital losses
Can only net capital losses to capital gains not ordinary income
Except 1231 gains and losses
State the general NOL carry back and carry forward rules
Carry back 2 years
Carry forward 20 years
Name some non deductible trade or business expenses
- Bad debts allowance methods (only charge off allowed)
- Illegal activities (bribes, penalties)
- Business gifts over $25 per person per year
- Business meals and entertainment are limited to 50%
- Political contributions
- Club dues
- Executive compensation over $1 million per year per each of top 5 executives in public companies unless compensation is performance base
Identify the three levels of dividend received deduction
Own less than 20% - 70% DRD
Own 20%-80% - 80% DRD
Own more than 80% - 100% DRD
Deduction is limited to lesser of DRD or same percentage of taxable income before DRD
If DRD will create a NOL take ALL DRD ignore taxable income limitation
What are the requirements for filing a consolidated return?
Own 80% or more of subsidiary in voting power of all outstanding stock and value of all outstanding stock
All corporations in a group:
- Must have been members of an affiliated group at time during the year
- Each member must file a consent (act of filing a consolidated return is considered consent)
Identify the advantages if filing a consolidated return
- Capital losses of one corporation can offset capital gains of another
- Operating losses of one corporation can offset profits of another
- Elimination of tax in intercompany transactions
- Use of excess foreign tax by the corporation group
- Designation of parent company as agent for the group
Describe the corporate AMT
AMT rate is 20% on all AMTI
Exemption is. $40,000 less 25% in
AMTI over $150,000 (eliminated by $319,000)
It is the difference between AMTI and regular tax
Name the corporate adjustments to AMT
L- long term contracts diff between completed and % of completion +
I - installment sales by dealers +
E- excess depreciation post 1986
Name some corporate AMT preferences
P - percentage depletion +
P - private activity bonds +
P - pre 1987 accelerated depreciation +
What is the adjusted current earnings adjustment? ACE
75% of the difference between ACE and AMTI before this adjustment and alternative tax NOL deduction
M - municipal and state bond interest +
I - increase in life insurance CSV +
N - non S/L depreciation after 1989 vs ADS +
D - dividend received deduction on unrelated corporation 70% +
What is the accumulated earnings tax?
Is a tax on accumulated earnings beyond reasonable needs of the business
Corporations $250,000
Personal service $150,000
Tax rate is flat 15% of the unreasonable accumulated earnings
Use taxable income before:
- DRD
- charitable deductions
- NOL
- Capital loss carryover
Allowable excuses are:
- All charitable contributions
- All taxes paid
- All capital losses
- Dividends paid
Define a personal holding company
A PHC must meet both if the following:
*At any time during the last 6 months 50% or more of the corporation is owned by 5 or less individuals
*At least 60% if the adjusted ordinary gross income consist of:
N - net rents
I - interest income except tax exempt
R - royalties
D - dividend from unrelated domestic corporation
Penalty tax is 15% of the undistributed PHC income
The PHC is given 90 days to pay out the deficiency dividend
What is a personal service corporation? What is the tax rate?
A corporation primarily involved in the performance of: tax rate 35% Accounting Law Consulting Engineering Architect Health Actuarial science
What are the tax implications of a tax-free reorganization?
Non taxable except to the extent of boot received
