R4 - Corporate Taxation

Question 1

What is the general rule for basis of property received by a corporation?

Answer 1

Greater of:
Transferors adjusted basis (plus any gain recognized)
OR Debt assumed by corporation

Question 2

Under IRC section 351 - what conditions must be met for Shareholder to have no gain or loss for contributing property in exchange for common stock?

Answer 2

Control 80% of the stock and

No receipt of boot (cash or relief of debt)

Question 3

What gain or loss does shareholder recognize if boot is received when contributing property to a corporation?

Answer 3

LESSER of boot received (cash or liability relieved in excess of NBV)
OR realized gain.

Question 4

Shareholder Y contributed land worth $70K to a corporation. The adjusted basis was $40K, plus corporation paid $20K of cash to Y. What is the corporation’s basis in the land?

Answer 4

$60K.

$40K adjusted basis + $20K cash paid to secure land.

Question 5

What are the limitations for corporate charitable deductions and what are the carry forward rules?

Answer 5

Maximum deduction of 10% of taxable income.

Disallowed contribution can be carried forward for 5 years.

Question 6

What is the tax treatment of corporate organizational costs?

Answer 6

Deduct up to $5K in year 1
Remaining costs amortized over period of 180 months.
Only organizational costs, not cost of printing stock.

Question 7

What amount of capital losses in excess of of capital gains can a C-Corp deduct?

Answer 7

$0 - unlike individual losses of $3K

Capital losses can be carried back 3 years or forward 5 years and applied against capital gains

Question 8

What is the % of Dividends received deduction based on percentage ownership of stock?

Answer 8

Under 20 % owned = 50% DRD
20% to 80% owned = 65% DRD
80% or more owned = 100% DRD

Question 9

What is deductible and taxable for life insurance for corporations?

Answer 9

• Premiums for life insurance are deductible, as long as the employee’s family is the beneficiary.
• Key man insurance where the corporation is the beneficiary are NOT deductible
• Life insurance proceeds to the corporation are NOT taxable income

Question 10

What is deductible for accrued amounts owed to a related party?

Answer 10

Expenses owed by an accrual basis corporation to a cash basis shareholder who own at least 50% of the corporation’s stock are not deductible by the corporation until the expense is actually paid in cash to the shareholder.

Question 11

What are the two criteria to determine if a company is a personal holding company?

Answer 11

1) More than 50% of stock owned by 5 or fewer individuals
2) At least 60% of the adjusted ordinary gross income must be investment income (not including interest on tax-exempt obligations)

Question 12

What type of corporation is primarily involved in the following fields:
Accounting, law, consulting, engineering, architecture health, actuarial science?

Answer 12

Personal Service Corporation

Question 13

What gain/loss does a shareholder recognize in a liquidating dividend?

Answer 13

Recognize gain/loss to the extent that the FMV of asset exceeds the SH basis in stock

Question 14

What is taxable dividend income to a SH paid with a dividend of property?

Answer 14

Taxable to the taxpayer to extent of FMV of property, but not in excess of the current and accumulated earnings and profit of distributing corp.

Question 15

What is the usual tax effect to SH of a distribution in complete liquidation of a corporation?

Answer 15

Capital gain or losses. Treat it as a full payment for their stock.

Question 16

What is the tax effect of a liquidation of an 80% or more owned subsidiary?

Answer 16

Assets transferred to the parent of the liquidating corporation generally have a carryover basis.

Question 17

How are dividend payments treated between preferred SH and common SH?

Answer 17

Preferred SH get paid on preference percentage - all payments are presumed to be dividend income.
Common SH are residual owners of corp. If their dividends are in excess of E&P, then it is treated as return on capital.

Question 18

How are multiple SH dividends allocated between current year E&P and accumulated E&P?

Answer 18

• Current earnings and profits are allocated on pro rata basis, regardless of timing
• Accumulated E&P are applied based on chronological order of payments
• Dividends beyond accumulated E&P are treated as return of capital

Question 19

What is the carry back/forward period for a C-Corp net capital losses?

Answer 19

-Carried back 3 years, forwards 5 years