REG 4 Flashcards
Constructive Dividend
Sale of assets below its FMV
ex: excess salaries paid to shareholder employees, loans to shareholders that does not requrie interest payments
Payment, allowance, loan or other form of financial benefit from, a corp toa shareholder that is not intended to be a div pmt bue ends up being classified by the IRS as a Dividend
Distribution order for C Corps - Tax Impact
1) Current E&P (Checking Account) - Taxable Dividend (Ordinary Income Rates)
2) Accumulated E&P (Savings account) - Taxable Dividend (Ordinary Income Rates)
3) Distribution in Excess of E&P - Nontaxable return of Capital (Reduction in Stock Basis)
4) Distribution in Excess of Basis - Capital Gain -
If Current E & P is Negative & Accumulated E&P is Positive do you net the 2 for a C-Corp?
Yes
If Current E&P is + & Accumulated E&P is - do you net the two for a C-Corp?
No
Direct Distribution of Property for a C-Corp
How is the shareholder Taxed?
How is the C-Corp taxed?
Tax # 1 - Tax to Shareholder: Property’s FMV - Shareholder Stock Basis
Tax #2 - Tax to C-Corp: Property’s FMV - Property’s Adjusted Basis
What Basis does the shareholder use when receivinf property from a Liquidating distribution from a C-Corp?
The FMV of the property
Capital Loss Deductions for C-Corps
Capital Losses can Offset Capital Gains
EXCESS CAPITAL LOSS CANNOT OFFSET ORDINARY INCOME
CARRIED BACK 3 YEARS & FORWARD 5 YEARS
Affiliated Froup Requirements:
Corporation that owns atleast
Parent Co Directly Owns at least 80% of the stock value of the subsidiary corp
Parent Co Directly Owns at least 80% of the voting rights of the Corps Stock
Does Debt impact shareholder basis in a S-Corp?
No - debt will not impact the shareholder basis in their coporate stock
Does Debt impact shareholder basis in a Partnership?
Yes - Increase in debt increases basis for recourse and non recourse
Two Ways for shareholder to Recognize Gain in a S-corp C-Corp in Initial Formation
Boot REceived
Excess Debt
C-Corp to S-Corp Conversion with built in Gain Tax
5 year window for assets to be sold, if sold within the window must recognize built in gain tax
Increases to SCorp AAA account
Ordinary Business Income
Seperately state income & gains
Decreases to S Corp AAA Account
Ordinary Business Losses
Separately stated losses & deductions
Nondeductible Expenses
- Built in Gains at the time of S Election for a C Corp
Appreciated property that EXISTED at the time that it was a C-Corp
Built in gain is the FMV on date of election Less adjusted basis
S-Corp Distribution Order
- Distributions from AAA account (S-Corp)
- Distributions in excess of AAA, Next come from C Corp. Accumulated E&P = Taxable Dividend
- Nontaxable return of capital - against shareholder basis
- Distribution in excess of shareholder basis - Capital Gain
Liquidating Distributions for Shareholders of an S-Corp
Cash + Property - mortgage = Total Proceeds
Calculate Taxable Gain
Total Proceeds - stock basis = Taxable Gain
Gifted Property Mental Map - Special Rules of FMV < NBV Of Gofted Property
- FMV < NBV of property
Subsequent Sale Price - Subsequent sales price is Greater than Adjusted Basis: Gain = SP - NBV
- Subsequent sales price is Less than the FMV: Loss = SP - FMV
- Subsequent sales price is beteween the adjusted basis & the FMV: No Gain or Loss
Bais to Acquired Property (Cost of property + Directly Associated Costs)
Shipping costs
Installation costs
Sales Taxes
Testing Costs
Insurance Costs
Real Property
Land + Building
Personal Property
anything other than land and buildings
ex: Equipment, machinery ect
Like-Kind Exchange - Mental Map
- Caluclate Realized Gain
FMV of TOTAL PROPERTY RECEIVED
- (NBV) of TOTAL property given up)
=Realized Gain or Loss
*Potential Gain or Loss - Calculate Recognized Gain (or loss)
Lesser of:
Boot Received or gain realized (Step 1)
***Losses will never be recognized - Calculate deferred gain (or loss)
(Step 1 - Step 2)
Amount of realized fain that has not yet been recognized - Calculate basis of like-kind property received
FMV of like-kind property received
( MINUS - ) Deferred gain
(PLUS + ) Deferred Loss
Involuntary conversion calculation
Property’s Adjusted basis (prior to conversion)
Minus: Amount (Insurance) Reinvested
= Gain (Amount not reinvested)
2) Calculate the basis of the new property acquired
Cost of new property
Minus: Deferred gain
Basis of new property
Sec1231 Business Use Assets
1) Personal Property (Sec 1245)
2) Real Property (Sec 1250)
Ordinary Income Property Charitable Contribution Rules:
Inventory, Assets held for less than one year, assets that have depreciated in value
Deduct LESSER of basis or FMV
LTCG Property Ordinary Income Property Charitable Contribution Rules:
Assets held for more than 1 year & have appreciated in value
Limit - 30% * AGI
Deduct FMV
Wash Sale
A Wash Sale exists when a security (stock or bond) is sold for a loss and is repurhcased within 30 days before or after the sale date
Losses from a wash sale are NOT DEDUCTIBLE, loss is Added back to the basis of the repurchased stock
Related Party Losses
Not Deductible
MACRS Memorization:
5 year property
Cars, light trucks, computers, copiers
(Half-year or Mid-Quarter)
MACRS Memorization:
7 Year Property
furniture, fixtures, equipment
(Half year or mid-quarter)
MACRS Memorization:
27.5 Year Property
Residential Real Estate
(Mid-Month)
MACRS Memorization:
39 Year Property
Non-Residential Real Estate
