C Corp 2

Question 1

Corporate Alternative Minimum Tax

Answer 1

Regular taxable income
+/- Adjustments - LIE
+ Preferences - PPP
+/- ACE - MIND

=Minimum Taxable Income

=AMT
x 20%
=Gross AMT

Tentative Minimum Tax

=AMT

Question 2

Accumulated earnings tax is

Answer 2

imposed on C corporations whose retained earnings are in excess of $250,000 if those funds are improperly retained. Personal service corporations are entitled to only $150,000 of retained earnings.

Question 3

Personal holding companies (PHC)

Answer 3

more than 50 percent owned by 5 or fewer individuals and have 60 percent of adjusted ordinary gross income consisting of NIRD.

Question 4

Corporate Earnings and Profits (E&P)

Answer 4

Calculation of current and accumulated E&P is required for the preparation of the corporate income tax return.
Start with corporate taxable income and apply adjustments that will essentially affect the ability of the corporation to pay dividends and other nonliquidating distributions.

Be familiar with the adjustments and their effects on corporate taxable income (i.e., positive or negative). Also ensure familiarity with the classification of the distributions and their effect on the corporation and the shareholders.

Question 5

Distributions

Answer 5

1. Cash dividends from a C corporation are taxable to the shareholder who receives the dividend. Distributions come out of current E&P first = dividends; then out of accumulated E&P = dividends; then out of stock basis = return of capital (tax free); and then they are taxed as capital gains.
2. Stock dividends are generally not taxable to the shareholder (it depends on whether the shareholder has a choice of receiving cash or other property).

Question 6

Liquidation

Answer 6

1. Generally, with a standard liquidation, the corporation recognizes gain on the sale of assets and the shareholder recognizes gain to the extent of basis in the stock, which results in double taxation. Basis in the assets in the shareholders’ hands is the FMV.
2. There are several types of tax-free reorganizations—Type A to Type F. Because these events are nontaxable, neither the corporation nor the shareholder recognizes a gain. Thus, the basis of the assets in the shareholders hands is the adjusted basis (NBV).
3. Section 1244 stock allows for an ordinary loss up to $50,000 (or $100,000 MFJ)—rather than a capital loss in the event of a sale or the stock becomes worthless