Sutdy Unit 12 Flashcards

1
Q

Give examples of tax credits not allowable to corporations.

A
  • Earned Income Credit
  • Child and Dependent Care Credit
  • Elderly and Disabled Credit
  • Child and Other Dependents Tax Credit
  • Adoption Credit
  • American Opportunity Credit
  • Lifetime Learning Credit
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2
Q

When may a consolidated return be filed?

A

A single federal income tax return (consolidated return) may be filed when a corporation directly owns stock in another corporation that represents both

- 80% or more of total voting power and
- 80% or more of total value outstanding.
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3
Q

Are subsidiaries included in consolidated return required to adopt the same tax year?

A

Each subsidiary included in a consolidated return must adopt the parent’s tax year.

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4
Q

Are subsidiaries included in the consolidated return required to adopt the same accounting method?

A

Members of a group filing a consolidated return may adopt different accounting methods.

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5
Q

When are gains or losses on inter-company transactions accounted for in the consolidated return?

A

The single-entity approach is used. The consolidated gain or loss is recognized when

- The acquiring corporation claims depreciation
- One of the members leaves the consolidated group
- The property is disposed to a party outside of the consolidated group
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6
Q

How is the amount of recognized gain or loss in an inter-company transaction calculated?

A

When the Transaction is between Recognized gain or loss equals…

Members of an affiliated group Zero; no gain or loss is recognized

A member of an affiliated group Sales price to outside party -
And an outside party Adjusted basis of property (in transferor’s hand) in affiliated
group

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7
Q

How are net operating losses in the consolidated return calculated?

A
Taxable income (separate net taxable income)
\+	Net capital gain
-	Section 1231 net loss
-	Charitable contribution deduction
-	Dividends-received deduction
-	Dividends-paid deduction
=	Consolidated net operating loss (NOL)
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8
Q

How are dividends distributed among members of affiliated groups accounted for in the consolidated return?

A

Inter-company dividends are eliminated, and the dividends-received deduction is not allowed for such dividends.

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9
Q

Compare the criteria for defining affiliated groups for consolidated tax returns and Parton-subsidiary controlled groups.

A

Affiliated group Parent-Subsidiary Controlled Group

When one corporation owns stock of another corporation that represents

80% or more of total voting 80% or more of total voting power
Power AND 80% or more OR 80% or more of total value
Of total value outstanding outstanding

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10
Q

When is an expenditure to a controlled group member deductible by the payee?

A

An expenditure to a controlled group member is deductible when included in the income of the payee.

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11
Q

When are the due dates of the estimated tax payments of corporations?

A

Estimated tax payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.

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12
Q

How is the amount of each quarterly estimated tax payment of a corporation determined?

A

Each quarterly estimated tax payment required is 25% of the lesser of

  • 100% of the prior year’s tax (not for corporations with taxable income > $1 million),
  • 100% of the current year’s tax, or
  • 100% of the annualized income (for corporations with uneven income).
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13
Q

What is the penalty imposed on corporation for underpaying estimated tax payments?

A

Underpayment Amount of Penalty

< $100,000 Underpayment x (short-term rate + 3%)

> $100,000 Underpayment x (Short-term rate + 5%)

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14
Q

When is no penalty imposed on corporations for underpaying estimated tax payments?

A

No penalty is imposed if

- Tax liability is less than $500
- The IRS waives all or part of the penalty for good cause
- The IRS withdraws an erroneous IRS notice to a large corporation
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15
Q

Give examples of positive adjustments to taxable income when calculating current earnings and profits.

A

Positive adjustments (additions to taxable income) include

- Interest from municipal bonds
- Injury compensation
- Life insurance proceeds
- Dividends-received deduction
- Capital loss and net operating loss carryover
- Depreciation in excess of straight-line
- Income per completed-contract method
- Deferred income from an installment sale
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16
Q

Give examples of negative adjustments to taxable income when calculating current earnings and profits.

A

Negative adjustments (subtractions from taxable income) include

- Life insurance premiums
- Penalties
- Fines
- Municipal bond expenses
- Excessive compensation
- Federal income taxes
- Nondeductible meal expenses
- Entertainment expenses
- Charitable contributions in excess of the percentage of AGI limit
- Prior-year installment sales
17
Q

Give examples of items excluded from Beth taxable income and earnings and profits (E&P).

A

Excluded items included

- Unrealized gains and losses
- Gifts
- State tax refunds
- Contributions to capital
18
Q

How is the amount of a nonliquidating distribution by a C corporation calculated?

A
Money received
\+	FMV of obligations received (e.g., bonds)
\+	FMV of other property received
-	Liabilities the corporation assumed
=	Distribution amount
19
Q

When a C Corporation makes a nonliquidating distribution of cash to its shareholders, what is the amount of gain or loss recognized by the corporation?

A

No gain or loss is recognized for nonliquidating cash distributions.

20
Q

When a C corporation makes a nonliquidating distribution of noncash property to its shareholders, what is the amount of gain or loss recognized by the corporation?

A

Recognized gain = Greater of FMV or liability relief - AB of property

Recognized loss = 0

21
Q

How does a nonliquidating distribution of noncash property to shareholders affect the earnings and profits (E&P) of a C corporation?

A

AB of Property vs. E&P

FMV > AB (gain realized Current E&P increases by recognized gain,
which increases the amount of dividends
that can be recognized

FMV < AB (loss realized) No effect

22
Q

How are nonliquidating distributions from C corporations treated by the shareholder?

A

Distribution Amount Treatment by Shareholder

To the extent of current E&P Dividend income (taxable)

Then to the extent of accum E&P Dividend Income (taxable)

Then to the extent of basis in stock Return of capital (nontaxable)

Excess Gain on sale (taxable)

23
Q

Do deficits in a C corporation’s accumulated earnings and profits (AE&P) result from distributions?

A

Deficits in AE&P never result from a distribution. They result from any aggregate excess of surrender E&P deficits over unused positive AE&P.

24
Q

What is the shareholder’s basis in the property received in a nonliquidating distribution from a C corporation?

A

The basis is the grater of

- FMV of the property at the time of the distribution
- Liability assumed or liabilities of property taken
25
Q

Under what circumstances are nonliquidating stock distributions by C corporations taxable?

A

A distribution of stock by a C corporation is not taxable unless it is a

- Distribution in lieu of money
- Disproportionate distribution 
- Distribution on preferred stock
- distribution of convertible preferred stock
- Distribution of common and preferred stock, resulting in receipt of preferred stock by some shareholders and common stock by other shareholders
26
Q

Describe the accumulated earnings tax (AET).

A

A corporation is liable for the AET when it accumulates (does not distribute) earnings beyond the graduates of

- $250,000
- Reasonable business needs.

The tax equivalent 20% of accumulated (undistributed) taxable income.

27
Q

Describe the personal holding company (PHC) tax.

A

The PHC tax is a 20% penalty tax imposed on the undistributed income of a corporation that meets the following two test.

- Stock ownership test
	- More than 50% by value is owned by 5 or fewer shareholders at any time during the last half of the year

- Nature of income test
	- 60% or more of adjusted ordinary gross income is personal holding company income (e.g., taxable interest, 			dividends, royalties, net rental income, personal service income by a 25%-or-more owner)