STU7 Flashcards
How are capital losses handled differently from net operating losses?
Capital Losses are carried back 3 years and forward 5 years.
Net Operating Losses are carried back 2 years and forward 20 years.
Except in stock for debt exchanges, does income from cancelation of a corporation’s debt at less than the outstanding book value excluded to the extent the corporation is insolvent?
Yes. Except in stock for debt exchanges, income from cancelation of a corporation’s debt at less than the outstanding book value is excluded to the extent the corporation is insolvent. When the exclusion applies, the following tax attributes of the corporation must be reduced (dollar for dollar) in the order listed: NOLs and NOL carryovers, the general business credit, capital loss carryovers, basis in property of the corporation, and foreign tax credit carryovers. An election to first reduce basis is available.
On December 31, 2014, PSC Corporation, an accrual-basis personal service corporation, accrued a $25,000 bonus to Mrs. Adams, an employee-owner. She owns 15% of the outstanding stock of the corporation. Mrs. Adams is a cash-basis taxpayer and received the bonus on April 15, 2015. Should PSC Corp., a calendar-year taxpayer, take a deduction on its 2014 return or its 2015 return?
Under Sec. 162(a), a reasonable allowance for salaries or other compensation for personal services actually rendered is deductible by the corporation if paid or incurred during the tax year. PSC Corporation is denied the deduction for the accrual in 2014 since compensation paid to employees must not only meet the economic performance requirement but also be paid within 2 1/2 months after the end of the employer’s tax year in which the services are rendered. Payments made after the end of the 2 1/2-month period are presumed to be deferred compensation, and the deduction is deferred until the year in which payment occurs.
