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BK REG > REG 3 BK > Flashcards

REG 3 BK Flashcards

1
Q

Eye of the Tiger

What are IRS controlled transaction adjustments?

A

For transactions between a parent and a sub, they make sure that the results are consistent with what would have happened if they were unrelated parties.

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2
Q

Eye of the Tiger

What are the federal limitations on a state’s right to impose income tax?

A

If: 1. The only activity of the person within the state is the solicitation of orders for sale of tangible personal property and 2. Orders are sent outside the state to be accepted/rejected and 3. If the orders are accepted, they are shipped/delivered from a point outside the state, then a state cannot impose income tax.

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3
Q

Eye of the Tiger

Define controlled taxpayer. Define controlled transaction.

A

Controlled taxpayer– parent/sub. Controlled transaction— transaction between parent and sub.

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4
Q

Eye of the Tiger

General rule for S Corp distributions and taxability?

A

GR is that they are not taxable because the income has already flowed through to the shareholder and they have been taxed on it. And, unlike a C Corp, S Corp’s are only subject to one level of taxation. So, any distribution up to amount of basis is a nontaxable return of capital. Exception: to the extent that the distribution exceeds basis, it is taxed as a long-term capital gain.

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5
Q

Eye of the Tiger

How to compute shareholder basis in S Corp?

A

Original basis + income items + direct loans of shareholder to corp - losses/expenses - distributions

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6
Q

Eye of the Tiger

Partnership vs. S Corp and rules regarding assumption of liabilities?

A

S Corp guarantees of corporate liabilities to 3rd parties do not increase basis. Partnership liabilities assumed by the partner himself increase basis.

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7
Q

Eye of the Tiger

Rules for S Corp?

A
  1. Can have only one class of stock, and cannot have preferred stock 2. Only individuals, estates, and trusts are eligible. Partnerships and corporations are not eligible. 3. Individual shareholders cannot be nonresident aliens. 4. There may not be more than 100 shareholders. 5. It must be a domestic corporation.
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8
Q

Eye of the Tiger

Loss limitation for S Corp shareholder?

A

Shareholder’s adjusted basis + Direct loans to Corp - Distributions

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9
Q

Eye of the Tiger

When does the S Corp election need to be made by?

A

By 3/15 (retroactive to the beginning of the year)

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10
Q

Eye of the Tiger

What is Section 1244 stock? What is the tax treatment of Section 1244 stock?

A

This is stock either sold by a small business or stock of theirs that becomes worthless. A loss of up to $50,000 may be treated as an ordinary loss, with an additional loss being classified as a capital loss.

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11
Q

Eye of the Tiger

How is a parent/sub liquidation treated for tax purposes?

A

No gains/losses recognized (the reasoning is the same for the nonrecognition of gains b/w parent and sub. It is essentially just one corporation).

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12
Q

Eye of the Tiger

May an affiliated group file consolidated returns? How about bro-sis corporations?

A

Affiliated group– yes. Bro-sis corporations– no.

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13
Q

Eye of the Tiger

When is DRD calculated?

A

Without regard to DRD, NOL, or any capital loss carryback.

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14
Q

Eye of the Tiger

What method must accrual basis taxpayers use for bad debt deduction?

A

Specific charge-off method.

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15
Q

Eye of the Tiger

Are liabilities assumed considered boot? Why or why not?

A

No, because there is no distribution of cash or property in this instance.

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16
Q

Eye of the Tiger

How do you calculate shareholder basis upon transferring property to a corporation?

A

FMV of cash or NBV of property transferred + FMV services rendered + gain recognized by shareholder - liabilities assumed for you by corp - boot received

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17
Q

Eye of the Tiger

When does a shareholder contributing property to a corporation not recognize gain/loss?

A

When, immediately after the transaction, he owns 80% + of voting and non-voting stock of corp and boot is not involved.

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18
Q

Eye of the Tiger

If FMV of property contributed is less than basis, what is the basis to the corporation?

A

FMV, because the corporation cannot have a “built-in loss.” It would give them an unfair tax advantage.

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19
Q

Eye of the Tiger

General rule for distribution of property to a corporation and valuation?

A

Taxable = FMV, Nontaxable = NBV

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20
Q

Eye of the Tiger

List some temporary differences between GAAP and tax income.

A

Interest income, rental income and royalty income received in advance.

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21
Q

Eye of the Tiger

List some permanent differences between GAAP and tax income.

A

Interest income on muni/state obligations– deducted on taxes, income for GAAP. Proceeds from life insurance on key man policies— deducted on taxes, income for GAAP. Federal income taxes— nondeductible on taxes, expensed for GAAP.

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22
Q

Eye of the Tiger

When is interest income deductible?

A

When paid and incurred.

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23
Q

Eye of the Tiger

Rules for NOL’s, individual net capital losses and corporate net capital losses?

A

NOL’s—carryback 2 yrs, forward 20, can’t offset other types of income. Individual net capital losses— no carryback, carryforward indefinitely, up to $3,000 as an offset to other types of income. Corporate net capital losses— carryback 3 yrs, carryforward 5, can’t offset other types of income.

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24
Q

Eye of the Tiger

How do you calculate the DRD?

A

It is the lesser of 80% of taxable income before NOL and capital loss carryback or 80% of the dividend received. An exception is when the larger of 80% of taxable income and 80% of the dividend received leads to a net operating loss. In this case, the larger number is used to generate the loss.

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25
Q

Eye of the Tiger

When is the accrual method required?

A

For certain farming corporations, for businesses with gross receipts over $5 million in each of the last 3 years, for inventory purchase and sales and for tax shelters. “FBIT”

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26
Q

Eye of the Tiger

Estimated payment of taxes required for small corp? For large corp?

A

Small corp– 100% of current year’s taxes or previous year’s taxes. Large corp.– 100% of current year’s tax.

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27
Q

Eye of the Tiger

What are the corporate AMT adjustments?

A

“LID”— long-term contracts, installment sales, and depreciation adjustment. Put a “LID” on what you can deduct.

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28
Q

Eye of the Tiger

What is the ACE adjustment?

A

Municipal debt income, organizational expense amortization, Life insurance proceeds on key employee, depreciation, and DRD. These help “MOLDD” the correct amount for the AMT calculation.

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29
Q

Eye of the Tiger

What kinds of things decrease E&P? Why?

A

Nondeductible expenses, ie nondeductible portion of meals & entertainment, federal income tax expense, etc. This is because E&P is calculated according to tax rules. So, deductible expenses do not affect E&P.

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30
Q

Eye of the Tiger

Calculation for E&P to carry forward?

A

Accumulated E&P at beginning of year +/- Current E&P for tax year - Distributions from accumulated E&P= Accum E&P at end of tax year.

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31
Q

Eye of the Tiger

Can a dividend be taxable if accumulated E&P is ($40,000) and current E&P is $10,000?

A

Yes, $10,000 would be taxable.

32
Q

Eye of the Tiger

How is a corporation’s capital loss considered?

A

As a short-term capital loss.

33
Q

Eye of the Tiger

Who is the NOL deduction permitted for?

A

Not permitted for pass-through entities. It is permitted for individuals, estates and trusts and taxable C Corp’s.

34
Q

Eye of the Tiger

With an S Corp, when is the shareholder taxed on income?

A

When earned, not when distributed/received.

35
Q

Eye of the Tiger

When is there tax on an S Corp?

A

When a C Corp elects S Corp status and there are built-in gains

36
Q

Eye of the Tiger

When are returns due for tax-exempt entities?

A

By May 15

37
Q

Eye of the Tiger

3 conditions necessary for UBI?

A

Must be an activity carried on as a trade/business, must be regularly carried on, and must not be substantially related to purpose of tax-exempt entity.

38
Q

Eye of the Tiger

Is work from unpaid volunteers considered UBI? How about work by disabled people as part of their rehab?

A

Work by unpaid volunteers is “related” to the purpose because it is not paid. Work by disabled people as part of rehab is also related.

39
Q

Eye of the Tiger

What are section 1231 assets?

A

Depreciable or real property used in a business and held over 12 months.

40
Q

Eye of the Tiger

When are life insurance premiums deductible?

A

When the employee is the beneficiary.

41
Q

Eye of the Tiger

Name some corporate AMT preferences.

A

Passive activity bond interest, pre-1987 depreciation, percentage depletion (“PPP”– “P” for preference)

42
Q

Eye of the Tiger

What is the additional tax rate for accumulated earnings?

A

20%

43
Q

Eye of the Tiger

Are stock dividends taxable?

A

The general rule is no, unless the shareholder has the right to receive cash or property instead of stock.

44
Q

Eye of the Tiger

Who must consent to an S Corp election?

A

All shareholders

45
Q

Eye of the Tiger

What is form 990PF? What is form 990?

A

990PF is used with non-profits, and discloses substantial contributors and the amount of contributions received. 990 is an annual information return that states gross income, receipts, contributions, etc.

46
Q

Eye of the Tiger

How do you calculate NOL?

A

Excess of deductions, including DRD, over gross income.

47
Q

Eye of the Tiger

What is the parent’s basis in a sub’s assets when the parent liquidates the sub?

A

The parent assumes the basis of the sub’s assets.

48
Q

Eye of the Tiger

How is land received as a dividend valued?

A

FMV

49
Q

Eye of the Tiger

What tax year end may a C Corp adopt?

A

Any that it chooses.

50
Q

Eye of the Tiger

What is the exemption amount for corporate AMT?

A

$40,000 less 25% of the amount of AMTI over $150,000

51
Q

Eye of the Tiger

Are life insurance proceeds deductible? Does it matter who the beneficiary is?

A

Yes, life insurance proceeds are deductible, no matter the beneficiary. For life insurance premiums, deductibility depends on who the beneficiary is.

52
Q

Eye of the Tiger

Can an S Corp deduct charitable contributions and NOL’s?

A

No– these are passed on to the shareholder.

53
Q

Eye of the Tiger

By when must a charitable contribution by a corporation be made to be deductible?

A

By 3/15, if year end is 12/31

54
Q

Eye of the Tiger

What is the failure to pay penalty? What is the failure to file penalty?

A

Failure to pay— 1/2 % per month, failure to file– 5% per month

55
Q

Eye of the Tiger

How are organizational/start-up costs treated for tax purposes?

A

First $5000 is deductible, and the remainder is amortized over 15 years

56
Q

Eye of the Tiger

Calculation of alternative minimum tax liability for corporation?

A

Tentative min tax - regular tax

57
Q

Eye of the Tiger

When is the accumulated earnings tax imposed?

A

It is imposed on regular C Corp’s whose accumulated earnings are > $250,000 and they retain too much money and don’t distribute it as dividends to taxpayers.

58
Q

Eye of the Tiger

For whom are S Corp fringe benefits deductible? For whom are they not deductible?

A

They are deductible for non-employee shareholders. They are nondeductible for shareholders with over 2% ownership percentage.

59
Q

Eye of the Tiger

By when is a C Corp required to file a tax return?

A

For a C Corp with year-end 12/31— by 3/15

60
Q

Eye of the Tiger

Limit on charitable contributions for corporation?

A

10% of AGI

61
Q

Eye of the Tiger

What is the rate of additional tax assessed on personal holding corporations?

A

20%

62
Q

Eye of the Tiger

BS sources of income for personal holding co.?

A

“NIRD”— Net rental income, interest income that is taxable, royalties, dividends from an unrelated domestic corp.

63
Q

Eye of the Tiger

Define bro-sis corp.

A

Where an individual owns 80%+ or more of stock of 2 + corporations.

64
Q

Eye of the Tiger

Define affiliated group.

A

Where a common parent owns 80% + of voting power and 80% + of value of all outstanding stock in each corporation owned.

65
Q

Eye of the Tiger

What amount of UBI is taxable?

A

Any amount over $1,000.

66
Q

Eye of the Tiger

What is the calculation for taxable income for a corporation?

A

Gross income-deductions-charity-DRD = taxable income or loss

67
Q

Eye of the Tiger

What amount of passive income will lead to S Corp termination?

A

When > 25% of S Corp’s gross receipts are from passive income for the last 3 years.

68
Q

Eye of the Tiger

Required year end for S Corp?

A

12/31

69
Q

Eye of the Tiger

Can AMT be used in future years as a credit to offset taxes? How long can it be carried forward?

A

Yes. It can be carried forward indefinitely.

70
Q

Eye of the Tiger

What if the realized gain of a C Corp contributor? What is the recognized gain of a C Corp contributor?

A

Realized gain– FMV-basis. Recognized gain— lesser of boot received or gain realized.

71
Q

Eye of the Tiger

What costs are not included in organizational/start-up costs for tax purposes?

A

Any stock-related costs, ie the cost of selling it, underwriter fees, etc.

72
Q

What happens if net basis goes below zero in a transfer to a corporation?

A

Gain is recognized.

73
Q

What is the exception to the calculation rule for the DRD?

A

If the larger of 80% of TI and 80% of DRD leads to a net operating loss, the larger number is used in order to generate the loss.

74
Q

How is a dividend paid in property taxed? To what extent is it taxable?

A

At FMV. It is taxable up to the amount of current E&P and accumulated E&P plus any gain recognized on the property distribution. It is taxable at FMV even if the property dividend that is distributed is “nonliquidating.”

75
Q

When is transfer of a property to a corporation taxable? When is it nontaxable?

A

It is taxable when the 80% control test is not met. It is nontaxable when the 80% control test is met. (See R3, CPA-08465).

76
Q

What is the purpose of schedule M-1?

A

To take book income and add or subtract things to arrive at tax income.

77
Q

What is the exception regarding the taxability of S Corp distributions?

A

Distributions in excess of S Corp shareholder’s basis are considered a long-term capital gain.

BK REG (11 decks)

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