R3- Pt2-5 Flashcards by Nora Franco

How is an S-Corporation election made?

Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year

To make election, 100% of the shareholders must consent

Consent of New Shareholders - Not Req.

How well did you know this?

Not at all

Perfectly

How is an S-Corporation terminated?

50% of the shareholders must consent
Fails to meet any or all eligibility requirements
More then 25% of Gross Receipts come from Passive Income for 3 consecutive years
Had C-Corp E&P at end of each year
Effective immediately

How well did you know this?

Not at all

Perfectly

What items are not included in calculating an S-Corporation’s ordinary income?

These items are included on Schedule K, not in ordinary income:

Foreign Taxes paid deduction
No Investment Interest expense
Section 179 Deduction 
1231 Gain or Loss
Charitable Contributions
Portfolio Income (dividends or interest)

How well did you know this?

Not at all

Perfectly

How is S-Corporation shareholder basis calculated?

Beginning Basis
+Share of Income Items (including non-taxable income!)
+ Additional shareholder investments
-Distributions (cash or property)
-Non-deductible expenses
-Ordinary Losses (but don’t take income below zero)
= Ending basis

How well did you know this?

Not at all

Perfectly

What is the formula for an S-Corp Built-in Gains Tax?

FMV of Assets @ S-Corp Election Date
- Adjust. Basis of Assets
= Built-in Gain
x 35% Corporate Rate

How well did you know this?

Not at all

Perfectly

What are the requirements for holding S-Corporation status?

Domestic only
Up to 100 shareholders allowed
Only one class of stock allowed
Calendar tax year only

How well did you know this?

Not at all

Perfectly

What are the Eligible Shareholders for a S-Corporation

Only individuals, estates and trusts can be shareholders
No Foreign Shareholders
Corporations & Partnerships aren’t Eligible

How well did you know this?

Not at all

Perfectly

Built-in Gains resulted when 2 conditions occur:

A C-Corp elects S-Corp Status
&
The FMV of the Corporate assets exceeds the Adjusted Basis of the Corporate Assets on the Election Date

How well did you know this?

Not at all

Perfectly

S-Corporations are Exempt from a tax on ‘built-in gains’ under any circumstances:

The S-Corp was NEVER a C-Corp
Sale or transfer doesn’t occur within 10yrs
Demonstrate the appreciation occurred AFTER the S Election

How well did you know this?

Not at all

Perfectly

What is reported separately & Non-separately stated items in Net Income?

Separately: Income & Deductions

- Non-Separately: Business Income or loss

How well did you know this?

Not at all

Perfectly

How is Pass-through income allocated to Shareholders?

On a Per-Share, Per-Day Basis

How well did you know this?

Not at all

Perfectly

Pass-Through Losses are Limited to?

A shareholder’s Adjusted Basis in S-Corp stock
Plus direct shareholder loans to the Corp.
Shareholder Guarantees do not increase Basis

How well did you know this?

Not at all

Perfectly

Fringe Benefits are deductible for?

Non-Shareholder Employees

How well did you know this?

Not at all

Perfectly

Fringe Benefits are Non-deductible for?

Cost of Fringe Benefits for Shareholders owning over 2%

How well did you know this?

Not at all

Perfectly

Accumulated Adjustments Accounts Computes:

Tax Effects of distributions paid to shareholders of a S-Corp that has Accumulated E&P since inception

How well did you know this?

Not at all

Perfectly

What is the Tax result & Treatment for the 1st distribution to Shareholders NO C-Corp E&P?

Distribution is to extent of basis in stock
Not Subject to Tax, reduces basis in stock
Treatment is Return of Capital

How well did you know this?

Not at all

Perfectly

What is the Tax result & Treatment for the 2nd distribution to Shareholders wit NO C-Corp E&P?

Distribution in Excess of basis of stock
Taxed as long-term Capital Gain
Treatment: Capital Gain Distribution

What is the Loss Limitation Calc. for a Shareholder to deduct on their personal Tax Return?

Pro Rata Share in S-Corp

Basis
+ Direct shareholder Loans
- Distributions
= Loss Limitation

What is the Tax result & Treatment for the 1st distribution to Shareholders WITH C-Corp E&P?

To Extent of Acc. Adjustments Account
Not subject to tax, Reduces basis in Stock
Treatment: S-Corp Profits - Already taxed

What is the Tax result & Treatment for the 2nd distribution to Shareholders WITH C-Corp E&P?

To Extent of C-Corp E&P
Taxed as dividend, Does NOT reduce basis in stock
Treatment: Old C-Corp Taxable Dividend

What is the Tax result & Treatment for the 3rd distribution to Shareholders WITH C-Corp E&P?

To Extent of Basis of Stock
Not subject to Tax, Reduces basis in stock
Treatment: Return of Capital

What is the Tax result & Treatment for the 4th distribution to Shareholders WITH C-Corp E&P?

In EXCESS of Basis of stock
Taxed as Long-term Capital Gain
Capital Gain Distribution

When can a S-Corporation Re-Elect?

5 years after termination

- Unless IRS consents

To be Exempt, Organizations not included in ‘Section 501(c)(1) Must:

Written Application & Approval by the IRS
Become Incorporated
&
Issue Capital Stock

An Organization can lose 'Exempt Status" if:

- Engage in activities to influence Legislation | - Participate or intervene in Political Campaigns

What Organizations are EXCLUDED from Section 509 Private Foundations?

- Max. 50% Charitable deduction donees - Receiving more then 1/3 of their annual support from members - Supporting organizations - Public Safety testing Organizations

What is the Required Return for Private Organizations?

- Form 990-PF | - Discloses substantial contributors & amounts of contributions received.

Private Foundations will Involuntary terminate when?

They become Public Charities

Private Foundations will Voluntary terminate when?

- Achieved by notifying the IRS | - Status is not Permanent

Unrelated Business Income is?

- Derived from an activity that constitutes a trade/business & - Regularly carried on & - Not Substantially related to the Organization's tax-exempt purposes

Taxation Rules & Deduction Amount for Unrelated Business Income?

- Comply with code provisions regarding installment payments of estimated payments - $1,000 deduction, excess of is subject to tax

The Annual information Return for Unrelated Business Income states?

- Gross income, receipts, contributions, disbursements, etc - Required of most organizations exempt from tax & - Open to public inspection

What are the EXCEPTIONS of Unrelated Business Income?

- $50,000 or less gross receipts - Churches - High School- Religious - Religious Orders - Internal Support Auxiliary - Societies- Missionary related - Tax Exempt- Organized by Congress 'Christ'

What is a Controlled Taxpayer?

- Any one or two taxpayers owned or controlled directly or indirectly by the same interests & - Includes a taxpayer that owns or controls the other taxpayers

What is a Controlled Transaction (Transfer) ?

- Any transaction or transfer between 2 or more members of the same group of controlled taxpayers

What is Uncontrolled Comparable?

- The Uncontrolled transaction or Uncontrolled taxpayer that is compared.

What is a Comparable Uncontrolled Price (CUP)?

- Only for Tangible property Ex- Sales, purchases, leases - Based upon reference to published market data

What is a Comparable Uncontrolled Transaction (CUT)?

- Only for Intangible property | Royalty payments

What are the 3 circumstances in which Federal Law Prohibits State/Local from imposing a Net Income Tax for Interstate commerce?

- Business consists of solicitation of orders for sales of tangible personal property - Those orders are sent outside the state for acceptance or rejection - Orders accepted then, filled by shipments from a point outside the state

A Shareholder's basis in the stock of an S Corp is increased by the Shareholder's pro rata share of income from?

- Tax- Exempt Interest & - Taxable Interest

When must a tax exempt organization file a 990-T for Unrelated Business Income?

If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T

What are the requirements for a 501(c)3 organization?

Organized and Operated exclusively for exempt purposes No earnings can benefit an individual or private shareholder Cant attempt to influence legislation as a major part of its activities Cant campaign politically