Youngberg- green book Flashcards
On what form and how is a C corp taxed?
C corporations used the 1120 form
There is a 2 tier system:
C corp is taxed annually on it’s worldwide taxable income
Shareholders are taxed on distributions from the corporation that qualify as dividend distribution.
What is a Personal Service Corporation?
Shareholder-employees who own substantially all (greater than or equal to 95% by value) of the stock perform service activities. Subject to a flat 35% tax rate. Services include accounting, actuary, architecture, consulting, engineering, health, law, and performing arts.
What is a Personal Holding Company?
Any nonexempt closely-held corporation that primarily generates passive income. Stock is held greater than 50% by 5 or fewer shareholders.
What is section 351 for corporations?
No G or L is recognized on the transfer by one or more persons of cash/property to a corporation solely in exchange for stock if immediately after the exchange, that person or persons are in control of the corporation.
What are the 3 requirement to be met for 351 non recognition?
Property transferred (everything but services) Consideration received: only receives stock Control test: As a group >= 80% of the voting power and >=80% of shares for each class of non voting shares.
What happens if the shareholder provides services:
if the shareholder provided services, then the shareholder must recognize ordinary income equal to the FMV of the services rendered.
What is the definition and treatment of boot?
Boot is anything received by the shareholder other than stock.
Treatment: realized gain, but no loss is recognized.
Recognized gain is limited to the lesser of ;
1) FMV of Boot received, or
2) Transferor’s Realized Gain
How are liabilities treated under 351?
The corporation’s assumption of transferor’s liabilities is generally not treated as boot received by the transferor unless one of the following exceptions applies:
The shareholder must recognize gain to the extent liabilities assumed by the corporation exceed the total adjusted basis of all property transferred by the shareholder.
Treated as boot if no valid business purpose, or a tax avoidance purpose is connected with the liability assumption.
What is the Shareholder’s basis in the stock received?
AB of property transferred
Plus: Any gain recognized by shareholder
Less: FMV of boot received by shareholder, includes
Liabilities assumed by corporation
Money received from the corporation
Other property (FMV), does not include corporation stock
Equals: Shareholder’s AB in corp stock received.
What is the Shareholder’s holding period?
Usually the holding period is carryover basis.
What is the corporation’s basis and holding period?
Shareholder’s AB in the property given up
Plus: Gain (if any) recognized by the shareholder
Minus: Reduction for loss property
Equals: Corporation’s basis in the property received.
Holding period usually carryover.
What kind of year can corporations generally elect?
And once elected, how can it be changed?
A corp may generally elect either a calendar year or fiscal year.
Once adopted, a tax year may only be changed with prior IRS approval.
What kind of tax year can S corps and PSC used?
S corps and PSC’s must use a calendar year unless valid business purpose exists as supported by natural business year.
A corp must use what accounting method unless an exception is met:
A corp must use accrual method unless it it had average annual gross receipts of
What are the other 2 times that cash method may be used?
Small TPs: Any TP, except a tax shelter, with average annual gross receipts of less than 1 mil in the three preceding tax years. Primary business does not involve inventory.
Personal Service Corporations.
Debt Capital is an attractive option because the interest paid on debt is:
Interest paid on debt is deductible to the corporation.
Worthless Securities: what is the GR and the exception?
the GR is that a security that becomes worthless results i a CL for the investor as of the last day of the taxable year in which the security became worthless.
Exceptions: Ordinary loss treatment by a parent corporation owning >=80% of the subsidiary stock.
Securities held as inventory by securities dealer will receive ordinary loss treatment when it is sold, exchanged or becomes totally worthless.
Related party sales- losses disallowed.
Sale or worthlessness of “Small Business Stock”: 1244 treatment:
Ordinary loss up to $50,000 for single TPs and $100,000 for married TPs. Any losses over that are treated as CL
Under 1244 a shareholder must be:
Shareholder must be original holder of the stock, and an individual or partnership. Not available for stock inherited, receives as a gift, or purchased from anther shareholder.
What is the treatment of CG and CL for a corp?
What is the CF and CB rule?
A corp must net all of its capital gains and losses to obtain its net capital gain or loss position.
A net CL is not deductible in the current year; CLs can be used only to offset CGs, unused CLs are carried back 3 years and carried forward 5 years, all carry forward losses are treated as short term.
No preferential treatment with regard to tax rates applied to income- Net CGs are taxed at ordinary rates.
