Special Deck - Corporate Taxation 2 Flashcards
In a corporate distribution when a shareholder receives property which value is used for the tax basis?
FMV
When a parent corp receives property from a 100% owned subsidiary corp is gain involved in the transfer?
No. Gain not recognized
Are Life insurance proceeds collected on death of key corporate employees taxable? If not, why not?
No, income from life insurance proceeds on death of key employee are non-taxable because the life insurance premiums are not deductible for tax purposes.
Property transfer from shareholder to corporation in a 351 exchange: is gain recognized? Is is taxable?
Gain not recognized; non-taxable.
What is the accumulated adjustment account for an S Corp comprised of?
All the S Corps income sources minus all their expenses and distributions.
When a corporation starts up in the first few years, what year-to-year requirements are there to stay exempt from AMT?
1st year- automatically exempt. 2nd year- yr 1 average gross receipts under $5 million. 3rd year- average gross receipts yr 1+yr 2 under 7.5 million. 4th year- years 1-3 average gross receipts under $7.5 million. Yr 5 and beyond- prior 3 year period less than $7.5 million average gross receipts.
Name the DRD exception equation.
Div income* %
Then you use % * Pre-DRD income
Show how DRD is calculated
Gross business income
+ Dividend income
xxxxxxxxxxxx
- business deductions
Taxable income before DRD
- DRD(dividend inc * %)
Taxable income
When an affiliated group of corporations choose to file a consolidated return, what percentage of dividend revenue should be reported?
None. Consolidated returns filed by affiliate corporations eliminate reporting of dividends
In a non-liquidating distribution of property to a shareholder, does a corporation recognize gain or loss?
gain only. Loss is never recognized by a corp in a non-liquidating distribution.
What types of corp reorganization are each of the following?:
- Recapitalization
- Mere change in identity
- Statuatory merger
- Stock Redemption
- Type E
- Type F
- Type A
- NOT a corporate reorganization.
The amount of dividends received by a company’s shareholders is limited to what?
The company’s earnings and profits.
When a company distributes property to a shareholder, does teh company ever pay taxes on it?
Only if the property has appreciated. Then the difference between basis and FMV is taxed.
When receiving dividends what types of property are taxable to the shareholder.
Any kind. Cash or FMV of non cash property.
List adjustments and preference for AMT computation
Mneumonic - A SLIM PILE
A SLIM is used in determining ACE, PILE used in arriving at pre-ACE adjustment AMTI
- Amortization of business expenses
- Seventy percent dividends received deduction
- Life Insurance proceeds
- Municipal Bond Interest
- Private activity bond interest
- Installment sales of inventory-difference between accrual and installment method when installment method used for tax purposes
- Long term construction contract method used must be %-of-completion
- Excess depreciation on personal property - when DDB (200%) was used, use 150% DB
How does one compute Corporate AMT?
Regular Taxable income
+/- adjustments and preferences
= AMTI before ACE adjustment
+/- Adjusted Current Earnings (ACE) adjustment( SLIM x 75%)
=AMTI before exemption
- AMT Exemption($40,000 - 25%(AMTI before exemption-$150,000))
AMTI
x Tax Rate (20%)
= Tentative Minimum tax
- Regular tax
AMT
What is the ACE adjustment actually comprised of?
ACE adjustent is comrsied of the following 4 items
Mneumonic - SLIM
- Seventy-five percent DRD deduction on dividends from unrelated companies(70% only)
- Life Insurance proceeds from death of key employee
- Municipal bond interest
75% of all these values comprise the ACE Adjustment. Or you can add all three values, then take 75% and that will be your ACE adjustment.
What is the Adjusted Current Earnings (ACE) comprised of?
The total of AMTI before the ACE adjustment, and the items that comprise the adjustment itself (SLIM)
What is amount of allowable deductible charitable contribution?
- gross receipts: $50,000 before charitable deduction of $6,000, but after DRD deduction of $3,000
What is the max Charitable deduction allowed?
$3,000 DRD deduction
plus $50,000 gross income (charitable deduction included in amount)
$53,000 x 10% = $5,300
Evan, an individual, has a 40% interest in EF, an S corporation. At the beginning of the year, Evan’s basis in EF was $2,000. During the year, EF distributed $100,000 and reported operating income of $200,000. What amount should Evan include in gross income?
The answer is $80,000
- Start with $2,000 basis.
- Add 40% of $200,000 income ($80,000). This increases his basis to $82,000.
- Then he receives 40% of $100,000 distribution ($40,000)
- This $40,000 will reduce his basis to $42,000.
- Most importantly, the $40,000 will be treated as a NONTAXABLE RETURN OF BASIS!!!!
- Talk about tax optimization!
