REG Module 3 Flashcards
DRD - Dividends Received Deduction
Ownership 0%-<20% - 50% (Considered Unrelated)
Ownership 20%-80% - 65%
Ownership 80% or more - 100% (consolidated)
DRD equals the lessor of:
50% (or 65) dividends received
OR
50% (or 65) of taxable income computer without regard to the DRD, any NOL carry forward or any capital loss carry back.
C Corp accounting method for taxes
Whatever is done on the initial tax return then that’s what’s chosen.
When is accrual based accounting required?
- Purchase/Sales of inventory provided the business has GREATER than $29 million of average gross receipts for the three year period ending with the prior tax year
- Tax shelters
- Farming corporations provided the business has GREATER than $29 million of average annual gross receipts for the three year period ending with the prior tax year
- C Corps, trusts with unrelated trade or business income, and partnerships having a C corp as a parter provided the business has GREATER than $29 million of average gross receipts for the three year period ending with the prior tax year
Cost of organizing a corporation
These can be amortized over a period of not less than 180 months. The taxpayer may elect to deduct up to $5000 in year 1 subject to certain limitations.
Foreign income taxes paid by a corporation
May be claimed as a credit or deduction at the discretion of the corporation
Accumulated earnings tax can be imposed
Regardless of the number stockholders. And on regular companies not classified as personal holding companies
What is the minimum accumulated earnings credit?
$250,000
Personal holding company status applies if…
Personal holding company status applies if a corporation is owned more than 50% by five or fewer individuals at any time during the last half of the tax year and if at least 60% of adjusted ordinary gross income for the tax year is personal holding company income (which would include income from investments in stocks and securities)
There are two criteria in determining whether a company is a personal holding company:
There are two criteria in determining whether a company is a personal holding company: a) more than 50% of the stock must be owned by 5 or fewer individuals, and b) at least 60% of the adjusted ordinary gross income must consist of certain investment income (e.g., interest, dividends, etc.). So, the stock ownership test is 50% while the income test is 60%.
Qualifications for an S Corp
- Domestic Corporation
- No more than 100 Shareholders
- Individuals, estates, or certain trusts
- May not be nonresident alien (I.e.e must be resident alien)
- Qualified retirement plans and 501(c)(3) charitable organizations can be Shareholder
- Corporations or partnerships cannot be shareholders
- No more than one class of stock outstanding
When does an S corp qualify for elimination?
- If more than 50% of shareholders consent to the revocation (voting and nonvoting combined).
- Any of the qualifications for an s corp are not met
- Excessive passive investment - more than 25% of corps gross receipts from passive investment income for 3 consecutive years (but only if the corp has prior c corp earnings)
When are fringe benefits deductible by an S corp?
- Non shareholder employees
- Employee shareholder owning <2% of the S Corp
- If employee shareholder owns >2% it’s only deductible if the s corp includes the benefits on the employees W-2 as income.
How are family members treated in an s-corp?
They can elect to be treated as one shareholder
When election occurs for an S Corp, who has to agree and how?
ALL shareholders have to agree and it has to be done in writing
What is the cutoff date for election of S Corp?
Election must be made by the 15th day of the third month of the taxable year. If made after that date, then it becomes effective the first day of the next taxable year.
