REG Chapter 3

Question 1

What is the capital loss carryover for corporations?

Answer 1

3 back / 5 forward as short term capital losses to be applied only to capital gains, gains are taxed at the corporate’s ordinary income rate

Question 2

What is the capital loss carryover for individuals?

Answer 2

0 back / forward indefinitely with $3,000 maximum

Question 3

Dividends received deduction

Answer 3

less than 20 percent, 70 percent deduction
20 percent but less than 80, 80 percent deduction
80 percent or more, 100 percent deduction

Question 4

AMT adjustments (business taxes)

Answer 4

LID:

• Long term contracts
• Installment sales - dealer (not allowed, use accrual)
• Depreciation adjustment for property placed into service after 1985 and before 1999 (40 years)
• Depreciation adjustment for property placed into service after December 31, 1998 (150% double declining)

Question 5

AMT preferences (business taxes)

Answer 5

PPE: (all add backs)

• Private activity bonds
• Percentage depletion
• Pre 1987 ACRS depreciation

Question 6

Adjusted current earnings (ACE) Step 1

Answer 6

MOLDD:

• Municipal bond interest, add back
• Organizational expense amortization, add back
• Life insurance proceed on key employees, add back
• Difference between AMT depreciation and ACE depreciation, add/subtract
• Dividends received deduction, add back

Question 7

Adjusted current earnings (ACE) Step 2

Answer 7

(Adjusted current earnings - unadjusted AMTI) x 75 percent

Question 8

Corporate alternative minimum tax exemption

Answer 8

$40,000 - 25 percent of AMTI > $150,000 (eliminated if excess is over $310,000)

Question 9

What are the three potential taxes that can be imposed on a corporation?

Answer 9

• Regular tax
• Minimum tax
• Accumulated earnings (20 percent not self-assessed) or personal holding companies tax (20 percent self-assessed)

Question 10

Definition of a personal holding company:

Answer 10

1. 50 percent owned by 5 or less individuals
2. 60 percent of income from NIRD:
   - Net rent
   - Interest that is taxable
   - Royalties
   - Dividends from an unrelated domestic corp

Question 11

Computing shareholder basis in S corp stock

Answer 11

BASE:
B - initial basis
A - add income items and additional investments in corporation
S - subtract distributions to shareholders and loss or expense items
E - ending basis
*loss limitations = basis + direct shareholder loans - distributions