REG2 Flashcards
- SUBSIDIARY LIQUIDATION:
- Parent and subsidiary recognition of gain/loss
- Parent basis in property received from sub
- Shareholder’s holding period of property received
- Neither parent nor controlled (80% +) sub recognizes gain or loss on a liquidating distribution to the parent
- Basis of property to the parent from sub = only take the basis of the sub (do not include liab.)
- Begins the day after the property is acquired
- REORGANIZATION TYPES
- Recapitalization
- Stock for assets
- Division
- Corp and shareholders agree to exchange stock type from common to preferred
- Corp A takes substantially all assets of Corp B and B is liquidated
- Corp A transfer all or part of its asset to Corp B in exchange for controlling interest (80%) of the B’s stock
- REDEMPTION
Stock is redeemed when a Corp acquires its own stock from a shareholder in exchange for property. Redemption is either a distribution (Dividend) or a sale of stock
- Considered distributions unless:
- redemption is not equivalent to a dividend
- redemption is substantially disproportionate
- distribution terminates the shareholder’s interest
- distribution is a partial liquidation by a noncorporate shareholder
- redemption is received by an estate
- CALCULATION OF E&P
Beginning E&P Taxable Income Add: excess MACRS depreciation Deduct: nondeductible expenses (federal income tax, charitable contributions in excess of taxable income limit, net capital losses) Ending E&P
- FOREIGN TAX CREDIT
What is the credit formula?
US income tax X ( foreign taxable income / worldwide taxable income )
- FOREIGN TAX CREDIT
What is the limit?
Limited to the lower of actual foreign taxes paid or the calculated tax credit
- Earnings and Profits (E & P)
What are positive adjustments?
Exempt income, deductions, deferred income
Examples: interest from municipal bonds, injury compensation, life insurance proceeds, DRD, capital and NOL carryover, depreciation in excess of straight-line, income per completed-contract method, and deferred income from an installment sale
- Earnings and Profits (E & P)
What are negative adjustments?
Nondeductible items for taxable income and recognized deferred income
Examples: life insurance premiums, penalties, fines, municipal bond expense, excessive compensation, federal income taxes, generally 50% of meals and 100% of entertainment expenses, charitable contributions in excess of the percentage of AGI limit, and prior-year(s) installment sales.
Note: if business meal is provided by a restaurant, 100% is tax deductible, resulting in no negative adjustment
- Earnings and Profits (E & P)
What are “no impact” to E & P?
Examples: unrealized gains and losses, gifts, state tax refunds, and contributions to capital
- INSTALLMENT SALES - INTEREST IMPOSED ON DEFERRED TAX
When is interest imposed on installment sales?
When installment receivables are more the $5M
and
there are annual payments of more than $150k
- LIKE-KIND EXCHANGE WITH BOOT - TAXABLE (RECOGNIZED) GAIN
How do you determine the recognized gain when boot is involved?
Determine the realized gain and the boot received then compare and use the one that is lesser
- SECTION 1231
What is Sec. 1231 property?
Real or depreciable property used in a trade or business
Land, apartment buildings, parking lots, manufacturing equipment, and involuntarily converted capital assets
- SECTION 1245
What is Sec. 1245 property?
Depreciable personal property (tangible/intangible) used in a trade or business for over 12 months
- Sec. 1245 - GAIN
How is the GAIN characterized or classified?
Ordinary income = Lesser of recognized gain OR accumulated depreciation
- DISPOSITION OF INSTALLMENT OBLIGATIONS
How is the gain/loss recognized on the disposition of the installment obligation?
Gain/loss is recognized to the extent of the difference between the basis of the obligation and the amount realized
Adjusted basis of the obligation (aka face amt) = sale price - down pmt - total monthly pmt received thus far
Basis = face amt x the remaining GP %
Amount realized = how much the installment obligation was sold for
Gain/Loss = Amount realized - basis
- SECURITY INTERESTS AND ATTACHMENT
What is attachment?
Process where lender of funds can enforce interest against debtor. Note: not effective against anyone before attachment.
- SECURITY INTEREST PRIORITIES
What has priority between a perfected security interest and unperfected security interest in the same collateral?
perfected security interest
- SECURITY INTEREST PRIORITIES
What has priority if there’s conflicts with unperfected security interests?
The first to attach or become effective
- SECURITY INTEREST PRIORITIES
What has priority if there’s conflict with perfected security interests?
Priority depends upon the order of filing or perfection with respect to the collateral
- BANKRUPTCY LIQUIDATIONS - CHAPTER 7
Does a debtor need to have a minimum number of creditors or debt to file for voluntary bankruptcy under Chapter 7?
NO
- BANKRUPTCY LIQUIDATIONS - DEBTOR’S ESTATE
Which asset acquired by the debtor within 180 days after filing the bankruptcy petition becomes property of the estate?
Inheritance, life insurance policy, property settlement from divorce case
- BANKRUPTCY ADMINISTRATIONS - INVOLUNTARY PROCEEDING/PETITION
If the debtor has 12 or more creditors and owes at least $16,750, how many creditors must join in the involuntary petition?
any 3 or more
- BANKRUPTCY ADMINISTRATIONS - INVOLUNTARY PROCEEDING/PETITION
If the debtor has fewer than 12 creditors and owes at least $16,750, how many creditors must join in the involuntary petition?
any 1 or more
- SECURITY INTERESTS - UCC ARTICLE 9 CLASSIFICATION
What are the classification of goods under the UCC Article 9?
Consumer goods, equipment, farm products, and inventory
not Accounts
- BUSINESS ORGANIZATIONS
What is a PARTNERSHIP?
An association of two or more persons carrying on a business as co-owners for profit
- BUSINESS ORGANIZATIONS
What is a GENERAL PARTNERSHIP?
The form of partnership that may be created without statutory formalities
- BUSINESS ORGANIZATIONS
What is a LIMITED PARTNERSHIP?
Partnerships created only by statute
- BUSINESS ORGANIZATIONS
What is a LIMITED LIABILITY COMPANY?
A hybrid of the corporation and partnership
- ASSIGNMENT OF PARTNERSHIP INTEREST
What is the assignee entitled to?
- Only to the profits and distributions the assignor would normally receive
- Does not automatically become partner (cannot participate in management)
- Cannot act as an agent
- ADMINISTRATIVE LAW - PLR
What is a Private Letter Ruling (PLR)?
An IRS written response to a taxpayer concerning guidance a specific facts and situations
Example: taxpayer has a complex transaction and wants assurance that there will be no adverse tax effects from the transaction
- AUTHORITATIVE HIERARCHY - TAX AUTHORITY HIERARCHY
What are the 3 authoritative tax law?
Legislative law
Administrative law
Judicial law
- JUDICIAL LAW - FEDERAL COURT SYSTEMS
What are the 3 levels of federal courts that hear tax cases?
High Court
Appellate Court
Trial Court
- JUDICIAL LAW - FEDERAL COURT SYSTEM
At the bottom of the hierarchy, what are trial courts (aka original jurisdiction)?
US Tax Court
US District Court
US Court of Federal Claims
- TAX PLANNING - TYPES OF TAX PLANNING
What are the most basic/common types of tax planning?
Timing of income recognition
Shifting of income among taxpayers and jurisdictions
Conversion of income among high- and low-rate activities
- TAX PLANNING - TIMING TECHNIQUES
What should be considered when evaluating the use of timing techniques?
Time value of money
Future tax law
Individual circumstances of taxpayer
Doctrine of constructive receipt
- FORMATION - GAIN TREATMENT WITHOUT SEC. 351
How is the transferor’s gain treated on a transfer of property to a corporation in exchange for stock of the corporation without Sec. 351?
Any gain realized would be recognized (taxable)
- FORMATION - BASIS OF CORPORATION IN PROPERTY
In a property exchanged by a control group for the corporation’s stock, how is the basis of the property to the corporation determined? Are there any exceptions?
Take the shareholder’s AB in the property plus any gain recognized by the shareholder (anything other than stock). The exception is if the AB in the property exceeds the FMV (built-in loss), then use the FMV.
- FORMATION - LIABILITY TRANSFER UNDER SEC. 351
If a taxpayer exchanges an asset under sec. 351 that is attached with a liability, how or when is the gain or income recognized?
In a 351 exchange, the income or gain is recognized if the liability exceeds the basis of the asset being transferred. The amount of excess over the basis is recognized or taxable income.
- LOSSES OF A CORPORATION - NOL
What is an NOL?
Any excess of deductions over gross income
- LOSSES OF A CORPORATION - NOL and CAPITAL GAINS & LOSSES
Capital losses in excess of capital gain is not permitted to offset ordinary income, instead, how should it be treated?
Suspended and carried back 3 years and forward 5 years to offset capital gains
