R4 - Corporate Taxation

Question 1

What is the corporation basis of property received from its shareholders?

Answer 1

The general rule says that basis is the greater of:
1. Adjusted basis of shareholder giving the property
(+) gain recognized if any
(+) cash paid for the property

OR

2. Debt assumed by the corporation.

Question 2

What is the shareholder’s recognized gain when it transfers property to the corporation and receives boot?

Answer 2

Recognized gain is the lesser of boot received or realized gain.
Memory tip: Like Like-Kind!

Question 3

What is boot in Corporation formation?

Answer 3

Cash or debt securities.

Question 4

What happens when a shareholder transfers property subject to liability and this liability is greater than the property’s adjusted basis?

Answer 4

The shareholder will recognize gain for the excess liability.

Question 5

What is the shareholder basis calculation?

Answer 5

(+) Cash contributed 
(+) NBV of prop contributed
(+) Services (FMV)
(+) Gain recognized
(-) Cash distributed (to SH)
(-) Liabilities assumed by corp 
(-) Non money boot received
(=) BASIS; if <0, then basis = 0 and recognize gain (can't be negative)

Question 6

What are the two conditions that must be met by a transfer of property to avoid gain recognition?

Answer 6

1. 80% control.

2. Only transfer property for stock (not services).

Question 7

Who is required to use the accrual method of accounting?

Answer 7

1. Tax Shelters.
2. Large C Corps (Avg Sales>26M).
3. Manufacturers.

Question 8

What are the deductions not included in taxable income for the purposes of calculating the Charitable Contribution limitation?

Answer 8

1. DRD
2. NOL
3. Charitable Contributions.
4. Capital loss carryback

Question 9

What are the DRD % ownerships?

Answer 9

0% to 20% —> 50% DRD
20% to 80% —> 65% DRD
80% to 100% —> 100% DRD

Question 10

How is Accumulated Earnings Tax calculated?

Answer 10

Taxable Income
(-) Charitable Contributions
(-) Cap Loss Carryover
(-) Taxes 
(-) Dividends Paid
(-) Credit*
(=) Current Accum Taxable Income

Then multiply by 20% AET rate.

Question 11

What is the credit in the AET formula?

Answer 11

Credit = Lifetime Credit - (Beg E&P - Corp Needs)

Question 12

What are the Types of Tax-Free Reorgs?

Track Day - MSSSRC

Answer 12

A = Mergers or Cons
B = Stock for Stock 
C = Stock for Assets
D = Split Corps/Dividing Corps
E = Recaps
F = Change of ID

Question 13

What are the E&P netting rules?

Answer 13

1. CY E&P and Accum E&P are positive = No problem
2. CY E&P and (Accum E&P) = Distributions are dividends to the extent of current E&P only.
3. (CY E&P) and (Accum E&P) = Distributions are not dividends at all.
4. (CY E&P) and Accum E&P = The two amounts are netted.

Question 14

What is the general rule of corporations paying dividends?

Answer 14

Paying dividends is not a taxable event for the corporation, but a reduction in Retained Earnings.

Question 15

What is the corporation gain if it distributes property?

Answer 15

FMV of property distributed
(-) NBV
(=) Corp gain

Question 16

What is the DRD deduction limitation?

Answer 16

Lesser of:

1. DRD calc; OR
2. 50% of DRD Modified Taxable Income

Question 17

How is rent revenue treated under the accrual basis method of accounting?

Answer 17

Receipts + Increase - Decrease of AR!!!!

Question 18

What are the two requirements for a corp to be a PHC?

Answer 18

1. > 50% stock owned by 5 or less ppl.

2. At least 60% of ordinary gross income is investment income.

Question 19

What are the fields that make a PSC?

AAALECH

Answer 19

Accounting = JCPA
Actuarial Science = Insurance
Architecture = Howie
Law = Callie Adams Foster
Engineering = Mariana Adams Foster
Consulting = BDO Neel
Health = Maria Esperanza

Question 20

What is DPD for a PHC?

Answer 20

Dividends Paid Deduction: Consent + Actual dividends

Question 21

What is undistributed PHC income?

Answer 21

Taxable income - Fed Tax - Net LTCG