S-Corp & Exempt Organizations Flashcards
Do shareholders guarantees increase basis?
No
When are Fringe benefits decuctible?
When they are for non-shareholder employees,
NOT for shareholders owning over 2% (Included in K-1)
Does a shareholder in a S-corp need to receive a distribution for it to be taxed?
NO
The shareholder is taxed on pass-through items even if they haven’t been distibuted to them (Like a bank account)
What account is used to compute tax effects of distrinutions paid to shareholders in an S-corp?
The Accumulated Adjustments Account (AAA)
Is zero on election date.
Basically the cumulative amount of S corp income or loss.
How shareholder basis in S-corp stock computed?
Basis (Initial)
+ Add Income items (Separately and & non-separatley stated items) and *Capital Gains
+ Add Additional shareholder investment in corporation stock
- Subtract Distribution to shareholders
- Subtract Loss or expense items (and *Capital Losses)
=Ending Basis
What is an S corp shareholder allowed to deduct as a loss on their individual return and how is it calculated?
The pro rata share of the S corp loss limited to.... Basis \+Direct shareholder loans -Distributions =Loss Limitation
In some situations, an S-Corp will have left over C-corp E&P. How is this treated when an S-Corp makes a distribution?
- To the extent of AAA (shareholder already taxed)
- To the extent of C-corp E&P (Old C-corp taxable dividend)
- To the extent of basis of stock (Return of Capital)
- In excess of basis of stock (Capital Gain)
One way an S-corp can lose its status is from having too much passive investment income. Describe this scenario.
If the S-corp had…
- 25% of gross receipts come from passive investment income for 3 consecutive years and…
- had C-corp E&P at the end of each year,
- S-corp status terminated at the beginning of 4th year.
What are the requirements to be a 501(c)(3) corporation?
- No part of earnings must benefit any private shareholder or individual
- No substantial part of the activities my be Nonexempt Activites (e.g., influencing legislation)
- May not directly participate in any political campaign. (No endorsing or fund-raising)
What is a Section 509 Private Foundation and what are they required to file?
It includes all 501 c 3 corporations other than those specifically excluded. A foreign corp may be one.
Must file Form 990-PF that discloses contributors and amounts of contributions received.
When does a Section 509 Private Foundation status terminate?
- When they become a public charity or..
2. When they notify the IRS of the plan to terminate
What is Unrelated Business Income (UBI)?
Income that is…
- Derived from a activity that constitutes a trade or business
- Regularly carried on
- Not substantially related to the organization’s tax-exempt purposes.
- *Unless the work is performed by unpaid workers (volunteers).
What happens if an exempt corp has UBI?
- Must file form 990-T
- Make estimated tax payment like corporations
- Are allowed a $1000 deduction
What the exempt organizations that do not have to file Form 990, the information return?
- Religious or Internally Supported Organizations
- Certain organizations that normally have less than 5000 in gross receipts
- Certain organizations that normally have less than 50000 in gross receipts (Use electronic postcard Form 990-N)
When is an S-Corp taxed and what is the tax called?
Get the Built-in gains tax if…
1. A C-corp elects S status
AND
2. The FMV of assets exceeds the adjusted basis on election date
