Round 2 - Corporations Flashcards
How much boot is recognized to shareholders?
The lower of:
Realized gain
The FMV of the boot received
If the only property received from the corp is stock and the stock is received in exchange for property or cash and the group collectively own 80% of the voting power and each nonvoting class of stock, is G/L recognized?
no
When is no gain or loss recognized to the SH at the formation of a corp
When:
- the only stock is received
- stock is received in exchange for property or cash
- collectively the group owns 80% of the voting power and each nonvoting class of stock
what is the corporations basis in property received from a control club member?
the basis in the property from the member plus any gain recognized by the transferor.
is a net capital loss deductible for computing taxable income?
no
when reconciling between book income and tax income on schedule M-1 of Form 1120 must temp differences and perm differences be considered?
both temp(acclerated depr on tax return and straightline on books) and perm (tax exempt interest) must be considered
How much of dividend income will a SH report as income?
they will recognize dividend income to the extent of the corporations earnings and profits.
what is the word for someone who dies before making a will
intestate
for a tenancy in common (4 people each having an equal share in a parcel of land) if 2 people die, how much of an interest in the land will the 2 surviving people have?
each will have 1/4 as when they est. There is no right of survivorship under tenancy in common
if a parent sells their child stock and then the child sells it. can the parent and child both recognize a G/L?
the parent cannot recognize a G/L. If the parents have a disallowed loss from the sale to their child, the child cannot recognize a G/L
in a trust’s accounting income, what is not included?
items allocated to corpus
To be eligible to defer a gain on the contribution of appreciated property to a corporation
the SH must receives stock in exchange for the property
who must use the accrual method of accounting?
C corps (cannot use the cash method of accounting unless their average annual gross receipts for the previous three years do not exceed $5,000,000)
Partnerships that have regular C corps as partners
Tax shelters
Who can use the cash method of accounting?
Personal Service Corps
S corps
Small Corps (avg gross receipts of $5M)
Who may not choose their fiscal year?
S corps
Personal Service Corps
Can a retail store use the cash method?
Only if its gross receipts do not exceed $1M
When can a C corp use the cash method of accounting?
If their average annual gross receipts for the previous three years do not exceed $5,000,000.
What are the percentages for the dividends received deduction?
<20% = 70%
20 - 80% = 80%
+80% = 100 %
The domestic production deduction may not exceed what percent of the wages allocable to domestic production income
50%
How much of organizational expenses of a corp may me deducted?
$5,000. Phased out $1 for $1 once org expenses exceed $50k. The remaining amount is amortized over 180 months.
Can corp deduct charitable contributions?
Yes can deduct accrued - if paid within 2.5 months following year end.
The limit if 10% of taxable income
Excess is carried forward for 5 years
What are qualifying org expenses
legal fees
temp directors meetings
state incorp fees
(stock issuance and commisions to underwriters are not included)
How much is a corps charitable contribution deduction?
Limited to 10% of its taxable income computed before the charitable deductions and dividend received deductions
Do you have to pay AMT in your first year?
No - auto exempt in first year
Will org have to pay AMT in second year?
Wont have to pay in CY if gross receipts in PY were less than $5M
Will org have to pay AMT in 3rd year?
Wont have to pay in CY if the two periods prior have average gross receipts of less than $7.5M
the consent dividend can be used to reduce..
the accumulated earnings tax and the personal holding company tax
what are consent dividends
hypothetical dividends that are treated as if they were paid prior to YE. Since they are not actually distributed, SH increase their stock basis by the amt of the consent div included in their gross income
What is a deficiency dividend?
a dividend paid withing 90 days of tax imposition and paid expressly to avoid the tax
a company cannot be a PHC unless its passive income is __% of AGI
60%
What types of orgs are exempt from the PHC tax?
bank, insurance, finance
how is the accumulated earnings credit calc? The greater of…
1) the amt of the current earnings and profit needed for the reasonable needs of the business.
2) $250k ($150K for personal service corps) less than the acc earnings and profits at the close of the prior year.
what is the PHC ownership test
it is met if 50% or more of the value of the stock is owned by directly or indirectly by 5 or less individuals in the last half of the year.
Can an S corp have the acc earnings tax imposed?
no, bec an S corps earnings pass through and are taxed to SH regardless of whether the earnings are actually distributed.
When does a PHC exist?
If five or fewer individuals own more than 50% of its stock during the last half of its taxable year and
at least 60% of its adjusted gross income is derived from investment sources (e.g., dividends, interest, rents).
What are the requirements of a controlled group?
Each corporation, except for the parent, must be owned 80% (value or voting power) or more by the other corporations in the group on the last day of the tax year; the common parent must own at least 80% of one other corporation.
What are the requirements of an affiliated group?
Each corporation (except for parent) must be owned 80% (value and voting power) or more by the other corporations in the group on every day of tax year; common parent must at least 80% of one other corporation.
Describe the brother/sister controlled group total control test.
No more than five common shareholders must own in aggregate 80% or more of the stock of each corporation within the group
Who can file consolidated returns?
The election to file consolidated returns is limited to affiliated corporations. Affiliated corporations are parent‐subsidiary corporations that are connected through stock ownership wherein at least 80% of the combined voting power and value of all stock (except the common parent’s) is directly owned by other includible corporations.
In order to qualify as a substantially disproportianate redemption of a SHs stock, the SH must own ___% of the voting shares after the redemption.
50%. The shareholder must own less than 80% of the shares that were owned prior to the redemption and less than 50% in total.
What tests must be passed for a redemption of stock to qualify as a sale?
Must pass one of these tests:
- Not essentially equivalent to a dividend (NEED).
- Redemption is substantially disproportionate
- Complete termination of stockholder’s interest
What conditions must exist to treat a redemption to pay death taxes as a sale?
Stock held by the decedent must be 35% or more of the adjusted gross estate.
Redemption is limited to the total of federal and state death taxes and funeral and administrative expenses.
Will G/L be recognized by a parent corp on the receipt of property in complete liquidation of an 80% owned sub?
no
When a parent corporation liquidates its 80% or more owned subsidiary, will it recognize G/L?
the parent corporation (as stockholder) will ordinarily not recognize any gain or loss on the receipt of liquidating distributions from its subsidiary.
Will a corporation recognize gain or loss on the distribution of its property in complete liquidation just as if the property were sold to the distributee for its fair market value
yes
what kind of deduction is allowed for any amount incurred by a corp in connection with the redemption of its stock
interest expense on loans to repurchase stock
What is a Type B Reorganization?
Stock for Stock
The acquiring corporation must have control of the target corporation immediately after the acquisition
An acquisition of the stock of the target solely in exchange for voting stock of the acquiring firm. Acquiring exchanges its own stock for stock in Target. Target remains in existence, but it is now owned at least 80% by Acquiring. The former Target shareholders now own stock in Acquiring.
if SHs receive property in addition to stock (during a tax-free reorganization) how is it treated?
It is treated as boot.
Gain is recognized - the lower of :
-boot received or
- realized gain (any gain recognized will be div income to the extent of the SH’s proportionate share in the company’s E&P.
Type A Reorganization:
Merger or Consolidation
Most of the assets of the target firm are exchanged for equity (qualified stock) in the acquiring firm.
A merger or consolidation under state law (called a statutory merger). Note that Target is exchanging its assets for Acquiring’s stock. Once Target dissolves, the shareholders of Target own Acquiring stock.
Type C Reorganization:
An acquisition of “substantially all” of the assets of the target solely in exchange for voting stock of the acquiring firm. Note, that Target is exchanging its assets for Acquiring’s stock. The shareholders of Target own Acquiring stock after the reorganization.
Type D Reorganization:
A divisive reorganization (not acquisitive) in that a corporation (the parent) divides by transferring assets to a subsidiary in exchange for subsidiary shares.
When an organization is reorganized, what gain or loss, if any, is required to be recognized by the acquiring corporation?
The acquiring corporation does not recognize gain or loss on the transfer of its stock for the acquired corporation; if it transfers assets, then gain (but not losses) in the assets is recognized.
Type E
recapitalization
Type F
a mere change in identity, form, or place of organization
What is the SH’s basis in property and cash received as dividends?
will be a distribution to the extent of accumulated earnings and profit
How do ERs treat FUTA (unemployment) taxes on their taxes?
taxes paid are deductible by the employer as a business expense for federal tax purposes
how many years can one claim a lifetime learning credit?
unlimited number of years
how much can one claim for a lifetime learning credit?
10% of tuition and fees, up to $10,000 max
what type of org can have a net op loss deduction
trusts and estates
Is a partner taxed on the value of services contributed to a partnership in exchange for a partnership interest.
yes
how is a partners basis in a partnership decreased?
by distributions, expenses, and debt decreases
What taxable year must a partnership use?
If partners owning more than 50% do not have the same taxable year, a partnership must adopt the same taxable year as used by all of its principal partners (i.e., partners with a 5% or more interest in capital and profits). If its principal partners have different taxable years, a partnership must adopt the tax year that results in the least aggregate deferral of income to partners.
when will there be a gain recognized when property is transferred to a partnership
However, gain will be recognized if the transferred property is encumbered by a mortgage, and the partnership’s assumption of the mortgage results in a decrease in the transferor’s individual liabilities that exceeds the basis of the property transferred
What is synidication and can it be amortized?
Selling ones partnership interest. syndication expenditures are capitalized and cannot be amoritzed
A partnership serves as a pass-through entity -
its items of income and deduction are passed through to partners according to their profit and loss sharing ratio (which may differ from the ratio used to divide capital)
If a partnerhisp had E&P of $40 and a P had a 75% profit sharing interest and $5k was distributed to the P. How much should the P report as income from the partnership?
$30k. That is the Ps distributive share of the oridinary income, even though only $5k was distributed to him.
How is income allocated in a family partnership?
Services performed by family members must first be reasonably compensated before income is allocated according to the capital interests of the partners
How are losses treated in a partnership?
since a partnership functions as a pass through entity, the nature of a loss as an ordinary loss is maintained when passed through to partners. However, the amount of partnership loss that can be deducted by a partner is limited to a partners tax basis in the partnership at the end of the partnership taxable year. Therefore, a partner can deduct its share of ordinary loss to the extent of its basis. the remaining loss will be carried forward and can be deducted after his partnership basis has been increased.
What does ordinary income in a partnership consist of?
income from operations. (does not include charitable contributions or LTCG). It is net of salary, utility, office expense.
Net rental income and dividends from foreign corps are separately allocated to partners and must be excluded from ordinary income. Tax-exempt income remains tax-exempt and must also be excluded from ordinary income.
is gain/loss recognized when a corp issues/buys back their stock?
No - No gain or loss is recognized by a corporation on the receipt of money or other property in exchange for its stock (including treasury stock). The excess of selling price over cost is treated as an addition to paid-in capital.
When does a gift tax return need to be filed?
a gift tax return must be filed by a donor if the donor makes a taxable gift (e.g., a gift of a future interest, or a gift of a present interest that exceeds the amount of annual exclusion [$14,000 for 2015]). In determining the amount of taxable gifts, there is an unlimited exclusion that is available for amounts paid on behalf of a donee to an educational organization for tuition, as well as for amounts paid on behalf of a donee to medical care providers for medical services.
what must happen in order to have a firm offer under the UCC?
the offer must be made by a merchant offeror in a signed writing which gives assurance that the offer will be held open. There is no requirement that the offeree also be a merchant. A firm offer does not need to state the period of time for which it is irrevocable. If no time period is stated, the offer will be irrevocable for a reasonable period of time, not to exceed 3 months. A firm offer need not be supported by consideration to be irrevocable.
