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CPA > REG Study Unit 8 > Flashcards

REG Study Unit 8 Flashcards

1
Q

Corporate Income Tax

A

Imposed using graduated bracket rate system.

Two built in surtaxes that phase out of benefits of lower bracketed tax rates.

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2
Q

Flat Rate

A

Taxable income over $18,333,333 is taxed at a flat rate of 35%

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3
Q

Long-Term Capital Gains of Corporations

A

Taxed at ordinary tax rates

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4
Q

Personal Service Corporations Tax Rate

A

Taxed at a flat rate of 35%

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5
Q

Foreign Tax Credit (FTC) election options

A

May elect to take a credit or deduction for foreign taxes paid or accrued.

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6
Q

FTC Application

A

Applied against tax liability after AMT but before other credits
May offset AMT liability
Not creditable against accumulated earnings tax or personal holding company tax.

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7
Q

FTC for Non-US Taxpaper

A

FTC is allowed only for foreign taxes paid on effectively connected income against US Tax

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8
Q

FTC Limit

A

Lesser of US tax attributable to foreign source taxable income or foreign taxes paid.

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9
Q

FTC Carryover

A

Foreign tax paid in excess of limit may be carried back 1 year and forward 10 years.

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10
Q

FTC Limit Computation

A

FTC=US Income Tax X (Foreign source taxable income/Worldwide taxable income

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11
Q

FTC for Pass-through Entities

A

Apportion the foreign taxes among the partners, shareholders (of an S Corporation, or beneficiaries (of an estate).elect and compute a credit or deduction on individual returns.

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12
Q

Excluded from Includible Corporations (for consolidated returns)

A
  • Tax exempt corporations
  • S Corporations
  • Foreign sales corporations
  • Insurance corporations
  • Real Estate Investments Trusts (REITs)
  • Regulated investment companies
  • Domestic International Sales Corporations (DISCs)
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13
Q

Affiliated Groups (for Consolidated returns) Requirements

A
  • Other group members must own 80% by vote and value

- Parent must directly own 80% of at least one includible corporation

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14
Q

Consolidation Election

A
  • election to file is made by filing return.
  • Consent of each included corporation required
  • Consent of IRS required to terminate election
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15
Q

Consolidated Taxable Income

A

Must remove separately consolidated and specially treated items.
Net taxable income consolidated, then adjusted for items removed after separate consolidation.

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16
Q

Separately stated items on consolidated taxable income

A
  • charitable contributions
  • dividends received and paid deductions
  • percentage depletion of mineral properties
  • NOL deductions
  • Section 1231 gains and losses
  • Capital gains and losses
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17
Q

Consolidated Losses

A

Losses of one corporation may offset income of another.

Any NOL generated must be used in a consolidated tax year.

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18
Q

Intercompany transactions

A

Gain/loss on transaction is deferred.

Buyer assumes same basis and holding period as selling member.

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19
Q

Controlled Groups

A

Corporations with a specified relationship by stock ownership.

20
Q

Parent-Subsidiary Controlled Group

A

Parent owning stock that represents 80% by voting power or value of another corporation

21
Q

Brother-Sister Controlled Group

A

stock of each owned by the same 5 or fewer persons and that ownership:
Owns 80% by vote or value, and special 50% rule of 50% voting power or value of all classes.

22
Q

Constructive Ownership of Controlled Groups

A

Family member: spouse, child, grandchild, parent, or grandparent or
Entity: corporation, partnership, estate, or trust with a 5% or more interest or proportion to that interest.

23
Q

Limit on Tax Benefits of Controlled Groups

A

Benefits most be shared. May choose any method to allocate the amounts among the group.

  • Low tax brackets
  • Section 179 expensing max of $500k
  • AMT exemption bas of $40k
  • General business credit $25k offset.
  • AET deduction base of $250k
24
Q

Intergroup Transactions of Controlled Groups

A

Anti-avoidance rules:

  • Loss not recognized on related party sale
  • Expenditure to group member not deductible until included in other member’s income.
  • Gain on sale/exchange to member in whose hands the property is depreciable is ordinary income

IRS may redetermine price for property transferred between group members called arm’s-length price. The methods include comparable uncontrolled prices, resale prices, and cost plus return.

25
Q

Estimates Difference Due

A

Paid by the return due date without extension

26
Q

Due dates for estimates

A

Quarterly payments due on

15th day of 4th, 6th, 9th, and 12th month of the tax year.

27
Q

Estimated payments of Large Cororations

A

Annualize income. If income in later quarters is greater than in prior quarters, the estimate must be increased so that 100% of the shortfall is covered. $1 million or more during any of the 3 preceding years.

28
Q

Estimated payments

A

Includes the regular income tax and the AMT, net of credits and payments.
Each estimate is 25% of lesser of 100% of prior year’s tax or current year’s tax.
Large corporations can not use this prior year tax estimates.

29
Q

Estimated Tax Penalty

A

Amount by which any required installment exceeds estimated tax paid multiplied by the federal short-term rate plus 5%.
Accrues from installment due date.
Not allowed as interest deduction

30
Q

Exceptions to estimated tax penalty

A
  • Tax liability for year is less than $500
  • IRS waives penalty
  • Erroneous IRS notice to large corporation is withdrawn.
31
Q

Accumulated Earnings Tax (AET)

A

Imposed on corporations allowing E&P to accumulate instead of distributing
Presumed to have tax avoidance purpose for accumulation beyond reasonable needs.

32
Q

Computing AET

A

20% of accumulated taxable income. No offsetting credit or deduction is allowed. Excess undistributed earnings of preceding tax years are excluded.

33
Q

Determination of AET liability

A

generally determined by IRS on audit. corporation does not file form with return.

34
Q

AET exempt Entities

A
  • S Corporations
  • Tax-exempt corporations
  • Personal holding companies
  • Foreign personal holding companies
  • Passive foreign investment companies
35
Q

Accumulated Taxable Income (ATI)

A

AET base

Measure of corporation’s ability to distribute dividends from current-year earnings.

36
Q

Accumulated Earnings Credit (AEC)

A

Deduction for ATI
Greater of:
-General credit (current E&P for reasonable needs of the business less capital gain adjustments
or
-Minimum floor, Generally $250,000 less accumulated E&P at the close of the preceding year

37
Q

AET Reasonable Needs of the Business

A

Based on the excess of undistributed current earnings over the increase in the reasonable needs of the business.
-Only items required to meet future needs with a specific foreseeable plan for use.

38
Q

AET Not Reasonable Needs

A
  • Funds to declare a stock dividend
  • Funds to redeem stock
  • Unrealistic business hazard protection
  • Investment property unrelated to business
  • Loans to shareholders.
39
Q

Personal Holding Company (PHC) Tax Penalty

A

20% tax on undistributed PHC income. no offsetting credit or deduction allowed.

40
Q

PHC Self-Assessment

A

Tax liability filed on Sch PH is filed with Form 1120. Six year statute of limitations if not filed.

41
Q

PHC Objective Test

A

Stock ownership test
-5 or fewer shareholders own 50% or more by value at any time during last half of year.
Nature of Income test
-60% or more adjusted ordinary gross income of the corporation is personal holding company income.

42
Q

PHC exempt entities

A
  • S Corporations
  • Tax-exempt corporations
  • Foreign personal holding companies
  • banks
  • Insurance companies
43
Q

PHC Adjusted Ordinary Gross Income

A

OGI: Gross income adjusted for property dispositions
AOGI: OGI reduced by certain rental items and other activities

44
Q

PHC Income

A 
Generally Passive income
Includes:
-Interest (unless exempt from GI)
-Dividends, i.e., taxable distributions of E&P
-Annuity proceeds
-Royalties
-Rental Income
-Personal services income
-Distributions from estates or trusts
45
Q

Personal Service Income

A

Included only if

  • Earned by 25% or more shareholder
  • From a personal services contract
  • Certain persons perform/may perform services
46
Q

PHC Tax

A

20% of undistributed PHCI

CPA (4 decks)

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