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REG > R5 > Flashcards

R5 Flashcards

1
Q

Shareholder’s basis is affected by

A

Both separately and non separately stated items on the K1

Adjusted in the following order:

  • increased for income items and excessive depletion
  • decreased by distributions
  • decrease for nondeductible,non-capital expenses and depletion
  • decreased for items of loss and deduction
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2
Q

Election for S Corp status:

A
  • All shareholders must consent (unanimous not majority)
  • to be valid for entire current yr, election must be made on/ before March 15th or will not be considered S corp until 1/1 of following yr
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3
Q

S corp income is allocated among shareholder’s:

A

On a per day, per share basis

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4
Q

S Corp status will terminate when:

A
  • Holders of a majority of the stock consent to voluntary termination
  • Corporation fails to meet any of the eligibility requirements
  • More than 25% of the corp’s gross receipts come from passive activities for 3 consecutive yrs
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5
Q

Eligibility requirements of an S Corp:

A
  • Domestic Corp
  • One class of stock (differences in voting rights allowed)
  • Shareholders must be individuals, estates or trusts
  • 100 shareholder limit
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6
Q

Items separately listed on Schedule K:

A
  • Ordinary income (=nonseparately stated income)
  • Rental income/loss {not rent exp}
  • Portfolio income
  • Section 1231 G/L
  • Charitable contributions
  • Section 179 deduction
  • Foreign taxes
  • Tax-exempt interest
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7
Q

Net business income

A

Non-separately stated- Ordinary income

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8
Q

Unrealized built-in gain:

A

When a C corp becomes an S corp & FMV of assets exceeds the adj basis of assets @ election date
**Only if originally held C corp status

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9
Q

How much loss can shareholder deduct on personal return?

A

-Limited to shareholder’s basis in Corp plus direct shareholder loans to the corp

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10
Q

Accumulated adjustments account is increased by:

A

Separately and non-separately stated income

-NOT affected by contributions from shareholders

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11
Q

When can a terminated S Corp reelect the status:

A

Fifth yr from current tax yr

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12
Q

Value of fringe benefits (health insurance) is included in income when:

A

-S corp shareholder owns >2% of S corp stock

not deductible by S Corp

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13
Q

Initial basis of a partner’s interest:

A

Cash
+Property (adj basis)
-Liabilities (assumed by other partners)
+Services (FMV)
+Liabilities (assumed by incoming partner)
=Beginning Capital Account

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14
Q

Initial basis of a partner’s interest:

A

Cash
+Property (adj basis{increased by any gain recognized})
-Liabilities (assumed by other partners)
+Services (FMV)
+Liabilities (assumed by incoming partner)
=Beginning Capital Account

*For Liabilities- remember to multiply by % ownership

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15
Q

Shareholder recognizes a gain on property contributed when:

A

Liabilities contributed are greater than the adj basis of the property contributed

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16
Q

Partnership terminates when:

A
  • 50% or more of interest changes hands within one yr
  • when there are fewer than 2 partners
  • when operations cease
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17
Q

When remaining partners carry on business after termination of partnership:

A
  • deemed distribution of assets to remaining partners and purchaser
  • hypothetical redistribution of assets to new partnership
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18
Q

Income recognized by shareholder contributing services:

A
  • Ordinary Income

- Amt = % interest * FMV of corp net assets

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19
Q

Holding period for a partner’s interest:

A

=partner holding period of property contributed when capital asset or section 1231
=date of contribution if property is an ordinary income asset (inventory)

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20
Q

Required tax yr for a partnership:

A

-Tax yr of one of more partners with more than 50% interests in profits and capital

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21
Q

When a corp sells property contributed by a shareholder:

A
  • Shareholder gain = difference in adj basis and FMV

- Remaining gain is allocated equally among ALL partners

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22
Q

Partnership organizational costs & start up costs:

A
  • $5,000 deductible in currents yr, rest is amortized over 180 months
  • only fees to prepare partnership are includable
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23
Q

Method used to depreciate partnership is elected by:

A
  • the partnership

- may use any method approved by the IRS

24
Q

Individual partner (not partnership) makes election for:

A

-deduction or credit for taxes paid to foreign countries

25
Q

Limit on deductibility of a partnership loss to a partner:

A
  • limited to adj basis in partnership
  • then, “at-risk” amt
  • then, passive activity loss limitations
26
Q

Guaranteed payments to a partner

A
  • does not affect adj basis
  • increases partner ordinary income
  • deduction on partnership return
27
Q

Treatment of losses between controlling partner (over 50% interest) and partnership:

A

-disallowed and added back to ordinary income

28
Q

General rules about non liquidating distributions to a partner:

A
  • not taxable
  • basis of property received will be the carryover basis from the partnership
  • reduce partner’s basis by the cash the partner receives and by the partnership’s adjusted basis in property in which the partner receives
  • *No gain unless cash exceeds partner’s basis
29
Q

Partnership losses:

A

Deductible on individual partner’s income tax return up to amt of basis
-partner loss in excess of basis will carryforward indefinitely until basis is available or partner disposes of interest

30
Q

Tax treatment of a single-member LLC:

A

Disregarded entity

-treated as a sole proprietorship

31
Q

LLC

A

-No double taxation (as in corps) [also applies to normal partnerships]
-Appreciated property can be distributed tax free to owner
-

32
Q

Amt realized by a partner on sale of interest=

A

Cash received + share of liabilities assumed by purchaser

33
Q

Income reported by partner upon sale of interest:

A

-Gain is treated as ordinary income (to extent of unrealized receivables)
=Amt realized - capital interest - liabilities =total gain realized

34
Q

Hot assets=

A

Unrealized receivables & appreciated inventory

-gain treated as ordinary income

35
Q

Transfer pricing issues exists when US taxpayer shares costs with:

A

Affliliate is either:

1) not subject to U.S. Income tax
2) does not file a consolidated income tax return with a U.S. based taxpayer

36
Q

Advanced pricing agreement program=

A
  • Contract btw IRS and taxpayer

- IRS agrees not to seek a transfer pricing adjustment

37
Q

Controlled foreign corporation (CFC):

A
  • 50% or more of stock is owned by a US shareholder

- subpart F income is subject to immediate taxation (through a dividend)

38
Q

Nexus

A
  • minimum level of contact a taxpayer can have with a jurisdiction to be subject to its tax
  • delivery does NOT cause a nexus
39
Q

Apportionment factor calculation:

A

% of the corp’s average property, payroll and sales in the state

40
Q

A corporation will allocate:

A

Nonbusiness income to relevant state

41
Q

A corporation will apportion:

A

Business Income to appropriate state

42
Q

Foreign Branch=

A
  • unincorporated foreign entity (extension of domestic corp)
  • not a separate legal entity
  • earnings are taxed by foreign host country also
43
Q

Foreign subsidiary=

A
  • separate legal entity (incorporated)
  • subsidiary profits are taxed by host country
  • not subject to current US taxation (subject to tax when earnings are paid through dividends to US shareholder)
44
Q

Distributable Net Income (DNI)

A 
\+ Estate (trust) gross income (including capital gains)
- Estate (trust) deductions
= Adjusted total income
\+Adjusted tax-exempt interest  
- Capital gains (allocated to Corpus)
= DNI
*Distributions do not affect DNI
45
Q

Amt of distribution taxable to beneficiary=

A
  • limited by estate’s DNI

- rest of distribution is treated as a nontaxable distribution of the principal

46
Q

Simple trust

A
  • distribution is made out of current income only
  • income is taxable to beneficiary
  • all income must be distributed
  • no deduction for charity
  • Exemption = $300
47
Q

Complex trust

A
  • distributions may be made out of principal (corpus)
  • income may be accumulated within the trust
  • deductions permitted for charitable contributions
  • Exemption = $100
48
Q

Income distribution deduction=

A

Lesser of:
-Total distributions (including income required to be distributed currently) to beneficiary less tax-exempt income {proportionate share }
OR
-DNI (less adjusted tax-exempt interest)

49
Q

Executor of an estate must file fiduciary tax return (Form 1041) when:

A
  • Annual income is $600 or more

- none of the beneficiaries are nonresident aliens

50
Q

Standard deduction for trust or estate:

A

-$0, not allowed

51
Q

Trust filing requirements:

A

Year End (‘I trust” you will remember yr end)

52
Q

Estate filing requirements:

A

Anytime (you can die “anytime”)

-calendar yr or fiscal yr beginning on date of decedents death

53
Q

Administration expenses paid by the fiduciary of an estate are deductible:

A

On fiduciary income tax return only if estate tax deduction is waived for these expenses

54
Q

Accounting income of a trust=

A

All items not specifically allocated to the corpus

55
Q

Grantor trust

A

Creator of the trust is the owner

56
Q

Revocable trust

A

-completed gift has not taken place so, included in gross estate of grantor

REG (12 decks)

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