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C239 Advanced Tax Concepts > Topic 3 Multijurisdictional Tax Issues > Flashcards

Topic 3 Multijurisdictional Tax Issues Flashcards

1
Q 
For the following non-tax characteristic of an entity, state whether it is required for each entity type:
"Must formally organize with state"
Corporation
LLC
General Partnership
Limited Partnership
Sole Proprietorship
A 
Y - Corporation
Y - LLC
N - General Partnership
Y - Limited Partnership
N - Sole Proprietorship
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2
Q

For the following non-tax characteristic of an entity, list the responsible party for each entity type:
“Responsibility for liabilities of business”
Corporation
LLC
General Partnership
Limited Partnership
Sole Proprietorship

A 
ENTITY - Corporation
ENTITY - LLC
GENERAL PARTNERS - General Partnership
GENERAL PARTNERS - Limited Partnership
OWNER - Sole Proprietorship
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3
Q 
For the following non-tax characteristic of an entity, state the flexibility for each entity type:
"Legal arrangement among owners"
Corporation
LLC
General Partnership
Limited Partnership
Sole Proprietorship
A 
NOT FLEXIBLE- Corporation
FLEXIBLE- LLC
FLEXIBLE - General Partnership
FLEXIBLE - Limited Partnership
N/A - Sole Proprietorship
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4
Q 
For the following non-tax characteristic of an entity, state yes or no for each entity type:
"Suitable for initial public offering"
Corporation
LLC
General Partnership
Limited Partnership
Sole Proprietorship
A 
Y - Corporation
N - LLC
N - General Partnership
N - Limited Partnership
N - Sole Proprietorship
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5
Q

What tax form is is used for each type of entity?.

C Corp
S Corp
Partnership
Sole Proprietor

A

C Corp - Form 1120
S Corp - Form 1120S
Partnership - Form 1165
Sole Proprietor - Form 1040, Sch C

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6
Q

What is the tax rate of a C Corp?

A

21% flat rate

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7
Q

The second level of tax on a C Corp depends on the shareholder type. Individual? C Corp?

A

Individual - dividends 0/15/20% depending on income level, and may 3.8% Net Investment Income Tax (NIIT)

C Corp - taxed at 21%, same as ordinary income, Dividends Received Deduction (DRD) reduced to 50/65/100% (double taxed!)

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8
Q

What is the Dividends Received Deduction (DRD)?

A

own less than 20% DRD = 50%
own 20%-80% DRD = 65%
own over 80% DRD = 100%

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9
Q 
For each entity type, how are owners compensated?
C Corp
S Corp
Partnership
Sole Proprietor
A

C Corp - paid as wages; incentive to pay lower wages due to lower corporate rate

S Corp - paid as wages; incentive to pay lower wages with distributions not subject to payroll taxes; required to pay a reasonable compensation as defined in treasury regulations

Partnership - guaranteed payment; no issue-all subject to payroll taxes

Sole Proprietor - no compensation payment, but all subject to payroll tax through SE tax

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10
Q

Which entity can carry forward net operating losses indefinitely and limited to __% of taxable income before the NOL deduction?

A

C Corp

80% (cannot reduce taxable income to zero)

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11
Q

Which entity’s net operating losses have at risk/passive activity limitations?

A

Flow-Throughs

pass through to the partner/shareholder

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12
Q

Which entity is not allowed to deduct “excess business losses”? How to calculate excess business losses?

A

Individuals
Excess business losses = aggregate business deductions over aggregate gross income/gain + threshold amount
Threshold = $500k MFJ/$250 all other taxpayers

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13
Q

When is a company subject to state taxation?

commercial domicile or nexus

A

both, either/or

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14
Q

Where a business HQ and directs it operations is know as what?

A

Commercial Domicile

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15
Q

Sufficient/minimum connection between a business and state to require filing of a tax return

A

Nexus

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16
Q

What is Sales Tax Nexus?

A
  • sale of tangible personal property

- possibly tax on installation or other ancillary services

17
Q

What is the physical presence test for sales tax Nexus?

A
  • salespeople enter the state to obtain sale

- tangible property located in state

18
Q

What is the Supreme Court criteria for state taxation of income (Income Tax Nexus)?

A
  1. Sufficient connection or nexus exists between state and business;
  2. State may only tax a “fair portion” of income;
  3. Tax cannot be constructed to discriminate against non-resident businesses;
  4. Taxes paid must be fairly related to the service the state provides.
19
Q

Physical Presence (does/does not) create _____ for service providers, sellers of real property, and businesses licensing intangibles for income based taxes and non-income based taxes.

A

does; nexus

20
Q

Physical Presence (does/does not) create _____ for sellers of tangible personal property if their activities in the state are limited to “protected” activities as described by P_____ L__ __-___.

A

does not; nexus

Public Law 86-272

21
Q

________ tax return states - only the businesses with income tax nexus in the state file a tax return

A

Separate

22
Q

_______ tax return states - businesses must file one tax return with other businesses if considered “_______” group of entities

A

Unitary; unitary

23
Q

What is the Supreme Court test to determine in unitary (mobil)?

A
  1. functional integration
  2. centralization of management
  3. economies of scale
24
Q

Non-business income is (allocated/apportioned) to a specific state

A

allocated

25
Q

Business income is (allocated/apportioned) among the states in which have nexus

A

apportioned

26
Q

What are the factors to determine nexus for business income apportionment?

A
  • sales factor
  • payroll factor
  • property factor
27
Q

The tax rate on dividends to individual taxpayers depends on the individual’s taxable income. High-income taxpayers are taxed on dividends at a __% rate, low-income taxpayers are taxed at a __% rate, and others are taxed on dividends at a __% rate.

A

20%
0%
15%

28
Q

Taxpayers with (modified) ___ in excess of a threshold amount pay an additional __% net investment income tax on dividends.

A

AGI

3.8%

29
Q

Corporations that receive dividends are taxed at the ________ rate of __%.

A

ordinary

21%

30
Q

Penisons (are/are not) subject to shareholder-level taxes on dividends.

A

are NOT

31
Q

Losses from C corporations (are/are not) available to offset shareholders’ personal income.

A

are NOT

32
Q

Which entity types can generally use either the cash or accrual method of accounting for tax purposes?

A

sole proprietorship
partnership
S corporation

NOT C corporation

33
Q

Businesses must file income tax returns in states where they have ______ ___ _____.

A

income tax nexus

34
Q

The determination of whether the business has established income tax nexus within a state depends on the _______ __ __ _________ in the state.

A

nature of its activities

35
Q

The rules for determining income tax nexus (are/are not) the same as those for determining sales tax nexus.

A

are not

36
Q

All state taxable income is taxed in the state of __________ _______ unless the business is taxable in more than one state.

A

commercial domicile

37
Q

Commercial domicile is the state where a business is ____________ and _____ ___ __________; this location may be different from the _____ __ ____________

A

headquartered
directs its operations
place of incorporation

38
Q

Business activities that create sales tax nexus include: (6 things)

A
  • Having an office, store or other location in a state (even a home office)
  • Having an employee, salesperson, contractor, etc. in a state
  • Owning a warehouse or storage facility in a state
  • Storing inventory in a state (such as in an Amazon FBA warehouses or other 3rd party fulfillment center)
  • Having a 3rd party affiliate in a state
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair
39
Q

In Quill, the U.S. Supreme Court reaffirmed that out-of-state (nondomiciliary) businesses must have a ________ ________ in the state before the state may require a business to collect sales tax from in-state customers.

A

physical presence

C239 Advanced Tax Concepts (10 decks)

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