R3 - C Corporations

Question 1

What is the corporation’s basis in an asset the greater of?

Answer 1

Shareholder NBV and liability assumed

Question 2

What is the percentage used for the domestic production deduction?

Answer 2

9%

Question 3

What items are includable in start-up costs? Not includable?

Answer 3

Includable are legal, accounting, state fees and not includable are stock fees (commissions/underwriter) and asset transfer costs

Question 4

What amount of start-up costs may be immediately deducted?

Answer 4

$5,000 and the rest amortized over 15 years

Question 5

If a building is partially destroyed, what is the treatment?

Answer 5

Lesser of:
a) decline in FMV
b) adjusted basis of property immediately before casualty
Fully destroyed = adjusted basis

Question 6

What is the tax treatment for intangibles?

Answer 6

Amortized over 15 years

Question 7

What is the maximum amount of business gifts that may be deducted per person per year?

Answer 7

$25 per recipient per year

Question 8

T/F: Bribes to officials are tax deductible

Answer 8

False; bribes, kickbacks, fines, penalties and other illegal payments are not deductible

Question 9

What is the capital loss carryback/forward rules for corporations?

Answer 9

Back 3 years and forward 5

Question 10

What is the NOL carryback/forward rules for corporations?

Answer 10

Back 2 and forward 20

Question 11

What percentages of deduction are used for the dividends received deduction?

Answer 11

Ownership % = dividends received deduction %
> 20% = 70%
20 - 80% = 80%
< 80% = 100%

Question 12

What types of entities are not eligible for the dividends received deduction?

Answer 12

“Don’t take it personally”
Personal service corporations
Personal holding companies
(Personally taxes) S corporations

Question 13

What amount is used in calculating the dividends received deduction?

Answer 13

Lesser (usually) of:
Dividends received x deduction %
Taxable income x deduction %
Unless you’re a loser, then its the bigger one (if it will create a NOL)

Question 14

When is an 1120 due?

Answer 14

March 15 (for a December 31 year-end)

Question 15

When are corporate tax estimates due?

Answer 15

April 15, June 15, September 15, December 15 (for a December 31 year-end)

Question 16

What amount must a small corporation pay in estimated tax?

Answer 16

100% of PY tax (unless 0 or less than full year) or 100% of CY tax

Question 17

What is the definition of a large corporation and what amount must they pay in estimated tax?

Answer 17

A coroporation with over $1m of taxable income and they must pay 100% of CY tax

Question 18

Which long-term contract method must be used for corporate AMT?

Answer 18

The percentage-of-completion method must be used for corporate AMT

Question 19

What is the exemption amount for AMT for corporations? Is it phased out?

Answer 19

The AMT exemption for a corporation is $40,000 and is phased out as 25% of the excess over $40,000 (thus being completely phased out at $310,000)

Question 20

What is the only tax credit available for corporate AMT?

Answer 20

Foreign tax credit (“it’s foreign to me”)

Question 21

How long may the minimum tax credit (MTC) be carried forward?

Answer 21

Indefinitely forward, but never back

Question 22

What items of adjusted ordinary gross income are included to determine if the 60% threshold has been met to qualify a corporation as a personal holding company?

Answer 22

NIRD
Net rents
Interest income (taxable)
Royalties
Dividends

Question 23

What are the two ways to liquidate a corporation?

Answer 23

Sell assets and distribute cash (both subject to tax) OR distribute assets (also both subject to tax)

Question 24

T/F: Long-term capital losses can offset short-term capital gains in a corporation

Answer 24

True

Question 25

T/F: A corporation’s capital loss carryback or carryover is always treated as a short-term capital loss

Answer 25

True

Question 26

T/F: When Section 1244 stock becomes worthless, the loss to the second shareholder is treated as an ordinary loss

Answer 26

False; it is only the original owner and the limit is $100,000 (MFJ), $50,000 for Single

Question 27

In running an illegal business, what is the only deduction allowable?

Answer 27

Cost of merchandise (COGS)

Question 28

T/F: Rents received in advance are allocated as income to the period in which they apply

Answer 28

False; they are included in income when received

Question 29

T/F: Charitable contribution limits (10%) are deducted prior to recognizing the dividends received deduction

Answer 29

True; also NOL carrybacks, capital loss carrybacks and DPAD

Question 30

When real value of an estimated amount is made known in a subsequent year, what is done with the difference?

Answer 30

It is included in the current year return

Question 31

T/F: The imposition of the accumulated earnings tax does not depend on the number of shareholders a corporation has

Answer 31

True

Question 32

T/F: When property is contributed to form a corporation, it is contributed at its FMV, not at its adjusted basis

Answer 32

False; it is contributed at its adjusted basis, not FMV

Question 33

T/F: Formation of a corporation by contributing property (or cash) is a nontaxable transaction, even if the FMV of the contributed property is greater than its adjusted basis

Answer 33

True

Question 34

What are the qualifications for a corporation to be considered a personal holding company?

Answer 34

Five or fewer shareholders own 50%+

60% or more of the income is investment income (NIRD)

Question 35

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

Answer 35

A capital gain or loss

Question 36

How much is the lifetime accumulated earnings credit?

Answer 36

$250,000

Question 37

T/F: Total taxable income is calculated before the deduction of any charitable contributions, the dividends received deduction, any net operating loss carryback, or any capital loss carryback

Answer 37

True

Question 38

What is the order of E&P distributions?

Answer 38

Current then accumulated

Question 39

If there are more than one distribution in the current year, how is the percentage of current vs. accumulated E&P calculated?

Answer 39

% of distribution to total x current

and the remainder will be from accumulated (until depleted)