Reg Sec 2

Question 1

Dividends from other Taxable Domestic corporations

• DRD
• Tax Year
• M1
• US Treasury bonds

Answer 1

less than 20%=Allowed DRD of 70%
20% to 80%=Allowed DRD of 80%
Greater than 80%= Allowed DRD of 100% control. Investee must hold stock for specified minimum holding period.

• C corp may adopt any tax year, with no justification why.
• M1 is rec. from book to tax and include both permanent and temporary difference like life insurance on employees(ending retained earnings and cash distribution are on M2

Interest on US treasury bonds are fully taxable

Question 2

-Formation cash or property (80% or more Control)
-Shares for services ( same for no control less then 80%)
- property for stock
-

Answer 2

• Formation cash or property, No gain or loss if property is exchanged solely for stock, if property is subject to debt (C.V-Debt=basis in stock). Cash is straight forward Cash=basis in stock
• Shares for services, should be treated as income equal to the estimated fair value Example: Given 10% of shares of company valued at 100,000 in exchange for services, the stock is the same as 10,000 in income.
• property, in most cases FV of property will be ignored and basis will be used. Example: Land cost 100 and FV of 300 is contributed, the share holder will have a stock basis of 100 (Cash and/or property of 80%)and is tax free as long as 80%

Question 3

• property for stock less then 80%(no control)
• Nonrecognition of Gain
• Contributes property subject to liab.

Answer 3

-less than 80% meaning the property and/or cash is less  than 80%, than the property is reported at FV on the date and prorated as a sale by contributor.
Example: 100 shares Carlos paid $450 for 45 shares, Paulette property contributed land costing 100 FV of 300 for 30 shares, Sadie exchange 25 shares for services. total value of 1000.
since Carlos (Cash) and Paulette (land) is less than 80%, Paulette will have to report as income as a sale to corporation for FV of 300 and Sadie will have to report as income of 250(1000@25%)

-None recognition of gain accurs only if the stock exchanged only for property, if cash or other property is received gain is recognized up to the amount of cash or FV of other property received.
Example: Charlotte transfers property of 20,000 with basis of 12000 for 80% and cash for 3,000. Although transfer qualifies under Section351, 3,000 of cash is recognizes by Charlotte and her basis is 12,000 (basis for land) and corporation basis is 15,000(basis for land and 3,000 in cash)

-Property subject to liab the shareholder basis is reduced by the liability. And if liability is greater that basis then the gain is recognized and shareholder bias in the stock is 0.

Question 4

• Consolidated Returns
• Section 1244
• Charitable Conrtibutions
• Capital Gains (Corporation)

Answer 4

• Affiliated group of corporation may elect to file a consolidated tax return.
• Section 1244, since most start up fail. 1244 tax code allows losses form sales to de deducted as ordinary loss of 50,000 (100,000 MFJ) instead of capital loss.
• Charitable contribution, Limited to 10% before claiming special deductions (ATI). GI-Ordinary deduction=ATI 10% of ATI max. Accrued contributions are deductible if they are paid within 2 1/2 months after year end.

-Capital losses for Corporation may only offset capital gains use carry back 3 and carry forward 5 years

Question 5

suspended Loss

• last day to file
• Ordinary Income

Answer 5

suspended loss is the total loss and amount deducted by offset income from loss.
Example:Company X (30,000) loss and Company Y(50,000) loss total of 80,000 loss of set by Company Z 20,000 gain. The portion allocated to X is 30,000/80,000x60,000=22,500

-last day to file is the 15th day of the third month after its
year end.

-ordinary income is revenue less expenses and excludes pass-through, separately stated items such as capital gains/losses and charitable contributions

Question 6

Gain or loss C corp

-Taxable entities that are subject to NOL loss

Answer 6

no gain or loss is recognized in a section 351 transaction if property is transferred to a corporation solely in exchange for stock and transferors are in control. But if shareholder received both cash and stock the shareholder must recognized the less of the two 1 gain realized(FMV of property - basis in property) or 2 cash received

-Taxable entities are Trust and estates and C corp, there for are subject to the NOL operating loss.

Question 7

Tax Liability
Personal Holding Company
Bad debt

Answer 7

A C corp tax liab is the greater of regular or tentative minimums tax.

-A personal holding company is one that derives at least 60% of its revenue from passive sources. The business would consider dividends earned from unrelated domestic corporations and deduct dividends or consent dividends.

for taxes bad debts is deducted in period wrote off

Question 8

Distributes property to shareholder

Dividends distributions by corp

Answer 8

when c corp distributes property to shareholders, the corporation also must recognize a gain if have been sold at fair value Example: a Corp is carrying land for 100 and FV of 500. The share holder will report distribution at 500 and Corp will rport a gain on sale of 400(400-100).
if subject to liability of 200 which shareholder assumes note, the share holder distribution of 500-200=300 and the corp reports a gain of 400(500FV-100basis)=400

-Dividends distributions made by corp to its shareholder are taxable as dividends to the extent of earnings and profits. Example a corp ahd a DEFICT in accumulated e and p of 50,000 and a current e and p of 10,000 at the end of the year and the corp paid a dividend of 15,000. then 10,000 is reported as dividend income and the remaining 5,000 is return of capital.

Another Example without a DEFICT is C Corp has accumulated E and P of 30,000 and Current a and p of 20,000 and distributed 80,000 as dividends so 50,000 is classified as dividend and the remaining 30,000 is return of capital

Question 9

Life insurance Premiums

Vacation pay

Answer 9

When a corporation provides life insurance to its employees and employer isn’t the beneficiary then he premiums are deductible.

Vacation pay is fully deductible if employee vested and franchise tax is fully deductible.

Question 10

AMT

ACE

Answer 10

C Corp is allowed an exemption of 40,000 which reduces AMT, but at 150,000 and eliminats at 310,000

ACE can be a positive or negative

Question 11

Personal holding company

Excess AMT

Answer 11

is one that earns at least 60% of its revenue from passive sources, payments to owner-employeemay be deducted in the period its taxable to the owner-employee.

if greater than regular then payable in addition to regular tax.