Tax - C-corp Flashcards
Estimated tax payments
The 15th day of months: 4, 6, 9, and 12 of tax year.
Total estimated payments should equal lesser of:
– 100% of tax in prior year return
- 100% of tax in current year return
Gross income
Income accrual rule:
– Amounts can be reasonably estimated
– Right to receive is not contingent on future event
– Reasonable expectation it will be received in due course
– Includes 100% of dividends received from other corporations
– No gain or loss recognize on sale or acquisition of corporation’s own capital stock
– Distributing appreciated property to its shareholders will be taxed on appreciation
Deductions from gross income
– None allowed for capital losses in excess of capital gains
– Losses can only be used to offset capital gains in carryover years. Capital losses carryback three years and forward five years as STCL
– Dividends received deduction, unlimited
– 50% of business meals are deductible
- No deduction allowed for NOL carryback or carryforward
Special deductions : Charitable contributions
Limit is 10% of taxable income before: – Charitable contribution deductions – Dividends received deduction – Net operating loss carry back – Capital loss carry back – Domestic production activities deduction
Contributions in excess of limits may carry forward five years
Accrual basis may deduct if paid within 2-1/2 months after close of tax year.
Cash basis may deduct only amounts actually paid out, plus any carryovers.
Special deductions: dividends-received deduction
Deduction for dividends received from taxable domestic operations.
Ownership ::: Deduction
0% -
Tax rates
Taxable corporations subject to tax rate structure.
Qualified personal service corporation is flat 35% on all taxable income.
Corporate AMT
Corporations also subject to AMT.
Computed at a rate of 20% on AMTI in excess of $40,000.
If this amount exceeds corporation regular tax, excess is added to companies tax liability.
AMT exemptions
Small corporations: exempt if has avg gross receipts for preceding three-year period of less than $7.5M.
New corporations:
– Exempt for first tax year
– Second tax year, test is $5M to qualify as a small corporation. For all later years, test is $7.5M.
Penalty taxes
Two penalty taxes that corporations can avoid by paying enough in dividends.
If both apply, only PHC tax imposed.
Accumulated earnings tax: can also avoid if prove reasonable needs of business.
Personal holding company tax:
PHS is:
– Stock ownership test: more than 50% of value of outstanding stock must be owned by five or fewer individuals at a time during last half of taxable year.
– Gross income test: 60% or more of gross income must consist of PHC income. PHCI is passive types of income (dividends, interest, rents and royalties).
Avoids tax if pays enough in dividends, including actual dividends paid and consent dividends.
Personal service corporation
Tax rate is flat 35% on all taxable income.
Cannot deduct passive losses against active or portfolio income.
Performs services in fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.
Corporate NOL
May be carried back 2 years and forward 20 years.
NOL is excess of deductions over gross income: i.e. negative taxable income.
Installment payments
If estimated taxes are $500 or more, must make installment payments
Estimated tax installments are lesser of:
– 100% of tax in prior-year returns
– 100% of tax in current year
Entity/owner transactions: Tax-free contributions to form new corporation
– Property must be contributed by investors
– Investors must receive control corporation under 80%
– Must receive only stock in exchange
– Investor of property had no gain or loss if receives only stock in return
– If receive cash/other property in exchange, gain recognized up to smaller of boots received or gain realized
New corporation adjusted basis=
Adjusted basis for shareholder
+ Any cash paid to shareholder
Shareholder's basis of stock received= Adjusted basis of property transferred \+ Gain recognized - Boot received & liabilities transferred - Election to adjust property for loss
Entity/owner transactions: definition of gain resulting from boot
General rule: if investor relieved of liability or transfers property subject to liability, consider boot equal to another liability.
Exception: if acquiring corporation assumes liability as part exchange, no gain recognized by contributor
Entity/owner transactions: shareholder concerns – property transfers
Cash or property received by shareholders in exchange for capital stock will generally result in capital gain or loss to shareholder.
Basis of property received: FMV
Exception: when subsidiary distributes property to parent corporation (80%) ownership, no gain or loss is recognized by parent
Entity/owner transactions: corporation concerns – distributions
Liquidating corporations required to recognize gain or loss on both liquidating sales and distributions.
For complete liquidation: property treated as if sold at FMV
Exception: no gain or loss recognized if distribution is to an 80% corporate parents.
Entity/owner transactions: non-liquidating distributions
Effects on shareholder:
– Amount distributed equals FMV on date of distribution
– To extent of E&P, is ordinary dividend income
– Excess is return of capital, then capital gain
Effect on Corporation
– Nonliquidating distributions of appreciated property generate gain
– Losses are nondeductible
– Corporate distributions reduce E&P by greater of FMV or adjusted basis of property distributed
Earnings and profits: distribution guidelines
– First from current E&P
– Then from accumulated E&P
– Then excess is return of capital
First two are considered dividend income to shareholders
Earnings and profits: adjustments
E&P similar to taxable income, but has adjustments:
– Accelerated depreciation not allowed, must use straight line
– Cost depletion used, not percentage depletion
– Interest on state or municipal bonds increases E&P, expenses incurred to generate this income reduces E&P
– Nondeductible capital losses reduce E&P
– Federal income taxes reduce E&P
– Charitable contributions in excess of deduction limit reduce E&P
Consolidated returns
Seven types of corporate reorgs:
– Statutory merger or consolidation
– Acquisition using voting stock for stock exchange
– Acquisition using voting stock for assets exchange
- Transfer of all or part of assets to another corp when original corp shareholders are in control of new corp immediately after transfer
– Recapitalization
– Mere change in identity, form or place of organization
– Transfer of all or part of assets to another corp in bankruptcy or receivership proceeding
Consolidated returns: affiliated groups
Generally, combined group will reduce nets taxable income and minimize taxes due.
Affiliated group is at least two corporations:
– One must be parent
– One must be subsidiary at least 80% owned by parent
80% ownership:
– At least 80% of voting power of stock
– At least 80% of value of all stock
Consolidated group: any domestic corporation except:
– Tax-exempt corporation
– Insurance company
– Foreign corporations
– S corporations
– Corporations electing possessions tax credit
– Regulated investment companies
– Domestic and international sales corporations
Consolidated group: consolidated tax returns
Preparation:
– Compute each corporate member’s separate taxable income
– Use income to prepare consolidated income and balance sheet
– Eliminate intercompany transactions
– Separate items subject to special tax treatment
Special tax treatment: – Capital gains and losses – Section 1231 gains and losses – NOL deductions – Charitable contribution deduction – Dividends-received deduction
