TCP Deck #2 Flashcards
Transferring property with a liability
If a shareholder transferred property subject to a liability in excess of the basis in the property, the shareholder must recognize gain on the excess.
Joint tenancy
Property owned in joint tenancy automatically goes to the survivors and bypasses the estate of the decedent.
Distribution of appreciated property
In a nonliquidating property distribution in a C corporation, if appreciated property is distributed, the corporation recognizes gain, increasing its earnings and profits (E&P).
Charitable contribution deduction for individual taxpayer
Long-term capital gain (LTCG) property : FMV on date of contribution
Lower of adjusted tax basis or FMV on date contributed
(1) Ordinary income producing (includes STCG), (2) STCL property (ie. held ≤ 1 year)
(3) LTCL property (ie, held > 1 year)
Dividends received deduction (DRD)*
*only available for C corporations
< 20% ownership - 50% DRD
≥ 20 % but < 80 % - 65% DRD
≥ 80% (affiliated) - 100% DRD
An affiliated group
Only C corporations may elect to file a consolidated tax return.
An affiliated group exits when:
(1) a parent C Corporation owns at least 80% of a least one other C Corporation
(2) all other group members are C Corporations at least 80% owned by the parent and/or other group members.
Distributions of property to shareholders
Reduce earnings and profits (E&P) by the greater of the property’s adjusted basis, or its FMV at date of distribution.
Tax rates
–Qualified dividends : preferential rate
–Short-term capital gains : marginal rate if stock is held for less than 1 year
Sourcing rule
Income from services, rental, royalties, sale of inventory and the sale of real property are sourced according to the location where the activity or sale occurs (performance of service, production of inventory).
Dividends, interest, and the sale of personal property are sourced according to the residence of the payor of the income or residence of the seller
Constructive Dividend
If a corporation sells property to a shareholder for less than FMV, the shareholder is considered to have received a constructive dividend to the extent of the difference between the FMV of the property and the price paid.
AMTI (Alternative Minimum taxable income)
- Itemized deductions for state and local taxes increase AMTI.
- Private activity bond interest is excluded from RTI (regular taxable income), but increases AMTI.
- State tax refunds included in RTI decreases AMT.
S-corp gain recognition with assumption of debt on contributed property
In an S corporation, gain is recognized on the excess of any liabilities over the adjusted basis of property contributed.
Foreign tax credit limitation
Limit =
U.S. tax on worldwide income X
Foreign source taxable income / Worldwide taxable income
A U.S. Corporations foreign subsidiary
A U.S. Corporations foreign subsidiary is a separate legal entity incorporated under the tax laws of the foreign country where it is located. Its net income is subject to the foreign country’s tax system, not U.S. taxation.
Is a distribution reported as income in a C corporation?
A non liquidating distribution is income to a shareholder if it is a dividend or a return of capital in excess of the shareholders basis. Distributions are dividends up to available earnings and profits (E&P). Return of capital are distributions in excess of E&P that generate capital gain income if they are in excess of shareholder stock basis.
