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
What is the built in gains tax?
when a corporation disposes of assets that were appreciated in value at the time the company converted from a C to S corporation
What will cause a partnership to be terminated?
when partnerships business and financial operations are discontinued
Is there a gain or loss recognized in the contribution of property?
NO STOOPID, no g/l is recognized on a contribution of property to a partnership in return for a partnership interest,
How does an increase in partnership liabilities effect the partners basis?
The partners basis is increased by the portion of liabilities assumed by the partners
What is the benefit of a LLC for taxation purposes?
A LLC can select whether to be taxed as a partnership, corporation, or sole proprietorship.
Define a Foreign Derived intangible income transaction?
Sales to a non-Us persons of property for use outside the US increase a corporations FDII
How is the increase in earnings in US property calculated for a CFC?
Averaged per quarter
- amount of investments to current period
- add the purchase for the rest of the quarter applied
- divide by 4
- subtract original of invest in the current period
Who does the base erosion and anti-abuse tax apply to?
corporations with average annual gross receipts of $500mill or more for the 3 preceding tax years
Define an instance in which transfer pricing occurs?
US taxpayer shares costs with an affiliate tha tis not subject to US income tax and does not file a consolidated income tax return with the US based taxpayer
What are foreign taxes paid classified as?
can be classified as a deduction or as a credit, option is up to the corporation
What is the definition of nexus?
min level of contact a taxpayer may have with a jurisdiction to be subject to its tax
What are some factors the trigger nexus?
Owning/leasing tangible or personal property, sending employees into the state for training or work, Soliciting sales in a state, providing installation, maintenance, etc to customers within a state, accepting/rejecting sales orders within the state, or accepting reuturns
What types of entities make a nonliquidating distribution in a partnership nontaxable?
General partnership or LLP
If there is no election of an accounting period, how is the tax year established?
Tax year of one or more partners with a more than 50% interest in profits and captial
How do you calculate the apportionment factor?
Payroll/total payroll + avg property / total property + Sales/ total sales \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ X / 3 = Factor
When is a nonliquidating cash distribution taxable?
nonliquidating cash distribution is not taxable to partner unless greater than the partners basis in partnership interest
What is a tax advantage of choosing an S corporation instead of a C corp?
Corporation’s capital losses and all other items of income and loss flow through to the tax returns of the shareholders
What is an example in which a payment to foreign person is not subject to withholding tax?
a payment for the sale of inventory within the US
Which 2 business entities can make a distribution of appreciated property that would not be taxable to business/owners?
General partnership and LLP
Who does the aiding and abetting penalty apply to?
any person who knows about the actions of a subordinate to understate
