Section 5 C - C Corp Flashcards
Any time a corporation is formed and “property” (not services rendered) is transferred to the corporation “solely in exchange for stock” of that corporation and immediately after the transfer, the transferors are in “control,” no ____is recognized.
“Property” includes cash, intangible personal property and tangible property. T/F
“Control” is defined as ___% of the voting power.
gain or loss
True
80
Tax-free contributions to form a new corporation (
Property must be contributed by \_\_\_to the corporation Control by the investors must exist \_\_after the The investors must receive only\_\_\_in the corporation for their investment.exchange. If the stockholder receives cash or other property in the exchange, then gain is recognized up to the smaller of the \_\_\_received or the gain realized.
investors
immediately
stock
boot
In a type B reorganization, as defined by the Internal Revenue Code:
the stock of the target corporation is acquired solely for the ___stock of either the acquiring corporation or its __
the acquiring corporation must have __of the target corporation immediately after the acquisition.
B Organizations are tax free T/F
voting , parent.
control
True
IRC Section 368(a)(1) lists seven types of corporate reorganizations. They are identified by the following capital letters:
Statutory Merger/Consolidation
Acquiring a corporation using stock (voting stock for stock exchange)
Stock for assets
Recapitalization
Change in identity
Transfer of all/part of assets to another corporation in a bankruptcy
memorize
Tax Cuts and Jobs Act of 2017 (TCJA), the corporate rate is a flat __%.
The tax rate for qualified personal service corporations is a flat __% on all taxable income.
21
Contributions in excess of the 10% limit may be carried forward ___
Dividend Received Deduction:::: Days when the corporation is protected from loss on the stock by put options do not count toward the holding period requirement.
five years.
True
Which of the following is true regarding dividends that qualify for the dividends-received deduction?
Days when the corporation is protected from loss on the stock by a put option do count toward the 45-day holding period requirement.
Dividends qualify for the dividends-received deduction if the stock has been owned for at least 30 days.
Dividends qualify for the dividends-received deduction only if the holding period is met for each dividend received.
Dividends qualify for the dividends-received deduction only if the holding period is met for each dividend received.
Dividend Received Deduction::::::
The holding period must be met within the 91-day period beginning 45 days before the __date of the stock.
If the stock is cumulative preferred stock with an arrearage of dividends, it must be held at least 91 days during the 181-day period beginning 90 days before the ex-dividend date.
ex-dividend
For Year 2, Quest Corp., an accrual-basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from Year 1. Quest’s Year 2 taxable income before the deduction for charitable contributions was $200,000. On December 12, Year 2, Quest’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 6, Year 3. What is the maximum allowable deduction that Quest may take as a charitable contribution on its Year 2 income tax return?
$20k
for an accrual-basis corporation, any charitable contribution authorized by the board of directors prior to year-end and paid within 2-1/2 months from year-end may be deducted on the prior-year tax return.
The maximum allowable deduction that Quest Corp. may take as a charitable contribution is 10% of $200,000 (its taxable income), which is $20,000.
Zero Corp. is an investment company authorized to issue only common stock. During the last half of the year, Edwards and four other individuals owned 450 of the 1,000 outstanding shares of stock in Zero. Another 350 shares of stock outstanding were owned, 10 shares each, by 35 shareholders who are neither related to each other nor to Edwards. Zero could be a personal holding company if the remaining 200 shares of common stock were owned by:
Correct
Edwards would own the following:
450 shares outright 200 shares as an estate beneficiary 650 total shares === 650 / 1000 = 65%
To be classified as a personal holding company (PHC), one of the requirements is that “at any time during the last half of the year more than 50% in value of the corporation’s outstanding stock must be owned, directly or indirectly, by or for not more than five individuals.”
To be classified as a___(PHC), one of the requirements is that “at any time during the last half of the year more than 50% in value of the corporation’s outstanding stock must be owned, directly or indirectly, by or for not more than five individuals.”
personal holding company
Two tests must be satisfied to be considered a PHC:
Stock ownership test: More than __% of the value of the outstanding stock must be owned by five or fewer individuals
Gross income test: \_\_\_% or more of the gross income must consist of personal holding company income The personal holding company tax can be avoided by paying enough in \_\_( Both the actual dividends paid and the consent dividends are considered dividends paid. T/F If both penalty taxes apply to one corporation, then the \_\_\_tax will be the only one imposed.
50%
60%
dividends
True
PHC
In the filing of a consolidated tax return for a corporation and its wholly owned subsidiaries, intercompany dividends between the parent and subsidiary corporations are:
not taxable.
included in taxable income to the extent of 20%.
included in taxable income to the extent of 80%.
fully taxable.
Not taxable
ne of the advantages of filing a consolidated return is that all (100%) of the intercompany dividends are tax-free. (100% dividends-received deducton)
As the result of an IRS audit of a C corporation and its sole shareholder, the IRS agent proposes that a portion of the shareholder’s salary is unreasonable. Because the corporation has significant earnings and profits, the agent has determined that the unreasonable portion of the salary is a dividend. Which of the following is correct regarding the impact of the proposed adjustment to both the corporation and its shareholder?
Partial disallowance of salary expense, a corresponding increase in nondeductible dividends to the corporation, and reclassification of the shareholder’s salary to dividend treatment….WHY
Salaries are deductible as a business expense, thus lowering taxable income, while dividends do not impact taxes.
The impact of the proposed adjustment would therefore be a partial disallowance of salary expense and a corresponding increase in nondeductible dividends to the corporation with a reclassification of the shareholder’s salary to dividend treatment.
In Year 4, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 5, after filing its Year 4 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is correct?
No further inclusion of income is required as the difference is less than 25% of the original amount reported and the estimate had been made in good faith.
The $1,000 difference is includible in Stewart’s Year 5 income tax return.
Stewart is required to notify the IRS within 30 days of the determination of the exact amount of the item.
Stewart is required to file an amended return to report the additional $1,000 of income.
The $1,000 difference is includible in Stewart’s Year 5 income tax return.
When an accrual-basis taxpayer estimates its income, if the income is underestimated, the difference is added to the income of the following year.
____ is recognized on the sale or acquisition of the corporation’s own capital stock.
A corporation distributing appreciated property to its shareholders will be taxed on the appreciation. T/F
No gain or loss
True
In April, A and B formed X Corp. A contributed $50,000 cash and B contributed land worth $70,000 (with an adjusted basis of $40,000). B also received $20,000 cash from the corporation. A and B each received 50% of the corporation’s stock. What is the tax basis of the land to X Corp.?
$60k
X Corp. received land with an adjusted basis of $40,000 from shareholder B. X Corp. paid B an additional $20,000 in cash. The tax basis of the land for X Corp. is $60,000, made up of the $40,000 in basis from B and the $20,000 paid to B.
The new corporation takes an adjusted basis in the property received equal to the adjusted basis in the hands of the contributing shareholder plus any cash paid to the shareholder.
Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
Adjusted Fair Market Percentage of Property Basis Value Ace Stock Acquired Lind Building $40,000 $82,000 60% Post Land 5,000 48,000 40% The building was subject to a $10,000 mortgage that was assumed by Ace.
What was Ace’s basis in the building?
This transaction qualifies as a Section 351 tax-free transaction. No gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange the persons are in control of the corporation. Control means 80% or more of the corporation. Since Lind and Post own 100% of the corporation, no gain is to be recognized.
The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and a basis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder must recognize?
The same contribution rules apply to shareholders in a C corporation and shareholders in an S corporation. If a shareholder contributes property with a liability in excess of basis, the excess is considered a gain. It will be ordinary gain if ordinary income property was contributed, or capital gain if capital gain property was contributed.
Adjusted basis of property contributed to S corporation $ 6,000
Less: Liability transferred to S corporation (12,000)
——–
Recognized gain $ 6,000
========
If a shareholder contributes property with a liability in excess of basis, the excess is considered a ___. It will be ordinary gain if ordinary income property was contributed, or capital gain if capital gain property was contributed.
Nonqualified preferred stock is treated as boot T/F
gain
True
Sky Corp. was a wholly owned subsidiary of Jet Corp. Both corporations were domestic C corporations. Jet received a liquidating distribution of property in cancellation of its Sky stock when Jet’s tax basis in Sky stock was $100,000. The distributed property had an adjusted basis of $135,000 and a fair market value of $250,000. What amount of taxable gain did Jet, the parent corporation, recognize on the receipt of the property?
Under IRC Section 332, an 80% or greater parent does not generally recognize a gain or loss on the liquidation of a subsidiary corporation.
When the parent already owns 100% of the stock, then liquidating the subsidiary and passing the assets of the subsidiary to the parent does not change the economic position of the parent.
Corporation concerns:
Liquidating corporations are required to recognize a gain or loss on both liquidating ___and liquidating _
No gain or loss will be recognized by a liquidating subsidiary on the distribution of any property in a complete liquidation to an 80% corporate parent. T/F
sales, distributions.
True
On December 31, a C corporation made a nonliquidating distribution of the following assets to its sole shareholder:
Land Fair market value $100,000
Adjusted basis 50,000
Patent Fair market value 25,000
Adjusted basis 0
Building Fair market value 50,000
Adjusted basis 150,000
What gain or loss should the corporation recognize as a result of the distribution?
$75,000 gain
A $75,000 gain should be recognized as a result of the distribution. Nonliquidating distributions of appreciated property generate gain to the corporation; losses are nondeductible. the loss is not allowed and therefore the corporation should recognize a total gain of $75,000
Nonliquidating distributions:
SHAREHOLDER
To the extent of earnings and profits, the distribution is a dividend. T/F
Any excess is a return of capital and then a capital gain. T/F
CORPORATION
Nonliquidating distributions of appreciated property generate ___to the corporation.
Losses are __.
True
True
gain
nondeductible
Portal Corp. received $100,000 in dividends from Sal Corp., its 80%-owned subsidiary. What net amount of dividend income should Portal include in its consolidated tax return?
$0
Less than 20% ownership: 50% deduction
20% - less than 80% ownership: 65% deduction
80% or more ownership: 100% deductio
Rona Corp.’s alternative minimum taxable income was $200,000. What tax is owed?
$0
The Tax Cuts and Jobs Act of 2017 (TCJA) repealed the alternative minimum tax (AMT) for corporation
___ are not subject to the alternative minimum tax (AMT) under the Tax Cuts and Jobs Act of 2017 (TCJA).
C corporations
Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year-end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash?
Brisk’s taxable income: No change; Shareholder’s taxable income: No change
Brisk’s taxable income: Increase; Shareholder’s taxable income: No change
Brisk’s taxable income: No change; Shareholder’s taxable income: Decrease
Brisk’s taxable income: Increase; Shareholder’s taxable income: Decrease
Brisk’s taxable income: Increase; Shareholder’s taxable income: No change
f the shareholder receives property with a fair market value (FMV) of $200,000, the taxable income to the shareholder is the same as a cash distribution of $200,000.
For Brisk Corp., the basis in the land was only $75,000. Brisk will have to report income/gain of $125,000 on the transaction to account for the FMV of the distributed property.
The following information pertains to Hull, Inc., a personal holding company, for the year ended December 31, Year 0:
Undistributed personal holding company income: $100,000
Dividends paid during Year 0: $20,000
Consent dividends reported in the Year 0 individual income tax returns of the holders of Hull’s common stock, but not paid by Hull to its stockholders: $10,000
In computing its Year 0 personal holding company tax, what amount should Hull deduct for dividends paid?
$30k
A personal holding company is allowed a deduction for both actual paid dividends and consent dividends. Therefore, Hull, Inc., is allowed a deduction for $30,000, which is the sum of the actual dividends paid in Year 0 of $20,000 and the consent dividends reported in Year 0 of $10,000.
Which of the following groups may elect to file a consolidated corporate return?
A brother/sister–controlled group
A parent corporation and all more-than-10%-controlled partnerships
A parent corporation and all more-than-50%-controlled subsidiaries
Members of an affiliated group
A consolidated corporate income tax return may be filed by the members of an affiliated group. An affiliated group exists where:
a parent company owns at least 80% of the stock in at least one other corporation in the group or
at least 80% of the stock of other companies in the group is owned directly by one or more companies in the affiliated group.
T-TOP Corp. has a fiscal year beginning September 1 and ending August 31. T-TOP’s estimated tax for the fiscal year beginning September 1, year 5, is $10,000. The first installment would be due by:
December 15, year 5.
The first estimated tax payment is due by the 15th day of the 4th month following the close of the tax year. Other payments are due on the 15th day of the 6th, 9th, and 12th months of the fiscal year.
Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year-end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox’s tax basis in the land?
$38k
Since Fox is the sole stockholder in the C corporation Fall, his basis in the land distributed to him will be equal to the fair market value of the asset ($38,000).
The liability Fox assumes reduces the amount of taxable dividend. The amount of taxable dividend Fox received is $35,000 ($38,000 - $3,000)
. The property is treated “as if” it were sold at its ___
fair market value
Garland Corp. contributed $40,000 to a qualified charitable organization. Garland’s taxable income before the deduction for charitable contributions was $410,000. Included in that amount is a $20,000 dividends-received deduction. Garland also had carryover contributions of $5,000 from the prior year. What amount can Garland deduct as charitable contributions?
$43k
Taxable income before charitable contribution $410,000
Add back dividends-received deduction + 20,000
430,000
Multiplied by 10% x .10
Maximum charitable contribution allowed $ 43,000 *
In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?
Services are provided by an Irish company in England under a contract entered into by its U.S. parent.
Property is produced in Ireland by the Irish company and sold outside its country of incorporation.
Services are performed in Ireland by the Irish company under a contract entered into by its U.S. parent.
Property is bought from the controlled foreign
corporation’s U.S. parent and is sold by an Irish company for use in an Irish manufacturing plant.
Services are provided by an Irish company in England under a contract entered into by its U.S. parent.
If a CFC is deemed to have Subpart F income, that income may need to be currently included in the U.S. parent’s taxable income if there are not enough exceptions or deductions to reduce the Subpart F income to zero.
Basically, if a foreign company works in a different foreign company, that is owned by a US company, it is subpart F
. The U.S. government taxes citizens and permanent residents on their worldwide income. T/F
duh
True
Jans, an individual, owns 80% and 100% of the total value and voting power of A and B Corps., respectively, which in turn own the following (both value and voting power):
Ownership Property A Corp. B Corp. C Corp. 80% - D Corp. - 100% All companies are C corporations except B Corp., which had elected S status since inception. Which of the following statements is correct with respect to the companies' ability to file a consolidated return?
A and C may file as a group, and B and D may file as a group.
A and C may file as a group, but B and D may not file as a group.
A and C may file as a group, but B and D may not file as a group.
A Corp. and C Corp. are members of an affiliated group since A Corp owns at least 80% of C Corp. (parent/subsidiary relationship). As such, A Corp. and C Corp. may file a consolidated return. S corporations are prohibited from being members of an affiliated group, although they are now permitted to have C corporation subsidiaries. As such, B Corp. (an S corporation) is prohibited from filing a consolidated return with D Corp
S corporations are prohibited from being members of an affiliated group T/F
True
hat is the rule on net operating losses (NOLs)?
Carry back 2 years and carry forward 20 years
No carryback and carry forward indefinitely
Carry back 2 years and carry forward indefinitely
Carry back 3 years and carry forward 20 years
No CB and carry forward indef
. An exception is provided to allow a 2-year carryback for farming and casualty insurance businesses.
A corporation’s NOL is the excess of deductions over __
gross income
A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?
A corporation’s underpayment of estimated tax is generally the difference between the estimated taxes paid and the lowest of:
the current-year tax,
the prior-year tax, or
the tax on an annualized income computation.
Sam’s Year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. For Year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of Year 3 estimated tax payments that Sam can make?
$30,000
$33,000
$33k
General Safe Harbor Rule: To avoid any penalty for underpayment of estimated taxes, the taxpayer must pay in 100% of the prior-year tax paid or 90% of the current-year tax due.
Special Safe Harbor Rule: If the taxpayer had taxable income in the previous year in excess of $150,000, then the safe harbor for avoiding underpayment penalties is 110% of the prior-year tax.
