Topic 3 Multijurisdictional Tax Issues Flashcards
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
Y - Corporation Y - LLC N - General Partnership Y - Limited Partnership N - Sole Proprietorship
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
ENTITY - Corporation ENTITY - LLC GENERAL PARTNERS - General Partnership GENERAL PARTNERS - Limited Partnership OWNER - Sole Proprietorship
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
NOT FLEXIBLE- Corporation FLEXIBLE- LLC FLEXIBLE - General Partnership FLEXIBLE - Limited Partnership N/A - Sole Proprietorship
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
Y - Corporation N - LLC N - General Partnership N - Limited Partnership N - Sole Proprietorship
What tax form is is used for each type of entity?.
C Corp
S Corp
Partnership
Sole Proprietor
C Corp - Form 1120
S Corp - Form 1120S
Partnership - Form 1165
Sole Proprietor - Form 1040, Sch C
What is the tax rate of a C Corp?
21% flat rate
The second level of tax on a C Corp depends on the shareholder type. Individual? C Corp?
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!)
What is the Dividends Received Deduction (DRD)?
own less than 20% DRD = 50%
own 20%-80% DRD = 65%
own over 80% DRD = 100%
For each entity type, how are owners compensated? C Corp S Corp Partnership Sole Proprietor
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
Which entity can carry forward net operating losses indefinitely and limited to __% of taxable income before the NOL deduction?
C Corp
80% (cannot reduce taxable income to zero)
Which entity’s net operating losses have at risk/passive activity limitations?
Flow-Throughs
pass through to the partner/shareholder
Which entity is not allowed to deduct “excess business losses”? How to calculate excess business losses?
Individuals
Excess business losses = aggregate business deductions over aggregate gross income/gain + threshold amount
Threshold = $500k MFJ/$250 all other taxpayers
When is a company subject to state taxation?
commercial domicile or nexus
both, either/or
Where a business HQ and directs it operations is know as what?
Commercial Domicile
Sufficient/minimum connection between a business and state to require filing of a tax return
Nexus
What is Sales Tax Nexus?
- sale of tangible personal property
- possibly tax on installation or other ancillary services
What is the physical presence test for sales tax Nexus?
- salespeople enter the state to obtain sale
- tangible property located in state
What is the Supreme Court criteria for state taxation of income (Income Tax Nexus)?
- Sufficient connection or nexus exists between state and business;
- State may only tax a “fair portion” of income;
- Tax cannot be constructed to discriminate against non-resident businesses;
- Taxes paid must be fairly related to the service the state provides.
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.
does; nexus
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__ __-___.
does not; nexus
Public Law 86-272
________ tax return states - only the businesses with income tax nexus in the state file a tax return
Separate
_______ tax return states - businesses must file one tax return with other businesses if considered “_______” group of entities
Unitary; unitary
What is the Supreme Court test to determine in unitary (mobil)?
- functional integration
- centralization of management
- economies of scale
Non-business income is (allocated/apportioned) to a specific state
allocated
