R3 C & S Corp and Exempt Orgs (T)

Question 1

C Corporation Capital Loss Treatment

Answer 1

Net capital losses are carried backwards 3 years and forward 5 years. They are carried over as short-term capital losses and applied only against capital gains

Question 2

Worthless Stock - Section 1244 Stock (small business stock)

Answer 2

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

Question 3

Personal Holding Companies (PHC)

Answer 3

Corporations more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of net rent, interest that is taxable, royalties, or dividends from an unrelated domestic corporation

Question 4

Composition of Gross Income to be deemed PHC (NIRD)

Answer 4

Net rent (if less than 50% of ordinary gross income)
Interest that is taxable (nontaxable is excluded)
Royalties (but not mineral, oil, gas, or copyright royalties); or
Dividends from an unrelated domestic corporation

Question 5

Additional Tax Assessed to PHCs

Answer 5

Corporations deemed to be personal holding companies are taxed an additional 20% on personal holding company net income not distributed

Question 6

Penalties and Illegal Activies

Answer 6

Bribes, kickbacks, fines, penalties, and other payments that are illegal under federal law or under a generally enforced state law are not deductible.

Question 7

Entities that must use Accrual Basis of Accounting for Tax Purposes

Answer 7

The general rule is that the accrual basis of accounting will be required by tax shelters, large C corporations, and manufacturers

Question 8

Amortization, Depreciation, and Depletion for Coroporations

Answer 8

Goodwill, covenants not-to-compete, franchises, trademarks, and trade names must be amortized on a straight-line basis over a 15 year period beginning with the month such intangible was acquired

Question 9

Corporation Distributes Assets to Shareholders in Liquidation

Answer 9

Shareholders recognize gain or loss to the extent of FMV of assets received exceeds the adjusted basis of stock

Question 10

Shareholder contributes property in exchange for corporation common stock

Answer 10

No gain or loss if the following two conditions have been met:
80 percent control
Boot not involved

Question 11

Basis of Property (corporation receives)

Answer 11

The general rule is that the basis of the property received from the transferor/shareholder is the greater of
Adjusted basis (net book value)
Debt assumed by corporation

Question 12

Dividends Received Deduction

Answer 12

Requirements
1st corporation is taxed
Owned 45 days before or after
Dividend income
100% (own 80% to 100%)
80% (own 20% - under 80%)
70% (own under 20%

Question 13

Limitations of Dividend Received Deduction

Answer 13

Limited to the percentage of Gross income less deductions and contributions to charity

Question 14

Charitable Contributions for Corporations

Answer 14

Corporations making contributions to recognized charitable organizations are allowed a maximum deduction of 10% of their taxable income. Any disallowed charitable contributions may be carried forward for five years. Any accrual must be paid within 2 1/2 months of taxable year

Question 15

Accumulated Earnings Tax

Answer 15

Imposed on regular C corporations whose accumulated (retained) earnings are in excess of $250,000 if improperly retained instead of being distributed as dividends to high tax bracket shareholders. The additional tax rate for accumulated earnings is 20%

Question 16

General Business Credit

Answer 16

A combination of several tax credits to provide uniform rules for the current and carryback-carryover years

Question 17

Type A Reorganization

Answer 17

Mergers or consolidations

Question 18

Type B Reorganization

Answer 18

The acquisition of one organization of another corporation’s stock, stock for stock

Question 19

Organizational Expenditures

Answer 19

The organization may elect to deduct up to $5,000 of organizational expenditures and $5,000 of start-up costs. Each $5,000 amount is reduced by the expenditure exceeds $50,000. Any excess are amortized over 180 months