REG10

Question 1

Can a corporation exclude from gross income the full amount of life insurance proceeds?

Answer 1

Yes, generally, when employers receive life insurance proceeds on an employee, only the amount of premiums paid can be excluded. However, for key employees the full amount of life insurance proceeds is excluded from GI.

Question 2

Does a dividend received have to be added to the preliminary TI in order to calculate the TI limit for purposes of the DRD?

Answer 2

Yes, preliminary income after the dividend is = dividend - income (loss). Take a % of the lesser of the TI or the dividend.

Question 3

Is the dividends-received deduction (DRD) shown as a special corporate deduction on Form 1120?

Answer 3

Yes.

Question 4

How do you calculate the credit Child Care?

Answer 4

The applicable percentage is 35%, reduced (but not below 20%) by one percentage point for each $2,000 by which AGI > $15,000.
Divide excess AGI by 2,000, round up %. So applicable percentage is 35% – excess %.

Question 5

What taxable income is the DRD applicable to?

Answer 5

TI without DRD, Take deduction on the less or of TI without DRD or DRD.

Question 6

Is half of the self-employment taxes paid a deduction on Schedule A.

Answer 6

NO. Self-employed individuals may deduct half of the self-employment taxes paid as an above-the-line business deduction, which is not on Schedule A.

Question 7

Are premiums on an insurance policy against loss of earnings due to sickness or accident deductible?

Answer 7

No, the cost of insurance against loss of earnings is not deductible.

Question 8

How do you calculate self-employment tax?

Answer 8

Net earnings from self-employment = NI from self-employment  - (employer’s portion of self- 
 employment tax (7.65%) x NI)

Self-employment tax = Net earnings from self-employment x Tax Rate (0.153)

Question 9

Where are reportable capital gain NI reported?

Answer 9

Schedule D Summary

Question 10

What is the accumulated earnings tax (AET) and how is it applied?

Answer 10

It is applied to accumulated TI, subject to certain adjustments. Federal income taxes are deducted as an adjustment.
If no reason for the accumulation, the minimum Accumulated Earnings Credit is $250K for nonservice corporations. The credit is a negative adjustment to taxable income in computing ATI. ATI = TI – federal income tax – $250K minimum Accumulated Earnings Credit.

Question 11

What is personal holding company (PHC) defined as?

Answer 11

If at least 60% of its AGI for the year is personal holding company income and if, at any time during the last half of the taxable year, more than 50% of the value of its outstanding stock is owned by not more than five individuals.

Question 12

Are federal income taxes accrued and capital gains subtracted from TI for a domestic personal holding company?

Answer 12

Undistributed PHC income is TI net of specific adjustments and the dividends-paid deduction. Federal income taxes accrued and capital gains (net of related federal taxes) are subtracted from taxable income.

Question 13

Can a large corporation, $1 million or more TI, rely on the 100% of the tax shown on the return for the preceding year exception?

Answer 13

No, a corporation having $1 million or more TI during any of its 3 preceding tax years are not able to avoid underpaying their taxes by relying on the 100% of the tax shown on the return for the preceding year exception.

Question 14

Is there an estimated tax underpayment penalty imposed on a corporation if qualifying estimated tax payments were made?

Answer 14

No estimated tax underpayment penalty is imposed on a corporation if qualifying estimated tax payments were made.

Question 15

The Accumulated Earnings Credit is the greater of what?

Answer 15

Greater of (1) the difference between $250K and the accumulated earnings and profits at the end of the prior year or (2) the difference between current earnings and profits retained for the reasonable needs of the business (minus the LTCG adjustments of the current year) and the accumulated earnings and profits at the end of the prior year.

Question 16

Is a plan to redeem the shares of a shareholder qualify as a reasonable need of a business to prevent earnings accumulation tax (AET)?

Answer 16

No, it does not qualify as a reasonable need of a business. But, a stock redemption plan that involves a deceased shareholder whose stock is included in his gross estate can qualify as a reasonable need.

Question 17

Can the Accumulated Earnings Tax (AET) be imposed on a corporation that has undistributed earnings and profits of less than $150,000?

Answer 17

No…The Accumulated Earnings Credit (AEC) is deducted from TI to determine accumulated taxable income (ATI), the AET base. The minimum credit base is $250,000.
The minimum credit base is $150,000 for certain service corporations. So, AET is not imposed on a corporation that has undistributed earnings and profits of less than $150,000.

Question 18

For the accumulated earnings tax, can capital loss carrybacks and carryforwards be subtracted in arriving at ATI?

Answer 18

No, capital loss carrybacks and carryforwards are not allowed. Instead, capital losses are deductible in full in the year incurred (reduced by prior net capital gain deductions).

Question 19

Do contributions to an Individual Retirement Arrangement (IRA) effect AMT?

Answer 19

No, contributions to an IRA have no effect on AMTI.

Question 20

Is a gain on the sale of property from one member of a controlled group to another member recognized?

Answer 20

Yes, A gain on the sale of property from one member of a controlled group to another member in whose hands the property is depreciable is treated as ordinary income of the selling member.

Question 21

What is the rule for the amount of estimated tax due?

Answer 21

Estimated payments are 25% of the lesser of (1) 100% of the prior year’s tax (provided a tax liability existed and the preceding tax year was 12 months) or (2) 100% of the current year’s tax. The current yearʼs estimated tax is greater than the prior yearʼs tax.

Question 22

When calculating current year E&P for a corporation, is gain on prior year installment sale recognized in the current year added?

Answer 22

It is subtracted from TI (decrease E&P). The full gain from the sale will already have been recognized in the year of the sale, which took place in the prior year. Since the full gain on this sale is already accounted for in E&P, the amount of the installment sale recognized in this year must be subtracted in order to avoid double counting the gain.

Question 23

What constitutes a brother-sister controlled group?

Answer 23

Any two or more corporations are owned by the same five or fewer persons, and that ownership (a) represents 80% or more of either the total voting power or value of all classes of shares, and, (b) when counting for each person only the smallest amount owned by that person in any of the corporations, represents more than 50% of either the voting power or value of all classes of shares.

Question 24

How would you report income from the sale of inventory between a consolidated group?

Answer 24

Report (Income from outside sale – Cost to original company owning inventory) x % sold

Question 25

What amount of estimated payments of large companies (TI greater than $1 million) be each quarter?

Answer 25

1st quarter, should be 25% of the lesser of 100% of the current year’s tax or 100% of the prior year’s tax. Should be 25% of the current year’s tax for the second, third, and fourth quarter. Any difference that may have arisen due to using 25% of the prior year’s tax for the first quarter would have been rectified by the second quarter estimated payment.

Question 26

For corporations should estimated payments should be 25% of the lesser of 100% of the current year’s tax or 100% of the prior year’s tax?

Answer 26

YES. Estimated payments should be 25% of the lesser of 100% of the current year’s tax or 100% of the prior year’s tax.