Unit 13: Corporate Transactions

Question 1

Drawbacks of the C corporation structure:

Answer 1

1. Double taxation and the inability of shareholders to deduct corporate losses
2. The absence of preferential capital gains tax rates
3. The limitation on the deductibility of capital losses.

Question 2

An NOL incurred for tax years 2018 and beyond may only offset up to:

Answer 2

80% of taxable income for tax year 2022 and future tax years.

Question 3

NOLs arising in tax years before 2018 are:

Answer 3

Fully deductible

Question 4

The following items are not allowed when figuring a corporation NOL

Answer 4

• Any deduction for foreign-derived international income
• The modified taxable income for any year cannot be less than zero
• Capital losses in excess of capital gains
• The Section 1202 exclusion of gain from qualified small business stock
• nonbusiness deductions in excess of nonbusiness income.

Question 5

When a corporation carries forward its NOL, it enters the total carryover on:

Answer 5

Form 1120, Schedule K and claims the actual NOL deduction on Line 29a of Page 1 of the 1120

Question 6

How are capital gains taxed to a corporation?

Answer 6

At ordinary income rates

Question 7

A corporation’s excess capital losses are carried to other years in the following order:

Answer 7

• Three years prior to the loss year
• Two years prior to the loss year
• One year prior to the loss year
• Any loss remaining is carried forward for five years

Question 8

Can a c corporation carry back capital losses to a previous year when it was an S corporation?

Answer 8

No

Question 9

The maximum allowable deduction for a charitable gift from a corporations

Answer 9

10% of taxable income

Donations above this may be carried forward over the next 5 years

Question 10

A corporation using the accrual method can deduct unpaid charitable contributions if:

Answer 10

The board of directors authorized the contributions during the year, and the corporation pays the contributions by the due date for filing the corporation’s tax return (not including extensions)

Question 11

What is DRD?

Answer 11

“Dividends’received deduction”
It is designed to reduce the consequences of double taxation when a corporation owns shares of another company”

Question 12

DRD: Less than 20% ownership

Answer 12

50% deduction

Question 13

DRD: 20-80% ownership

Answer 13

65% deduction

Question 14

DRD: Greater than 80% ownership

Answer 14

100% deduction

Question 15

Corporations cannot take a deduction for dividends recieved from the following entities:

Answer 15

• A REIT
• A tax-exempt corporation
• A corporation whose common stock was held less than 46 days during the period that started 45 days before end and ended 45 days after the ex-dividend date
• A corporation whose preferred stock was held less than 91 days during the period that started 90 days before and ended 90 days after the ex-dividend date
• Any corporation, if another corporation us under an obligation to make related payments for positions in substantially similar properties

Question 16

In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply:

Answer 16

• Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries
• An individual owning any stock in a corporation is considered to own the stock that is directly or indirectly owned by his partner
• An individual is considered to own the stock that is directly or indirectly owned by or for his family. For the purposes of the rule, “family” includes only siblings (including half-siblings but not step-siblings), a spouse, direct ancestors, and direct lineal descendants

Question 17

A corporation is considered to be “closely held” if both of the following apply:

Answer 17

• It is not a personal service corporation
• At any time during the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by five or fewer individuals. An “individual” in this case, may include certain trusts and private foundations

Question 18

Parent-Subsidiary Controlled Group:

Answer 18

Involves a parent corporation that owns at least 80% of the voting power of at least one other corporation (with possible additional corporations that are at least 80% owned by either the common parent or one of the subsidiary entities); although a foreign corporation could not be considered a member of a controlled group.

Question 19

Brother-Sister Controlled Group

Answer 19

Involves situations in which five or fewer individuals, estates, or trusts own 80% or more of the combined voting power for multiple corporations, and have identical common ownership within the individual corporations of at least 50%