Tax Compliance and Planning for Corporations Flashcards
NOLs
After 2020 - Carried forward indefinitely. Offset 80%.
2018-2020 - Carried back 5yrs & forward indefinitely.
Before 2018 - Carried back 2yrs & forward 20yrs. Offset 100%.
Section 382 Ownership Change
One or more 5% shareholders increase combined ownership of the loss corp’s stock by more than 50% during a 3yr period prior including date of change.
Capital Losses
Carried back 3yrs & forward 5yrs.
Formation of C Corp - Corp
No G/L recognized. Corp basis in contributed property is the greater of shareholder basis or debit assumed by the corp.
Formation of C Corp - Shareholder
No G/L recognized if all shareholders contributing property owned at least 80% of stock after the exchange and no boot is transferred.
Recognize ordinary income for FMV of contributed services in exchange for stock.
Shareholder basis in stock equals total cash contributed plus adjusted basis (NBV) of property transferred to corp less any debt on property transferred plus the FMV of any services provided plus any gain recognized by shareholder.
Gain recognized by shareholder for FMV of any boot received in addition to the stock.
Gain recognized by shareholder to the extent that liabilities assumed by Corp exceed the shareholders adjusted basis in transferred.
Distributions
Taxable if classified as dividends.
Distributions come out of current E&P, then accumulated E&P, then stock basis (non taxable), then any excess over stock basis is a taxable gain.
Liquidation
Corp and shareholders recognize G/L on liquidation. Corp - recognize as if assets were sold. Shareholders - recognize the difference between FMV of assets sold and shareholders basis in the stock.
Section 1244 Small Business Stock - Allows for an ordinary loss, rather than capital loss, up to $50k single or $100k MFJ.
Qualified Small Business Stock - A noncorporate shareholder who holds originally issued qualified small business stock (QSBS) for more than 5yrs may exclude 100% of the gain of sale or exchange of stock.
Exclusion is limited to greater of $10 million or 10x taxpayers basis.
Loans between C Corps and Shareholders
Imputed interest rate rules apply if the interest rate on the loan is below AFR. Imputed interest is the difference between AFR and actual rate.
Treated as dividend income to shareholder if shareholder is also an employee.
May be treated as compensation if loan was made solely in connection with performance of services.
Consolidated Tax Returns
Affiliated group of corps where a parent directly owns at least 80% of stock and voting power. May elect to be taxed as a single unit, eliminating intercompany G/L.
International - Affiliated Groups & Transfer Pricing
Controlled taxpayer - 2 or more taxpayers owned or controlled directly or indirectly by the same interests.
Uncontrolled Taxpayer - the opposite.
Controlled - Whether legally enforceable or not, exercisable or exercised.
Controlled Transaction or Controlled Transfer - Any transaction or transfer between 2 or more members of the same group of controlled taxpayers.
Uncontrolled Transaction - the opposite.
Uncontrolled Comparable - Uncontrolled transaction or uncontrolled taxpayer that is compared, under any applicable pricing methodology, with a controlled transaction or with a controlled taxpayer.
Foreign Entity Classification
Foreign Branch - An unincorporated entity that is viewed as an extension of the domestic corp, not a separate entity. Taxed by foreign host country.
Foreign Subsidiary - Separate legal entity incorporated in foreign host country, taxed by host country.
Foreign DRD
US Corp is allowed a 100% DRD for foreign source dividends if it owns 10% or more of the dividend paying foreign corp.
Outbound Foreign Activities of US Persons. 1/3
Investments abroad.
Defer taxes until income is paid back.
Passive Foreign Investment Company (PFIC) - Foreign entity that meets gross income or asset test.
Controlled Foreign Corporation Rules/Subpart F Regime - US does not tax foreign profits earned through foreign sub until the sub pays earnings as dividends. Purpose of subpart F is to discourage using foreign corps to defer US taxes by accumulating income in foreign “base” company.
CFC is a foreign corp with more than 50% of stock owned by US shareholders. Any US person owning at least 10% of stock.
Subpart F only applies to foreign corp that qualifies as a CFC. Subpart F supersedes PFIC rules.
Outbound Foreign Activities of US Persons. 2/3
GILTI tax - Minimum tax imposed on certain low taxed income that is intended to reduce the incentive to relocate CFCs to low tax jurisdictions.
US shareholders share of CFCs net income, reduced by the excess of: 10% of CFC aggregate adjusted basis in depreciable tangible property used in business, over CFCs net interest expense.
Outbound Foreign Activities of US Persons. 3/3
Base Erosion and Anti-Abuse Tax (BEAT) - Imposes a minimum tax on large US corps (gross receipts of $500 million) with a significant amount of deductible payments to related foreign affiliates because deductions reduce US tax base.
