Flashcards in C and S Corp. Taxation / Exempt Organizations (IV) Deck (22):
S corps who are former C corps with undistributed passive income (Rules?)
S election will be terminated after three years if passive income is greater than 25% of gross receipts for THREE consecutive years.
Separately Stated. vs. Non-separately stated income for S-corps
sep stated -- items involved BEYOND biz income. These are items that pass DIRECTLY to shareholder
(Capital Gains (mainly), Charitable Conts., Section 179 expense)
non-sep-stated -- these items constitute business income, or Ordinary Income of s-corp
how are allocations of profits made in S-corps?
Made to shareholders on a per-share, per-day basis
For S-corps, what goes into Gross Income of shareholders?
SHARE OF PROFITS
not % of distribution from S-corp. The Distribution from the S-corp simply reduces SH basis in the S-Corp stock. NOT IN GROSS INCOME.
Where are losses on operations deducted when speaking of S-corps?
On the shareholder's personal tax return, to the extent of their basis.
What will a shareholder report on tax return when it comes to S-corp income?
His or her PRO RATA share of the S corporations TAXABLE income -- NON SEPARATELY STATED!
rule for built-in gains on S-corps? (When are they recognized?)
When corp. was a C-corp originally
S corp terminates. When can it re-elect?
5th year from current year
What is the tax rate for built-in gains on s-corps?
35%, the highest rate
What are types of TAX exempt organizations allowed under IRC?
1) Section 501c1 - act of Congress. Must be charitable.
2) Section 501c2 - App. form 1024: Corp. organized for EXCLUSIVE purpose of holding title to property, collecting income from property, and turning over net income to exempt corp. Issues stock.
3) Section 501c3 - community chest, community fund, foundations for charity (nothing practical like athletic facilities/equip), animal cruelty
4) Section 509 Private Foundations - incls all section 501c3s. Foreign corps may be considered.
a) Max 50% charitable ded. donees
b) Public orgs receiving more than 1/3 of annual support from members, and less than 1/3 from invest/unrelated
c) Supporting orgs
d) Public safety testing orgs
(Also, membership orgs without profit)
What are Section 501c3 requirements?
a) No part of net earnings may inure benefit to any private shareholder or individual
b) no substantial part of activities can be "nonexempt"
c) No direct participation in any political campaigns (INCL. endorsing candidates, fundraising for them)
What are the tax exempt org required returns?
Form 990-PF, discloses substantial contributors and amnts of contributions received. REQUIRED.
Exempt orgs -- voluntary and involuntary termination
1) Involuntary - public foundations terminate when they become public charities.
2) Voluntary - notify IRS, subj. to termination tax of payback in value of agg. Tax Benefits or Net Assets, whichever is lower.
ALTERNATELY - foundation may elect to dist. all its assets to an org. qualifying for the max 50% of deduction, or operate itself as public charity for at least 5 years
Tax Exempt Orgs - Annual Return Requirement, May 15, and the three exempt orgs?
Form 990, with 3 exceptions:
1) religious and religious-auxiliary
2) certain orgs. that normally have less than 5K gross receipts
3) Certain orgs under 50K (as per 2010) only disclose a few things to IRS
Forget to file for 3 yrs, and tax-exempt status is revoked!
What is Unrelated Business Income (UBI) ?
Rel. to tax-exempt orgs. It is GROSS income from any biz regularly carried on (minus business deductions directly connected.) Comes from:
1) BIZ not charitable activity
2) Regularly carried on
3) Not substantially related to the org's tax-exempt purposes (EG - if it is substantially related, eg work for volunteers, selling trade materials to members)
Taxation of UBI
Estimated taxes - 990-T, and comply with code provisions requ. installment payments of E.Tax by corps.
$1000 specific deduction - RIGHT off the top of UBI
Stuff that WON'T be in UBI: divs/cap gains, rents from property, gains/losses from prop. not primarily held for sale, research income, labor union income, bingo game income, holding securities for lender, income from sharing membership lists
*UBI Cannot be generated by unpaid volunteers.
Advanced Pricing Agreement Program?
Binding contract bw IRS and Taxpayer, by which IRS agrees NOT to seek a transfer pricing adj. for a covered transaction, if the taxpayer is filing in a current year consistent with agreed-upon TP method.
Tax advice regarding poss. investment in a new production facility?
Asset trade-ins could result in lower taxes payable in later years
Rule on Life Ins. Proceeds:
Not taxable to corp, when controlled by corp.
Premiums paid by corp on controller's policy, are not taxable.
INSURANCE expense on lives, is taxable.
Charitable deduction timetable -
limited to either amount paid during the year, or up to 15 day of 3rd month into 2nd year
Costs of organizing a corp?
Amortized over 180 months (just like goodwill/intangibles), plus special Y1 deduction