R3- Taxation of a C Corporation

Question 1

What is the filing requirement for C Corp?

Answer 1

• March 15

- if YE 12/31

Question 2

What form to file for extension of return for a Corp?

Answer 2

Form 7004

6 month extension

Question 3

Who is required to follow accrual basis of accounting?

Answer 3

Accounting for purchases, sales and inventory
Tax shelters
Certain farming corporation
C Corporations
Trusts with unrelated trade or business income
Partnerships with C Corp as a partner with more than 5 millions gross receipts

Question 4

What are the statute of limitations for corporations?

Answer 4

same as individuals
3 yrs
6 yrs if 25% misstatement

Question 5

When is corporation required to pay estimated taxes?

Answer 5

• 15th of 4th month,6th month, 9th month and 12th month of the yr
• 1/4th is due with each payment
• unequal qtrly payments may be made using the annualized income method
• underpayment penalty if 500 or more

Question 6

What are the estimated payments requirement for Small Corporations?

Answer 6

a. 100% of tax shown on the current year return
or
b. 100% of tax shown on the preceding year return
if no return previous year, cannot used b

Question 7

What are the estimated payments requirement for Large Corporations?

Answer 7

100% of the current year tax return

Question 8

What is consolidated Returns?

Answer 8

A group of affiliated companies may elect to be taxed as a single unit
- to eliminated intercompany gains and losses

Question 9

What are the requirements for consolidated returns?

Answer 9

All Corporations must be-

i. members of an affiliated group at some time during the year
ii. each member must file a consent

Question 10

What is Affiliated Group?

Answer 10

means that a common parent directly owns-

1. 80% or more of the voting power of all outstanding stock
2. 80% or more of all the value of all outstanding stock of each corporation

Question 11

Consolidation rules for GAAP and TAx?

Answer 11

GAAP =50% Ownership

TAx= 80-100% Ownership

Question 12

What are the rules for Corp Taxation?

Answer 12

Regular taxable Income
Adjust for a LIE
Add back Preferences PPP
MIND=ACE Adjusted Current Earnings

Question 13

What are the adjustment for corp taxation?

Answer 13

Adjust for a LIE
L=Long term Contracts
I=Installment sale dealer
E=Excess Depreciation post 1986

Question 14

What are the preferences addback for Corp Taxation?

Answer 14

PPP
P=Percentage Depletion
P=Private activity - Tax Exempt interest income
P=Pre 87’ ACRS Depreciation

Question 15

What is ACE?

Answer 15

MIND= ACE

Adjusted Current Earnings

Question 16

What is Long Term Contracts Adjustement in LIE? Explain

Answer 16

LIE=Adjustments
Long Term Contracts- calculate the difference between revenue calculated under the completed contract method and revenue calculated under percentage completion method

Question 17

What is Installment Sale Adjustment? Explain

Answer 17

An adjustment is calculated for the difference between full accrual revenue and installment sales revenue

Question 18

What is Excess of Depreciation of tangible property placed in service after 1986? for LIE

Answer 18

a. Straight line for real property using a 40 yr life
OR
b. 150% declining balance for personal property using the applicable class life

Question 19

What is ACE Adjusted Current Earnings?

Answer 19

M=Municipal Bond interest
I=Increase Life Insurance CSV
N=NOn-Straight Line depreciation after 1989 vs ADS
D=Dividend REc’d Deduction

Question 20

What is the exemption amount for corp AMTI?

Answer 20

$40,000
Less: 25% of AMTI in excess of $150,000
=Exemption amount

Question 21

What is the rate of AMT for Corp?

Answer 21

20%

Question 22

What are the credits available to a Corp?

Answer 22

Foreign tax Credit

Question 23

What is the Minimum TAx Credit?

Answer 23

1. Credit against future regular tax

2. Carryforward indefinitely, not carryback

Question 24

What is Accumulated Earning tax?

Answer 24

• is a tax imposed on C Corps
• whose accumulated earning are in excess of 250,000
• if improperly retained
• instead of being distributed as dividends to SHs
• is not a self assessed tax, it is IRS Assessed

Question 25

What are the limitations for accumulated earnings?

Answer 25

C Corp- 250,000 of lifetime earnings
Personal Service Corporation- 150,000 of earnings
No Accumulated earnings tax on- personal holding companies, tax-exempt corporations or passive foreign investment corporations

Question 26

What is the rate of Accumulated Earnings tax?

Answer 26

Flat 15%

Question 27

What should one do to avoid Accumulated Earnings tax?

Answer 27

give valid excuses

a. demonstrate specific, definite and feasible plan for use of accumulated profits
b. a need to redeem the corp stock in a deceased SH gross estate

Question 28

What is a Personal Holding Company?

Answer 28

Corporations which are 50% owned
by 5 or fewer individuals
either directly or indirectly
at any time during the last half of the yr
and having 60% of adjusted original gross income
consisting of- NIRD
N-Net Rent
I-Interest that is taxable( non-taxable is excluded)
R-Royalties
D-Dividends from an unrelated Corp i.e. 20% ownership

Question 29

Personal Holding Companies have additional taxes

Answer 29

-Additional 15% of net income, not distributed
-Taxable income has to be reduced by federal income taxes and net long term capital gain
-PHCs are not subject to accumulated earnings tax
-tax is self assessed
by filing Schedule 1120PH with Form 1120

Question 30

What are Personal Service Corporations?

Answer 30

• is involved in accounting, law, consulting, engineering, architecture, health
• PSCs ar denied the right to use the graduated corporate rate
• they pay flat 35%