REG 1 Flashcards
How do you calculate net operating loss?
NOL = Business income exceed business expenses
When does an agent’s apparent authority terminate?
An agent’s actual authority is terminated by the principal’s revocation. Apparent authority of the agent continues to exist until a third party receives notice of the termination by an act of the principal or the agent. Constructive notice must be given to other third parties to terminate apparent authority.
What are adjustments to AGI vs. itemized deductions?
What is section 1244 stock?
Stock in a small business corporation; if there is a loss on disposition, up to $50,000 ($100,000 if MFJ) can be classified as an ordinary loss
How do you calculate a distribution from corporations to shareholders?
Distribution Amt = Money + Obligations (FMV, e.g. bond) + Property (FMV) - Related Liabilities
Distribution is a transfer of property by a corporation to its shareholders (e.g. money, bonds, stock, other property)
How do you calculate partner’s basis in partnership?
Cash Contributed
+Adjusted Basis of Property Contributed
+Any gain recognized on contributed property or services
+Share of partnership liabilities
-Partner’s liability assumed by partnership
=Basis in partnership interest
What is a substantially disproportionate stock redemption?
A redemption is substantially disproportionate if after the redemption the shareholder owns:
- Less than 50% of the voting power of outstanding stock
- Less than 80% each of the (a) voting stock owned before the redemption and (b) common stock owned before the redemption
What is Accumulated Earnings Tax (AET)?
AET is a penalty imposed on C corporations for avoiding income tax at the shareholder level
- Taxable Income
- +/- Adjustments
- Current E&P (undistributed current year earnings)
- -Dividends paid
- -Accumulated Earnings Credit (AEC)
- ATI
- x20%
- AET
What is the Personal Holding Company (PHC) Tax?
The PHC tax is a 20% penalty tax imposed on the undistributed income of personal holding companies.
Entities subject to tax:
- Non-exempt entities (not a S corp, bank, insurance company)
- More than 50% owned by 5 or fewer shareholders
- 60% or more of the adjusted ordinary gross income is PHC income
What is Section 351?
Section 351 states that no gain or loss be recognized if property is transferred to a coporation and, immediately after the exchange, such person controls the corporation.
- Control is 80% or more
- Solely for stock
What is the IRA deduction?
For 2022, contributions are fully deductible up to the lesser of $6,000 ($7,000 for age 50 and up) or 100% of includible compensation
What is the doctrine of ultra vires?
Ultra vires states that a corporation may not act beyond inherent powers in articles of incorporation and statues.
3 exceptions where power to act can be questioned:
- Shareholder seeks injunction
- Corporation proceeds against directors or officers
- State attorney proceeds against corporation
What are the tax consequences of distribution when there is current and accumulated E&P?
How do you allocate a distribution if it exceeds current E&P?
- Must allocate current and accumulated E & P to each distribution.
- If CEP positive, allocate current E&P pro rata (proportionally using dollar amounts) to each distribution.
- If CEP negative, allocated equally, evenly during the year
- Apply AEP in chronological order (always)
For corporate property dividends, what is the effect on the shareholder?
Amount distributed equals FMV of property
- Taxable as dividend to the extent of E&P
- Excess is treated as return of capital to the extent of stock basis
- Any remaining amount is a capital gain