REG 4

Question 1

Constructive Dividend

Answer 1

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

Question 2

Distribution order for C Corps - Tax Impact

Answer 2

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 -

Question 3

If Current E & P is Negative & Accumulated E&P is Positive do you net the 2 for a C-Corp?

Answer 3

Yes

Question 4

If Current E&P is + & Accumulated E&P is - do you net the two for a C-Corp?

Answer 4

No

Question 5

Direct Distribution of Property for a C-Corp

How is the shareholder Taxed?

How is the C-Corp taxed?

Answer 5

Tax # 1 - Tax to Shareholder: Property’s FMV - Shareholder Stock Basis

Tax #2 - Tax to C-Corp: Property’s FMV - Property’s Adjusted Basis

Question 6

What Basis does the shareholder use when receivinf property from a Liquidating distribution from a C-Corp?

Answer 6

The FMV of the property

Question 7

Capital Loss Deductions for C-Corps

Answer 7

Capital Losses can Offset Capital Gains

EXCESS CAPITAL LOSS CANNOT OFFSET ORDINARY INCOME

CARRIED BACK 3 YEARS & FORWARD 5 YEARS

Question 8

Affiliated Froup Requirements:

Corporation that owns atleast

Answer 8

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

Question 9

Does Debt impact shareholder basis in a S-Corp?

Answer 9

No - debt will not impact the shareholder basis in their coporate stock

Question 10

Does Debt impact shareholder basis in a Partnership?

Answer 10

Yes - Increase in debt increases basis for recourse and non recourse

Question 11

Two Ways for shareholder to Recognize Gain in a S-corp C-Corp in Initial Formation

Answer 11

Boot REceived

Excess Debt

Question 12

C-Corp to S-Corp Conversion with built in Gain Tax

Answer 12

5 year window for assets to be sold, if sold within the window must recognize built in gain tax

Question 13

Increases to SCorp AAA account

Answer 13

Ordinary Business Income

Seperately state income & gains

Question 14

Decreases to S Corp AAA Account

Answer 14

Ordinary Business Losses

Separately stated losses & deductions

Nondeductible Expenses

Question 15

1. Built in Gains at the time of S Election for a C Corp

Answer 15

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

Question 16

S-Corp Distribution Order

Answer 16

1. Distributions from AAA account (S-Corp)
2. Distributions in excess of AAA, Next come from C Corp. Accumulated E&P = Taxable Dividend
3. Nontaxable return of capital - against shareholder basis
4. Distribution in excess of shareholder basis - Capital Gain

Question 17

Liquidating Distributions for Shareholders of an S-Corp

Answer 17

Cash + Property - mortgage = Total Proceeds

Calculate Taxable Gain
Total Proceeds - stock basis = Taxable Gain

Question 18

Gifted Property Mental Map - Special Rules of FMV < NBV Of Gofted Property

Answer 18

1. FMV < NBV of property
   Subsequent Sale Price
2. Subsequent sales price is Greater than Adjusted Basis: Gain = SP - NBV
3. Subsequent sales price is Less than the FMV: Loss = SP - FMV
4. Subsequent sales price is beteween the adjusted basis & the FMV: No Gain or Loss

Question 19

Bais to Acquired Property (Cost of property + Directly Associated Costs)

Answer 19

Shipping costs
Installation costs
Sales Taxes
Testing Costs
Insurance Costs

Question 20

Real Property

Answer 20

Land + Building

Question 21

Personal Property

Answer 21

anything other than land and buildings

ex: Equipment, machinery ect

Question 22

Like-Kind Exchange - Mental Map

Answer 22

1. Caluclate Realized Gain
   FMV of TOTAL PROPERTY RECEIVED
   - (NBV) of TOTAL property given up)
   =Realized Gain or Loss
   *Potential Gain or Loss
2. Calculate Recognized Gain (or loss)
   Lesser of:
   Boot Received or gain realized (Step 1)
   ***Losses will never be recognized
3. Calculate deferred gain (or loss)
   (Step 1 - Step 2)
   Amount of realized fain that has not yet been recognized
4. Calculate basis of like-kind property received
   FMV of like-kind property received
   ( MINUS - ) Deferred gain
   (PLUS + ) Deferred Loss

Question 23

Involuntary conversion calculation

Answer 23

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

Question 24

Sec1231 Business Use Assets

Answer 24

1) Personal Property (Sec 1245)
2) Real Property (Sec 1250)

Question 25

Ordinary Income Property Charitable Contribution Rules:
Inventory, Assets held for less than one year, assets that have depreciated in value

Answer 25

Deduct LESSER of basis or FMV

Question 26

LTCG Property Ordinary Income Property Charitable Contribution Rules:
Assets held for more than 1 year & have appreciated in value

Limit - 30% * AGI

Answer 26

Deduct FMV

Question 27

Wash Sale

Answer 27

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

Question 28

Related Party Losses

Answer 28

Not Deductible

Question 29

MACRS Memorization:
5 year property

Answer 29

Cars, light trucks, computers, copiers
(Half-year or Mid-Quarter)

Question 30

MACRS Memorization:
7 Year Property

Answer 30

furniture, fixtures, equipment
(Half year or mid-quarter)

Question 31

MACRS Memorization:
27.5 Year Property

Answer 31

Residential Real Estate
(Mid-Month)

Question 32

MACRS Memorization:
39 Year Property

Answer 32

Non-Residential Real Estate