Reg Flashcards - Chapter 3
Basis of property received from transferor/shareholder
Greater of:
- NBV (Adjusted basis)
- Debt assumed by the corporation
Basis of common stock to shareholder during transfer
- Cash = amount contributed
- Property = Adj basis - debt assumed by corp (if debt > Adj basis, gain is added to bring stock basis to 0)
- Services = FMV
Trade or business deduction for corp calc
9% of the lesser of:
- Qualified production activities income (QPAI)
- Taxable income
QPAI calc
Qualified production activities income: Domestic gross receipts (COGS) (Other directly allocable expenses or losses) (Proper share of other deductions)
Casulaty losses for corp and individual
Corp: 100% deductible
Individual: $100 reduction & 10% of AGI reduction
Organizational and start-up deduction calc
$5,000 expense maxmium + ((eligible costs - 5000)/180)
Entites for which DRD doesn’t apply
“Don’t take it personally”
- Personal service corporation
- Personal holding company
- (Personally taxed) S corporation
DRD calc limitation and exception
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.
Corporate AMT adjustments
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
Corporate AMT preferences
PPP: Percentage depletion Prive activity Tax Exempt interest income Pre-'87 ACRS excess depreciation
Adjusted Current Earnings
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)
ADS
Alternative Depreciation System:
Straight line method over 40 years
Depreciation system used for corporate AMT
ADS for real property 150% Declining balance (using applicable class life) for personal property
Purpose of ACE
Ensure that corporations do not report a profit for financial stmt purposes but pay little to no income taxes
ACE adjustment calculation
- Unadjusted AMTI +/- MOLDD
2. 75%*(AMTI - ACE)
Limitations of ACE adjustment
Amount of negative ACE cannot be greater than the cumulative net positive ACE adjustments
No carryover of excess negative ACE adjustments
AMT Exemption for corporations
$40,000 - (25%(AMTI-150,000))
AMTI tax rate corporation
20%
AMT credit for corporations
Foreign tax credit
MTC
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
Accumulated earnings tax
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
Tax rate for accumulated earnings
20%
Personal holding company
Corporations more than 50% owned by 5 or fewer individuals and having 60% of adjusted ordinary gross income
Gross income qualification for personal holding company
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
E&P
Major factor in determining a corporation’s ability to pay dividends
Classification of distribution as it relates to E&P
- Applied to current E&P
- Applied to accumulated E&P
- Applied to return of capital (tax free but reduces basis of stock)
- Excess = capital gain distribution
Proportional stock redemption
Taxable dividend income; corporation either redeems or cancels the stock pro rata for all shareholders
Disprotional stock redemption
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)
Worthless stock tax treatment
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
Small business stock exclusion
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%.
Built-in gains tax
- A C corp elects S corp status AND 2. FMV of corp assets exceeds adj basis of corp assets on election date
Exemptions for built-in gains tax
- Never a C corp
- Sale/ transfer doesn’t occur within 10 years of first day of first year S election is made
- S corp can demonstrate the appreciation occurred after the S election
Accumulated Adjustments Account
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
Determining shareholder basis in stock
BASE:
Initial basis + Income items (including tax free income) + Addtional shareholder investments - distribution to shareholders - loss or exp items
Treatment of a distribution when an S corporation has C corp E&P
- To extent of AAA = not subject to tax = S corp already taxed profits
- To extent of C corp E&P = taxed as a divided = old C corp taxable dividend
- To extent of basis in stock = not subject to tax; reduces basis = return of capital
- In excess of basis = long-term capital gain = capital gain distribution
Tax on unrelated business income for tax-exempt organizations
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
Controlled taxpayer
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)
Controlled transaction
Any transaction or transfer b/t two or more members of the same group of controlled taxpayers
Uncontrolled comparable
Uncontrolled transaction or uncontrolled taxpayer that is compared with a controlled tranaction or controlled taxpayer
Advance pricing agreement program
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
