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REG > R4 > Flashcards

R4 Flashcards

1
Q

Corporation basis of property received=

A

Greater of:
Adjusted basis of transferor (plus [gain] cash received by transferor)
OR
Debt assumed by corp

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2
Q

No G/L on property contributed to corp if shareholder:

A

Transferors own at least 80% of stock after transaction
(shareholder who only contributes services is not included)
AND
No Boot received

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3
Q

Basis of common stock received by shareholder:

A

Cash= amt contributed
Property contributed= adj basis (NBV)
Services=FV (taxable as ordinary income)
*Less any gain recognized by the shareholder

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4
Q

Amount of gain recognized on property contributed=

A

Lesser of:
Boot received (cash or excess [over adj basis] debt put in)
AND
Realized gain (property received- adj basis)
((shareholders basis-boot))

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5
Q

Business entities that can have 1 owner

A

Sole proprietorship, corporation, limited liability corporation
*Partnership must have 2

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6
Q

Entity with the most flexibility in choosing an accounting period:

A

C- corporation: same choice of accounting periods as individuals

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7
Q

Accrual basis of accounting is required for:

A

-Corporations with inventory
-tax shelters
-farming corporations
-C-corporations (when >$5 mill avg annual gross receipts for 3 yr period)
Manufacturer

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8
Q

May use the cash method of accounting:

A

-Personal service corporations

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9
Q

Book income –> taxable income

A

Book income
Plus: Federal income tax expense
Less: Excess of tax amortization over book impairment of goodwill
Taxable income

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10
Q

Charitable contribution for corporations

A

Max deduction of 10% of taxable income before:

  • charitable contribution
  • dividends received deduction
  • NOL carryback
  • capital loss carryback
  • U.S. domestic production activities deduction
  • *Add these back to income
  • 5 yr carryforward
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11
Q

Accrual basis corp can deduct when:

A
  • Authorized before year end

- Paid by the 15th day of the 4th month after the yr of accrual

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12
Q

Eligible organizational/ Start-up cost deductions:

A
  • Legal services, accounting services and fees paid to the state of incorporation
  • NOT included: costs to issue and sell stock & incurred in transfer of assets
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13
Q

Dividends received deduction:

A

70%: Unrelated entity (0%-<20%)
80%: (20%-<80%)
100%: Affiliated companies (>80%)
*Deduction=lesser of dividends received or taxable income
-Include dividends in income then take deduction
-Must own stock for at least 45 days

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14
Q

Organizational/ Start-up cost deduction calculation:

A
  • $5,000 for each
  • Excess amortized over 180 months (15 yr)
  • Deduction in yr 1= $5000 + amt to amortize
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15
Q

Income before special deductions=

A

Excludes dividends received deduction

full amt of dividends are added as income

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16
Q

Treatment for Net Long-term loss for corps:

A

*Not deductible in current yr, only to offset gains
-carried back 3 yrs, carried forward 5 yrs
($3000 deductions for individuals does not apply!)

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17
Q

Deduction of advertising expenses:

A

deduct currently as ordinary and necessary business expenses

No amortization

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18
Q

LIFO method:

A
  • Inventory on hand at the end of the yr is treated as being composed of the earliest acquired goods
  • Must be elected in first yr used
  • Must use same method for FS
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19
Q

Insurance on an officer’s life where corp is the owner and beneficiary:

A
  • Premiums are non deductible

- Proceeds from insurance are not includable in income

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20
Q

Group term life insurance with employees as owners and beneficiaries:

A

-Premiums paid are deductible

=fringe benefit

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21
Q

Deducting bad debts:

A

-Must use charge- off method if not a financial institution

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22
Q

Taxable income when bad debt is not written off:

A

Add back bad debt expense

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23
Q

Nondeductible business expenses:

Add back to find reportable taxable income

A
  • Bad debts (allowance method)
  • Business meals & entertainment (50%)
  • Political contributions
  • Executive contributions >$1 mill per yr for CEO
  • Federal income taxes
  • Penalties
  • Estimated liabilities for contingencies (warranties)
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24
Q

Subtract to find reportable taxable income:

A
  • Amortizable amount of organizational expenditures (amt after 5,000)
  • Interest from municipal bonds (add back interest exp to carry bonds)
  • Dividends received deduction
  • Depreciation greater than amt on FS
25
Q

Actual warranty cost incurred=

A

Beginning warranty reserve
Add: estimated warranty expense
Less: ending warranty reserve

26
Q

Treatment of income and expenses from illegal activity

A
  • Gain included in income

- Cost of merchandise is only deductible exp

27
Q

Personal holding company

A

-corps with >50% of stock owned by 5 or fewer individuals
AND
-at least 60% of income is personal holding income
(net rent,taxable interest,royalties,dividends)
*taxed an additional 20% on net income not distributed
(stock ownership test=50%, income test=60%)
*Shareholder considered to own stock of family
–not in-laws, aunts, nephews, cousins or former spouses

28
Q

Accumulated earnings tax

A

Penalty tax on C corps when:

  • accumulated earnings> $250,000 (=credit)
  • Additional tax rate = 20%
29
Q

Personal service corp:

A

-Primarily involved in providing a service to customers
(Accounting,law consulting,engineering)
-penalty when accumulated earnings > $150,000
-Flat tax rate of 35%

30
Q

How to eliminate/ reduce accumulated earnings tax:

A
  • demonstrate “reasonable needs” (a plan)

- pay out dividends by April 15th (may be consent dividends)

31
Q

General business credit

A
  • combines several nonrefundable tax credits

- provides uniform rules for current and carryback yrs

32
Q

Which entities must include 100% of dividends from unrelated taxable domestic corps:

A

-dividends are fully includable in gross income for all corps

33
Q

No penalty tax for corp if liability is under:

A

$500

1,000 is for individuals

34
Q

Corps must pay the LESSER of for no penalty tax:

A

100% preceding yr (unless no tax was owed)
OR
100% current yr

35
Q

Corporate AMT rate and exemption amt:

A

Rate= 20%
Exemption= $40,000 minus (25% of AMTI over $150,000)
Exemption completely eliminated at AMTI of $310,000

36
Q

Corporate AMT preferences:

A
  • percentage depletion
  • private activity bonds
  • Pre-1987 ACRS excess depreciation
37
Q

Corporate AMT adjustments:

A
  • Adjustments for G/L
  • Long-term contracts
  • Installment sales
  • Excess depreciation
38
Q

AMT=

A

Excess of TMT over regular tax liability

-payable in addition to regular tax

39
Q

Effect of unfavorable adjustments on AMTI

A

Increase AMTI (add back to increase income like preferences)

40
Q

Tentative minimum carryforward=

A

Excess of TMT over regular liability

-can only be used to offset a corporation’s regular tax liability (when not subject to AMT in that yr)

41
Q

Requirements to file a consolidated return:

A

All corporations in group must:

  • have been members of an affiliated group at some time during the tax yr
  • each member must file a consent (consolidated return)
42
Q

Affiliated group=

A

Common parent directly owns:
-80% or more of VOTING power of all outstanding stock
AND
-80% or more of the VALUE of all outstanding stock
*only group that may file consolidated corp return

43
Q

Advantages of filing a consolidated return:

A
  • capital and operating losses of one corp can offset gains of another
  • elimination of tax on intercompany transactions
  • intercompany dividends are 100% eliminated
44
Q

Treatment of corporate capital gains:

A

-taxed the same as ordinary corp income (no special rates like for individuals)

45
Q

Treatment of corporate capital losses:

A
  • may not deduct capital losses from ordinary income
  • deductible to extent of capital gains
  • may be carried back 3 years and forward 5 as SHORT TERM losses
46
Q

Net operating loss carryback/forward rules:

A

Back 2, forward 20
“Hindsight is 20/20”
-same as individuals

47
Q

Order of allocation for cash distributions from a corp:

A

1-current E&P (taxable)
2-accumulated E&P (taxable)
*1 & 2 considered dividends
3-return of capital (tax free&reduces basis)
4-capital gain distribution (taxable as capital gain)

48
Q

Calculation for accumulated earnings and profits at yr end:

A

Beginning deficit in accumulated E&P
Plus: current yr E&P
Less: amt distributed
End of yr accumulated E&P

49
Q

Losses from worthless section 1244 (small business) stock:

A
  • treated as an ordinary loss up to $50,000 ($100,000 MFJ)
  • excess loss is capital
  • *only applies to OG owner of stock
  • 53,000/103,000 loss deductible as ordinary income per yr
50
Q

G/L recognized by shareholders when corp distributes assets in liquidation:

A

-recognized G/L to extent FMV of assets received exceeds adjusted basis of stock

51
Q

G/L recognized by corp when corp distributes assets in liquidation:

A
  • recognizes G/L as if they sold asset @ FMV (use basis)
  • loss not recognized/deducted, only gains
  • inventory not included
52
Q

Shareholder recognition of property dividend:

A

-includes FMV of property in income as a dividend to the extent of E&P (plus any gain on distribution itself)

53
Q

Corp recognition of property dividend:

A
  • as if property has been sold (FMV-basis)
  • corp gain= increase of E&P (taxable)
  • taxable when appreciated property
54
Q

Stock dividends

A

-generally not taxable (unless shareholder has decision to receive other property)

55
Q

Type of G/L recognized by a shareholder in complete liquidation:

A
  • Capital G/L (amt excess of E&P)

- treated as full pymt for their stock

56
Q

Type A reorganization=

A

Mergers/ Consolidation

  • taax-free to shareholders and corps
  • No G/L unless other consideration is received
57
Q

E&P is first allocated to:

A
  • preferred dividends

- chronologically by pymts in yr

58
Q

Basis of land received from a subsidiary=

A

carryover basis

59
Q

Recognized gain when liability assumed is greater than the property’s FMV:

A

Gain=amt of liability-basis

-liability amt becomes the FMV

REG (12 decks)

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