Reg Flashcards - Chapter 3

Question 1

Basis of property received from transferor/shareholder

Answer 1

Greater of:

1. NBV (Adjusted basis)
2. Debt assumed by the corporation

Question 2

Basis of common stock to shareholder during transfer

Answer 2

1. Cash = amount contributed
2. Property = Adj basis - debt assumed by corp (if debt > Adj basis, gain is added to bring stock basis to 0)
3. Services = FMV

Question 3

Trade or business deduction for corp calc

Answer 3

9% of the lesser of:

1. Qualified production activities income (QPAI)
2. Taxable income

Question 4

QPAI calc

Answer 4

Qualified production activities income:
Domestic gross receipts 
(COGS)
(Other directly allocable expenses or losses)
(Proper share of other deductions)

Question 5

Casulaty losses for corp and individual

Answer 5

Corp: 100% deductible
Individual: $100 reduction & 10% of AGI reduction

Question 6

Organizational and start-up deduction calc

Answer 6

$5,000 expense maxmium + ((eligible costs - 5000)/180)

Question 7

Entites for which DRD doesn’t apply

Answer 7

“Don’t take it personally”

1. Personal service corporation
2. Personal holding company
3. (Personally taxed) S corporation

Question 8

DRD calc limitation and exception

Answer 8

Ex1: $100 dividends received. 80% owned. Taxable income = $90. DRD: .8100 = $80 v. .890=$72. Can only take $72 DRD.
Ex 2: $100 dividends received. 80% owned. Taxable income = $70. DRD: .8100 = $80 v. .870=$56. Can take all $80 because will create loss.

Question 9

Corporate AMT adjustments

Answer 9

LID:
Long term contracts (% of completion method must be used for AMT)
Installment sale dealer (full accrual revenue must be used for AMT)
Depreciation adjustments

Question 10

Corporate AMT preferences

Answer 10

PPP:
Percentage depletion
Prive activity 
Tax Exempt interest income
Pre-'87 ACRS excess depreciation

Question 11

Adjusted Current Earnings

Answer 11

MOLDD:
Municipal-interest income
Organizational expense amortization
Life insurance proceeds on key employees
Difference between AMT and ACE depreciation
Dividends received deduction (under 20% owernership)

Question 12

ADS

Answer 12

Alternative Depreciation System:

Straight line method over 40 years

Question 13

Depreciation system used for corporate AMT

Answer 13

ADS for real property
150% Declining balance (using applicable class life) for personal property

Question 14

Purpose of ACE

Answer 14

Ensure that corporations do not report a profit for financial stmt purposes but pay little to no income taxes

Question 15

ACE adjustment calculation

Answer 15

1. Unadjusted AMTI +/- MOLDD

2. 75%*(AMTI - ACE)

Question 16

Limitations of ACE adjustment

Answer 16

Amount of negative ACE cannot be greater than the cumulative net positive ACE adjustments
No carryover of excess negative ACE adjustments

Question 17

AMT Exemption for corporations

Answer 17

$40,000 - (25%(AMTI-150,000))

Question 18

AMTI tax rate corporation

Answer 18

20%

Question 19

AMT credit for corporations

Answer 19

Foreign tax credit

Question 20

MTC

Answer 20

Minimum tax credit:
Corporation that pays AMT in one year may use this AMT as a credit in future years
Can be carried forward indefinitely; not carried back

Question 21

Accumulated earnings tax

Answer 21

Tax on regular C corporations whose accumulated (retained) earnings are in excess of $250,000 if improperly retained instead of being distributed as dividends to shareholders

Question 22

Tax rate for accumulated earnings

Answer 22

20%

Question 23

Personal holding company

Answer 23

Corporations more than 50% owned by 5 or fewer individuals and having 60% of adjusted ordinary gross income

Question 24

Gross income qualification for personal holding company

Answer 24

NIRD:
Net rent (if less than 50% of ordinary gross income)
Interest that is taxable (nontaxation is excluded)
Royalties (but not mineral, oil, gas, or copyright)
Dividends from an unrelated domestic corporation

Question 25

E&P

Answer 25

Major factor in determining a corporation’s ability to pay dividends

Question 26

Classification of distribution as it relates to E&P

Answer 26

1. Applied to current E&P
2. Applied to accumulated E&P
3. Applied to return of capital (tax free but reduces basis of stock)
4. Excess = capital gain distribution

Question 27

Proportional stock redemption

Answer 27

Taxable dividend income; corporation either redeems or cancels the stock pro rata for all shareholders

Question 28

Disprotional stock redemption

Answer 28

Sale by shareholder subject to taxable captial gain/loss to shareholder
There has been a meaningful reduction in teh shareholder’s ownership interest (less than 50% ownership; less than 80% of percentage ownership before the redemption)

Question 29

Worthless stock tax treatment

Answer 29

Section 1244 (small business stock):
Treated as having an ordinary loss up to $50,000 S ($100,000 MFJ). Loss in excess of this amount is a capital loss

Question 30

Small business stock exclusion

Answer 30

Noncorporate shareholder who holds for more than 5 years- exclude 50% of gain on sale or exchange (75% for acquired during 2/18/09-9/27/10 and 100% for 9/28/10-12/31/13). Includable portion of gain is taxed at 28%.

Question 31

Built-in gains tax

Answer 31

1. A C corp elects S corp status AND 2. FMV of corp assets exceeds adj basis of corp assets on election date

Question 32

Exemptions for built-in gains tax

Answer 32

1. Never a C corp
2. Sale/ transfer doesn’t occur within 10 years of first day of first year S election is made
3. S corp can demonstrate the appreciation occurred after the S election

Question 33

Accumulated Adjustments Account

Answer 33

Used to determine tax effects of distributions paid to shareholders.
Increases = separately and non-separately stated income and gains
Decreases = Corporate distributions, separately and non-separately stated exp, losses, non-deductible exp

Question 34

Determining shareholder basis in stock

Answer 34

BASE:
Initial basis + Income items (including tax free income) + Addtional shareholder investments - distribution to shareholders - loss or exp items

Question 35

Treatment of a distribution when an S corporation has C corp E&P

Answer 35

1. To extent of AAA = not subject to tax = S corp already taxed profits
2. To extent of C corp E&P = taxed as a divided = old C corp taxable dividend
3. To extent of basis in stock = not subject to tax; reduces basis = return of capital
4. In excess of basis = long-term capital gain = capital gain distribution

Question 36

Tax on unrelated business income for tax-exempt organizations

Answer 36

Unrelated = 1. Derived from an activity that constitutes a trade or business, 2. regularly carried on, 3. not substantially related to org’s tax-exempt purpose
Allowed a $1,000 deduction

Question 37

Controlled taxpayer

Answer 37

Any one of two or more taxpayers owned or controlled directly or indirectly by the same interests (taxpayer that owns or controls the other taxpayers)

Question 38

Controlled transaction

Answer 38

Any transaction or transfer b/t two or more members of the same group of controlled taxpayers

Question 39

Uncontrolled comparable

Answer 39

Uncontrolled transaction or uncontrolled taxpayer that is compared with a controlled tranaction or controlled taxpayer

Question 40

Advance pricing agreement program

Answer 40

Binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return for a covered year consistent with the agreed transfer pricing method