R4 - Corporate Taxation

Question 1

C Corp - when is there no G/L recognized by Corp issuing stock in exchange for property

Answer 1

1. Formation - issuance of common stock
2. Re acquisition - purchase of treasury stock
3. resale - sale of treasury stock

Question 2

Rules for NOLs for Corps

Answer 2

Pre 12/31/17: CB 2 yrs, CF 20 yrs
Post 12/31/17: CB not allowed, CF forever
- no Charity deduction is allowed when calculating NOL
- NOL deduction is limited to 80% of taxable income (post 12/31/17)

Question 3

Capital Losses - Coporations

Answer 3

• CB 3 yrs, & CF 5 yrs
• Can only be applied against capital gains
• NO deductible amount. No distinction between ST/LT
• Capital gains are taxed at the regular tax rate

Question 4

Charitable contribution - corporation

Answer 4

• Limited to 10% of taxable income
• Must be accrued & paid by April 15th
• CF 5 years
• Total taxabile income for limit calculation is before:
  1. Any charitable contribution deduction
  2. the DRD
  3. Any capital loss CB

Question 5

Property dividends

Answer 5

GR: payment of dividend does not create taxable event for org.
- Exception: property dividends!
FMV property
(NBV)
= Corp Gain (no loss allowed)
- Corp gain increases E&P
- Dividend is taxable to extent of E&P

Question 6

Business interest expense deduction

Answer 6

• Limited to 30% of business income, excluding interest income, before depreciation & interest expense deductions (basically EBITDA)
• Disallowed interest expense can be CF forever

Question 7

Basis of Property Corporation Receives (from SH)

Answer 7

GR: basis from transferor/SH is greater of:

1. Transferor/SH’s adjusted basis (NBV) of property plus any gain recognized by the transferor/SH, or
2. The debt assumed by the corp (reduced by cash given to the corp)
   * **If corp pays any boot, must add this to their adjusted basis

Question 8

Recognition of gain from boot received (Liabilities ? here)

Answer 8

• Items that will trigger gain are cash & excess liabilities put in
  Total basis assets contributed (cash included)
  (liabilities)
  = Excess liability = gain

Question 9

SH’s basis in CS (after contributing property)

Answer 9

Adj basis of transferred property (including cash)
+FMV services rendered
+Gain recognized by SH
(Cash received)
(Liabilites assumed by corp)
(FMV of nonmoney boot received)
= Basis of Common Stock
- GR: SH who contributed property & receives boot must recognize gain lesser to 1) cash received or 2) realized gain

Question 10

Rules for Foreign Tax Credit

Answer 10

• A corp may choose annually to take either credit or deduction
• CB 1 year, CF 10 years
  1. Determine qualified foreign taxes paid
  2. Compute foreign tax credit limitation:
  a. WW income * US Statutory rate
  b. Ratio of foreign source income / WW income
  c. A * B = limitatinon
  3. Credit is lesser of #1 or #2

Question 11

Worthless stock (Section 1244 Stock)

Answer 11

• When Corp’s stock becomes worthless, an original (first 1M) SH can be treated as having an ordinary loss (fully tax deductible)
• Up to 50K S or 100K MFJ
• Any excess over limitation is capital loss

Question 12

DRD

Answer 12

• Domesitc corps are allowed DRD based on qualified income
• Purpose is to prevent triple taxation, must own 46 days
  % ownership: DRD
  0 < 20% 50%
  20 -< 80% 65%
  80% or more 100%
• Taxable income limitation: DRD equals the lesser of
  1. 50% (or 65%) of dividends received, or
  2. 50% (or 65%) of taxable income computed w/o regard to the DRD, any NOL CF, or any capital loss CB (include dividend income)
• Exception to limit: if DRD creates NOL, you can use #1

Question 13

Accumulated Earnings Tax (penalty tax)

Answer 13

Taxable income (before DRD, NOL, charity deduction, capital loss CF)
(All Charity)
(all capital losses)
(taxes) Federal
(Dividends paid) (during tax yr before 3.5 mo. consent)
= Accumulated taxable income
(remaining credit) 250K C Corp or 150K PSC
= current accumulated taxable income
* 20%
= Accumulated earnings tax

Question 14

Corporate Liquidation: 2 forms

Answer 14

1. Corp sells assets & distributes cash to SH –> corp recognizes G/L on sale of assets, & SH recognize G/L to extent cash exceeds adjusted basis of stock
2. Corp distributes assets to SH’s –> corp recognizes G/L as if it sold assets for FMV, & SH recognize G/L to extent that FMV of assets received exceed adj basis of their stock

Question 15

Small Business Stock (for gains)

Answer 15

• A noncorporate SH, who has held stock for > 5 years may exclude 100% of gain on sale of exchange of stock.
• Max exclusion is greater of:
  1. 10 times the TP’s basis in the stock, or
  2. 10M
• Qualifications: acquired at original issuance, C Corp only (not S)