R5 Flashcards
What is the order that Stock basis is adjusted?
Adjusted annually as of 12/31 in the following order:
- Increased for income and expense depletion
- Decreased for distributions
- Decreased for nondeductions, noncapital expenses, and depletion
- Decreased for items of loss and deduction
T/F: Both tax-exempt & taxable int income increase basis
True
How is a Unrealized Built in gain determined?
- C Corp elects S corp AND
2. FMV Corp assets > adj basis on election date
What effects the Accumulated Adjustment Account?
The AAA is increased by separately sated and nonseparatley income and gains (except tax-exempt income& insurance proceeds)
What is the tax rate for Built In Gains?
21% (highest corp income tax rate)
What decreases S Corp shareholders basis?
distributions to shareholders and loss or expense items
How is a partnership tax year elected?
A partnership may elect to have a tax year other than generally required tax yr if the deferral pd for tax year elected does not exceed 3 months.
When does a partnership recognize income on a nonliquidating pship distribution?
Partnership does not generally recognize income on nonliquidating partnership other than money
What is the partners basis in a nonliquidating distribution?
In nonliquidating liquidation, partner takes partnership basis for assets distributed
Define guaranteed payments.
Payments to partners for services rendered or the use of capital w/o regard to partnership income. Increases ordinary income but not tax basis
What happens if a partner is a material participant?
Partners share of losses are deductible to the extent of partners basis in partnership , basis include share of debt @ y/e
What is the G/L on the sale of partnership interest?
Partner who sells int in partnership has rec G/L, measured by the difference in amount realized - adj basis. IF any partnership liability allocated to the interest and transferred to buyer, then gain on hot assets (unrealized receivables, appreciated inv = ord income)
What is the amount realized by a partner on sale of partnership int?
amount realized = proportionate share of liabilities assumed by purchaser
When do transfer pricing issues occur?
Transfer pricing issues occur when a taxpayer shares costs with an affiliate that :
- is not subject to US income tax OR
- does not file a consolidated income tax return w/ US based taxpayer
What is the advanced pricing agreement program?
A binding agreement between IRS & the taxpayer by which IRS agrees not to seek a transfer pricing adjustment for a covered transaction if taxpayer files returned for covered year consistent with transfer pricing method
What are the categories FTC limitations?
General category income, passive category income, Foreign branch income, global intangible income
NOT a category: Foreign derived intangible income
How do you calculate the increase in US property?
Average adjusted basis of the CFC US prop for tax year compared with adjusted basis @ end of PY
What form is income earned by a foreign branch reported on?
Form 1120-F (U.S income tax return of foreign corp)
How do you calculate a partners initial basis in their partnership interest?
Determined on the adjusted basis of appreciated property reduced by the liabilities assumed
- IF liabilities are more than the basis then basis = 0.
What increases S stock?
Tax-exempt & taxable interest income
What is the formula to determine shareholders basis in S corporation stock:
Initial basis (BOY)
+ Income items (separately and non-separately stated items)
+ additional shareholder investments in corporation stock
- distribution to shareholders
- Loss or expense items(wages don’t count as an expense)
___________________________
Ending basis
What is the treatment of fringe benefits from S corporations?
Fringe benefits paid by an S corporation are deductible by the S corporation only for non-shareholder and those employee -shareholders owning 2% or less of the S corporation.
Fringe benefits paid are deducted by S corp if included in individual receiving benefits
When a BIG asset is sold during the year, how do you calc the gain on tax liability?
Excess FMV of the asset at the BOY LESS the adjusted basis
If a company terminates its S election, how many years does it take to reelct S status?
5th year from the current tax year