REG 4 Flashcards
Gift Tax Exclusion
donors may exclude the first $16,000 of gifts to each donee for each calendar year from the amount of taxable gifts.
property in exchange for stocks
If boot is received, the gain recognized to the shareholder is the lower of:
Realized gain or
The fair market value of the boot received
basis in the stock received from the corporation is:
Basis of all property transferred to the corporation
+ Gain recognized by shareholder
− Boot received by shareholder
− Liabilities assumed by corporations
Book Income vs Taxable income
-Nondeductible expenses are added to book income (federal tax expense, net capital loss, expenses in excess of limits, etc.).
-Income that is taxable but not included in book income is added to book income (e.g., prepaid income included in taxable income).
-Nontaxable income that is included in book income is subtracted from book income (municipal interest, life insurance proceeds, etc.).
D-eductions not expensed in book income are subtracted from book income (election to expense, etc.).
Goodwill amortization book vs tax
book: 40 years
tax: 15 years only
Corporation Allowance for Bad Debt Tax rules
The tax deduction for bad debts is limited to the amount allowed under the direct write-off method. Might need to add back the difference to the income as M-1 adjustment
Adoption of Taxable years
A personal service corporation, S Corporation, & Trust: must adopt a calendar year.
C corp and Estate - anytime
Passthrough partnership - same as 50% owner
who can use cash method?
Any corporation (or partnership with C corporation partners) whose annual gross receipts do not exceed $27 million (2022). The test is satisfied for a prior year if the average annual gross receipts for the previous three-year period do not exceed $27 million. Once the test is failed, the entity must use the accrual method for all future tax years.
Certain farming businesses
Qualified personal service corporations
corporation charitable contributions rukes
The deduction is the lower of:
AB of property + 50% × (FMV − AB), or 2 × AB.
The limit on the deduction is 10% of taxable income in 2022
Any excess charitable contribution (above the 10%, or 25%, limit) carries forward for five years (there is no carryback)
Corporation Accumulated Earning Tax
accumulated earnings tax of 20% is imposed on undistributed accumulated taxable income
Dividend treatment from a C corporation to a shareholder
Taxable as dividend income to extent of the shareholder’s pro rata share of earnings and profits.
Excess is tax-free to extent of shareholder’s basis in stock (and reduces the basis).
Remaining distribution amount is taxed as a capital gain.
Corporate Redemptions
Sale of stock back to issuing corporation
To be taxed as a sale, the shareholder must:
- own < 50% of voting shares AFTER the redemption
- own < 80% PRIOR the redemption
Corporate reorganizations
A & C - Stocks for assets
B - Stock for stock
D - Divisive reorgs
Type A reorganization
Stock for assets
statutory merger
Target corporation must dissolve
50% consideration given must be stock
Type B Reorganization
Stock for stock
Acquiring must own >80% target after the transaction
only voting stock can be used
no boot is allowed
Type C Reorganization
Stock for assets
only voting stocks to acquire
Boot is allowed but cannot exceed 20%
must acquire 90% net asset value of target’s assets
Corporation reorganization consequences
Receive stock only - no gain/loss recognized
receive other property on top of stock, gain the lower of boot received or realized gain
basis in stock surrendered = gain recognized - boot received
Foreign Tax Credit Limit
U.S tax on worldwide income x (foreign-source taxable income/worldwide taxable income)
Partnership Basis
Investment partnership LTCG
assets need to be held more than 3 years to recognize LTCG
partnership gain treatment for selling contributed asset
contributing partner will recognize built-in gain first (FMV at time of contribution - basis) and then the rest of the gain split equally between all partners
Partnership non-liquidating distribution
does not recognize cash
If a corporation makes a nonliquidating distribution of appreciated property to a shareholder, the corporation must recognize gain just as if the property were sold at its fair market value.
A partner’s basis in property received in a nonliquidating distribution is the same as the partnership’s basis immediately before the distribution. However, the partner’s basis in the property may not exceed his/her basis in the partnership less any cash received in the distribution.
Partnership liquidating distribution basis
A partner’s basis in property distributed in a complete liquidation of the partner’s partnership interest equals the partner’s partnership interest less any cash distributed in the transaction.
Gain is recognized on a partnership distribution ONLY if the cash distributed exceeds the basis in the partnership interest.
LOss cannot be recognized if the distribution is the combination of CASH + Other property, the basis of the other property is the owner basis MINUS the cash received.
Sales of partnership interest
Capital gain
Ordinary to the extend of hot assets: unrealized receivables and inventory.
Collectible selling gains - taxed at 28%
Unrecaptured Section 1250 - 25%
S corporation insurance premium inclusion in gross income
if own < 2% = entire premium payment could be excluded from income
if own > 2% = entire premium payment must be included in income
Built in gain for C corp that makes an election to S corp
A C corporation that makes an S election and has unrealized built-in gains in its assets as of the election day must pay a built-in gains tax on this appreciation if it is recognized within the next 5 years.
gain is taxed to the corporation at the rate of 21%.
Foreign Tax Credit
the lower of the foreign tax paid, or the proportion of U.S. tax allocable to foreign sourced income
Excess foreign tax credits carryback one year and forward 10 years
Family and Medical Leave Credit
Businesses can claim a general business tax credit equal to 12.5% of wages paid to qualifying employees while on family and medical leave.
The employee must receive 50% or more of regular wages.
All qualifying employees must receive at least two weeks of annual paid family and medical leave
Kiddie tax (and dependent of his parents)
basic standard deduction is limited to the greater of $1,150, or earned income + $400
Personal Holding Company requirement
The stock ownership test requires that more than 50% of the outstanding stock must be owned directly or indirectly by five or fewer individuals.
Qualifying expenditures made to rehabilitate a certified historic structure
A 20% credit is allowed for qualifying expenditures made to rehabilitate a certified historic structure.
The credit is claimed ratably over five years beginning with the year the building is placed in service.
