C corps

Question 1

Gross income of a corporation includes all income, unless specifically excluded. Excluded from a corporation’s gross income are:

Answer 1

Excluded from a corporation’s gross income are capital contributions and any gain or loss realized by a corporation on the sale or exchange of its own stock

Question 2

What type of life insurance proceeds are not included in income?

Answer 2

Life insurance policy paid by reason of death of the insured are excluded by the beneficiary.

Question 3

When is prepaid rent recognized?

Answer 3

Both cash- and accrual-basis taxpayers must include in gross income amounts actually or constructively received if the taxpayer has an unrestricted claim to the amounts.

Question 4

Excess charitable contributions may be carried over for how many years? And total deductions for Charitable Contributions of a corporation may not exceed what amount of the TI?

Answer 4

Excess charitable contributions may be carried over to each of the succeeding 5 years, subject to certain limitations. The total deductions for charitable contributions of a corporation may not exceed 10% of the taxable income computed before special deductions.

Question 5

What do you add back for the 10% limitations of charitable contribution calculation?

Answer 5

10% limit is based on taxable income as reported before considering: •the charitable contribution itself, •DRD •any CL carryback (but not carryforward), and •any NOL carryback (but not carryforward).

Question 6

Can charitable contributions be carried forward or back? and if so, for how many years?

Answer 6

A corporation may carry unused charitable contributions forward for 5 years. Current contributions are deducted before carryovers. Carryovers are applied on a FIFO basis. Carrybacks of excess charitable contributions are not permitted.

Question 7

Golden parachute payments are:

Answer 7

not deductible.

Question 8

is federal income tax deductible?

Answer 8

No, federal income tax is not deductible.

Question 9

When calculating charitable contributions limit, is the carryover contribution included when calculating the 10% limit?

Answer 9

No, contribution carryover are not included.

Question 10

If there is a current year contribution and a carry over contribution, which should be used up first?

Answer 10

The current year charitable contribution should be used first.

Question 11

In calculating NOL is DRD allowed?

Answer 11

yes in calculating NOL, DRD is allowed.

Question 12

What kind of costs cannot be amortized for tax purposes?

Answer 12

Stock issuance costs cannot be amortized.

Question 13

A deduction for business gifts is allowable only to the extent of:

Answer 13

A deduction for business gifts is allowable only to the extent of $25 per donee per year.

Question 14

The costs of organizing a corporation in 2015

Answer 14

May be amortized over a period of not less than 180 months, even if these costs are capitalized on the company’s books.

Question 15

Examples of organizational expenditures include;

Answer 15

Expenses to obtain the corporate charter Fees paid to the state of incorporation Expenses of temporary directors.

Question 16

Bonuses paid within what time period would be considered to be paid in prior year?

Answer 16

If paid within 2 1/2 months of the new period will be considered if made last period.

Question 17

How many days should a corporation hold stock to be able to qualify for DRD?

Answer 17

The distributee corporation must own the distributing corporation’s stock for more than 45 days (90 days for dividends more than a year in arrears received on preferred stock) to qualify for the dividends-received deduction.

Question 18

A contribution to a local political candidate is deductible or not?

Answer 18

No, not deductible.

Question 19

What are the percentages for a DRD?

Answer 19

A corporation may deduct 70% of dividends received from a domestic taxable corporation of which it owns less than 20% of the stock, 80% of dividends received if the stock is 20% or more owned, and 100% of dividends received if the stock is 80% or more owned.

Question 20

What costs are expenses as incurred?

Answer 20

Generally, rules for deductions from corporate gross income for ordinary and necessary business expenses duplicate the rules for individuals. Miscellaneous ordinary and necessary business expenses are also deductible. Examples include costs of office supplies, advertising, and bank fees.

Question 21

What method must be used for bad debts?

Answer 21

The corporation must use the direct charge-off method or the nonaccrual-experience method.

Question 22

For a domestic corporation to deduct a percentage of the dividends it receives from a foreign corporation, certain tests must be met.

Answer 22

The IRC lists requirements that must be met for the dividends of a foreign corporation to qualify for the dividends-received deduction. These requirements include that the foreign corporation (1) not be a foreign personal holding company, (2) be subject to federal income taxation, (3) be 10% or more owned by the domestic corporation, and (4) have income from effectively connected business sources within the United States.

Question 23

how are casualty losses treated in corporations vs. individual? What would be the deductible loss?

Answer 23

Casualty losses are deductible. The $100-per-loss and 10%-of-AGI floors apply to personal, not business, losses. When business property is completely destroyed, the amount deductible is the property’s adjusted basis immediately before the loss.

Question 24

Research and experimental expenditures must be?

Answer 24

Research and experimental expenditures must be capitalized, unless election is made to deduct them in the year paid or incurred. If capitalized, they might be depreciable. If not (i.e., no determinable life), they may be amortized over not less than 60 months.

Question 25

How many years is NOL carried back and forward?

Answer 25

NOL is carried back 2 years back and 20 years forward.

Question 26

How is NOL calculated? what is not allowed?

Answer 26

Sec. 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. One of the modifications is that a deduction for a net operating loss carryover is not allowed in computing a current NOL. Furthermore, a deduction for charitable contributions is not allowed because it is limited to 10% of taxable income

Question 27

Explain the difference on Capital losses between corporations and individuals?

Answer 27

Excess capital losses may be offset against ordinary income to a limited extent by individual taxpayers, but corporations may offset capital losses only with capital gains. Carryovers do retain their identity as long or short term for individuals but not for corporations. A corporation treats the carryover as a short-term capital loss in the carryover year. Individuals can carry excess losses forward indefinitely, while corporations may carry them forward for only 5 years. Also, excess capital losses are not carried back by individuals but are carried back 3 years by corporations.

Question 28

To reconcile income per books with income per tax, the following adjustments are made to net income (loss) per books:

Answer 28

Net income (loss) per books + Federal income tax + Excess of capital losses over capital gains + Income subject to tax not recorded on books + Expenses recorded on books not deducted on the tax return [including contributions in excess of 10% taxable income limitation, book depreciation expense in excess of allowable tax depreciation, disallowed travel and entertainment costs (50% of meals and entertainment expenses are nondeductible), life insurance premiums on key personnel when the corporation is the beneficiary, political contributions, and interest expense to carry tax-free interest instruments (e.g., municipal bonds)] – Income recorded on books not subject to tax (including prepaid rent or interest previously received and recorded for tax purposes but not earned until the current year, life insurance proceeds received on the death of key personnel, and tax-exempt interest) – Deductions on this return not charged against book income (e.g., depreciation) = Taxable income

Question 29

When figuring a current-year net capital loss, capital losses carried from other years are:

Answer 29

not included.

Question 30

Net 1231 gains are treated as what? Net 1231 losses are treated as what?

Answer 30

LTCG Ordinary

Question 31

For tax purpose how is goodwill amortized?

Answer 31

The capitalized costs of certain Sec. 197 intangibles, including goodwill, may be amortized over a 15-year period beginning on the date of acquisition.

Question 32

What are the rates to calculate corporate tax liability?

Answer 32

15% $0 – $50,000 25% $50,000 – $75,000 34% $75,000 – $100,000

Question 33

Foreign income taxes paid by a corporation may be claimed either as?

Answer 33

May be claimed either as a **deduction** or as a **credit**, at the option of the corporation.

Question 34

How is foreign income credit calculated?

Answer 34

(Foreign source taxable income/total worldwide taxable income)x U.S. tax before FTC =FTC limit

Question 35

The following information pertains to Wald Corp.’s operations for the year ended December 31, 2015: Worldwide taxable income $300,000 U.S. source taxable income 180,000 U.S. income tax before Foreign Tax Credit 96,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on nonbusiness-related interest earned 12,000 Other foreign source taxable income 90,000 Foreign income taxes paid on other foreign source taxable income 27,000 What amount of Foreign Tax Credit may Wald claim for 2015?

Answer 35

The Foreign Tax Credit limit is the proportion of the taxpayer’s tentative U.S. income tax (before the Foreign Tax Credit) that the taxpayer’s foreign taxable income bears to his or her worldwide taxable income for the year. The limit must be applied separately to nonbusiness interest income. Nonbusiness interest income computation: ($30,000 ÷ $300,000) × $96,000 = $9,600 Other foreign source taxable income computation: ($90,000 ÷ $300,000) × $96,000 = $28,800 Foreign taxes paid on the other income is less than the limit and fully creditable. The total credit is $36,600 ($9,600 + $27,000).

Question 36

In the filing of a consolidated tax return for a corporation and its wholly owned subsidiaries, intercompany dividends between the parent and subsidiary corporations are

Answer 36

A dividend distributed by one member of a group filing a consolidated tax return to another member of that group is eliminated during consolidation. Therefore, no dividends received deduction is allowed for the consolidated entity, and the transaction is not taxable.

Question 37

In order to file a consolidated return what percentage must a corporation own?

Answer 37

A corporation must own 80% of the total voting power and 80% of the total value of the stock (excluding certain preferred stock issues) in order to file a consolidated return.

Question 38

When a consolidated return is filed by an affiliated group of includible corporations, what must happen with operating losses before NOL can occur?

Answer 38

Operating losses of one group member must be used to offset current-year operating profits of other group members before a net operating loss carryback or carryover can occur.

Question 39

A single federal income tax return may be filed by two or more includible corporations that are members of an affiliated group. Includible corporations are all corporations except

Answer 39

(1) tax-exempt corporations (2) S corporations (3) foreign sales corporations (4) insurance corporations (5) REITs (6) regulated investment companies (7) domestic international sales corporations (8) corporations claiming Sec. 936 possessions tax credit. An affiliated group includes each corporation in a chain of corporations under the following conditions: 1. The other group members must directly own stock in the corporation that represents 80% or more of both total voting power and total value outstanding. 2. A parent corporation must directly own stock under the 80% rules of at least one includible corporation.

Question 40

How is a sale or exchange or property between members of the consolidated group treated? When is gain recognized?

Answer 40

A sale or exchange of property between members of the consolidated group is a deferred intercompany transaction. In the case of nondepreciable property (e.g., land) not sold on the installment basis, the gain is not reported until the property is sold outside the group.

Question 41

If a corporation is elected as an S status, can it still file consolidated returns?

Answer 41

No, if elected S status, you cannot file consolidated return.

Question 42

Corporations must be members of an affiliated group to file a consolidated tax return. An affiliated group consists of:

Answer 42

One or more chains of includible corporations that are connected through stock ownership with a common parent corporation. There is an 80% ownership requirement. Only parent-subsidiary affiliated groups will meet this requirement of having a common parent corporation.

Question 43

If a corporation’s tentative minimum tax exceeds the regular tax, the excess amount is

Answer 43

is payable in addition to the regular tax. This excess is called the alternative minimum tax and is due on the same date as the regular tax.

Question 44

How do you calculate the AMTI exemption?

Answer 44

The basic exemption amount is $40,000. However, this is reduced by 25% of the excess of alternative minimum taxable income over $150,000.

Question 45

What's the purpose of Alternative Minimum tax?

Answer 45

Designed to ensure that corps with substantial economic income pay at least a minimum amount of federal taxes.

Question 46

What are the tax preference items for corp AMT? PPP

Answer 46

Tax exempt interest on **Private activity bonds** (net of related expenses) Excess of accelerated over SL depreciation on real **property and leased personal property** placed in service Pre 1987 The excess **Percentage depletion deduction** over the property's AB.

Question 47

AMT credit pay be carried how many years forward and/or back?

Answer 47

Carry forward indefinitely.

Question 48

The ACE adjustment is equal to:

Answer 48

The ACE adjustment is equal to 75% of the excess of ACE over AMTI.

Question 49

Adjustments that apply in determining adjusted current earnings include

Answer 49

Life insurance proceeds received by the corporation on the death of a corporate officer Organizational expenditures that were amortized under Sec. 248 Tax-exempt interest from a local government bond that is not a private activity bond and is not issued in 2009 or 2010.

Question 50

A corporation’s penalty for underpaying federal estimated taxes is

Answer 50

The penalty for underpayment of federal estimated taxes is imposed in the amount by which the required installment exceeds the amount paid multiplied by the federal short-term rate plus 5%. This penalty is not allowed as a deduction.

Question 51

If a corporation is required to make estimated tax payments because it expects its tax to be $500 or more for the year, the first installment payment of estimated tax is due by the

Answer 51

A corporation that anticipates a tax bill of $500 or more must estimate its income tax liability for the current tax year and pay four quarterly estimated tax installments. Installments of fiscal-year corporations are due on the 15th day of the 4th, 6th, 9th, and 12th months.

Question 52

The estimated tax liability is the sum of:

Answer 52

The estimated tax liability is the sum of the regular income tax, AMT, and certain other taxes, reduced by corporate tax credits.

Question 53

Sec. 6655(b) provides that a corporation will not be considered to have underpaid its income tax if it pays: Are both options available for large corps?

Answer 53

If it pays the lesser of (1) 100% of the tax shown on the return for the tax year or (2) 100% of the tax shown on the return for the preceding year. BUT option 2 is not available for large corporations

Question 54

What is a large corporation?

Answer 54

A large corporation is one having $1 million or more taxable income during any of its 3 preceding tax years.

Question 55

You estimate your tax to be $800,000. You pay $200,000 estimated tax by April 15, 2015, and another $200,000 on June 15, 2015. At the end of August 2015, a recalculation shows that its 2015 tax is expected to be $900,000. What should the pmts be for the other 2 times?

Answer 55

Short fall must be paid right away. So $900,000/4=225. 225\*2=450 vs 400. So on September 15 make a payment of 275 (225+50) and on December 15 make a payment of 225

Question 56

The personal holding company tax should be assessed by

Answer 56

Should be self-assessed by filing a separate schedule with the regular tax return.

Question 57

Personal holding tax does not apply to

Answer 57

Tax exempt corporations S corps

Question 58

What are the 2 tests that must be met for Personal Holding Company tax?

Answer 58

Shareholder: 5 or fewer individuals own more than 50% of the stock at any time during the last half of the year AND Income: PHC income (income other than business income such as interest, dividends, rents, royalties, etc) constitutes at least 60% of adjusted ordinary income.

Question 59

What is the penalty for Personal Holding Company Tax?

Answer 59

20% penalty tax is imposed on undistributed PHC income, self assed and reported on Form 1120PH

Question 60

What is Accumulated Earnings Tax and who does it NOT apply to?

Answer 60

A penalty tax applied on excess earnings held beyond the reasonable needs of the business. It does not apply to: Personal holding companies, Tax exempt corporations, S corps.

Question 61

What is the Accumulated Earnings Credit?

Answer 61

The Accumulated Earnings Credit (AEC) is deducted from taxable income (TI) to determine accumulated taxable income (ATI), the AET base. The minimum credit base is $250,000. However, the minimum credit base is $150,000 for certain service corporations.

Question 62

Cash distributions are taxable as dividens to the extent of

Answer 62

E&P If no E&P, return of capital to the extent of basis. If no E&P and exceed basis, treated as a sale or exchange of capital asset.

Question 63

In a non liquidating property distributions, Consequences to the distributinhg corportion, when is gain recognized?

Answer 63

Recognizes gain of the distribution of appreciated property as if it had sold the property at FMV. FMV-AM=Gain If property is transferred subject to liabilities and liabilities are \>than FMV, then substitute liabilities for FMV. Liabilies-AB=Gain.

Question 64

What happens to E&P if there is any gain in a non liquidatingn distribution?

Answer 64

Curred E&P is increased by any gain

Question 65

In in non liquidating property distribution, consequences to the shareholders, waht is the amount of the distribution to the shareholder? What is there are liabilities?

Answer 65

The amount of the distirbution is the FMV of the distributed property reduced by any liabilites to which the property is subject.

Question 66

In a non liquidating property distribution, consequences to the shareholder, what is the basis of the proeprty received?

Answer 66

The distributee shareholder's basis is the FMV of the distributed property without reduction for liabilities.

Question 67

How is E&P calculated?

Answer 67

Begin with taxable income +gain on distribution +tax exempt income +DRD +MACRS over SL Depreciation -FIT -Excess Charitable in excess of 10% ATI -Net Capital Loss -Expenses Related to tax exempt income -Distribution(net of debt relief) LAST

Question 68

Distributions never:

Answer 68

Create or increase a deficit

Question 69

In a complete liquidation, consecquences to the individual sharehodlers,how is gain calcualted?

Answer 69

FMV-AB=Gain/Loss Don't forget about debt

Question 70

In a complete liquidation, consequences to the individual shareholders, what is the AB in the property received?

Answer 70

FMV

Question 71

In a complte liquidation, consequences to the liquidating corporation, Gain or loss in calcualted

Answer 71

As if it had sold the property to the shareholders for its FMV. FMV-AB=Gain/Loss.

Question 72

When appreciated property is distributed, what are the effects on E&P?

Answer 72

The E&P are increased by the recognized gain and decreased by the FMV of the property distributed

Question 73

When should 1099 DIV be filed?

Answer 73

Form 1099-DIV for any calendar year be filed on or before February 28 of the year following the year in which gross dividends of $10 or more are paid to shareholders.

Question 74

In a non liquidating preperty distributions,what is the basis of the property received and what is the amount of the distribution?

Answer 74

The distributee shareholder's basis is the FMV of the distributed property without reduction for liabilities. The amount of the distribution is the FMV of the distributed property reduced by any liabilities to which the property is subject. (FMV-Liab)

Question 75

In figuring the amount of a distribution by a corporation to its shareholders, the term “property” includes

Answer 75

“property” is defined as money, securities, and any other property except stock or stock rights of the distributing corporation.

Question 76

A distributions of taxable stock rights or dividends generally is treated the same as:

Answer 76

Any other property distribution, and the holding period begins on the day after the distribution date. If a distribution of a stock dividend or stock right is taxable when received, the basis is the fair market value on the date of distribution. When the dividend is taxable, there is no tacking of the holding period for the underlying stock. The holding period begins the day following the acquisition date.

Question 77

When is a C corp required to file a 1099 DIV?

Answer 77

A corporation is required to file a 1099-DIV if (1) distributions in excess of $10 were made as dividends, capital gains, or nontaxable distributions; (2) tax was withheld under the backup withholding rules; or (3) a liquidating payment of $600 was distributed. Royalties are generally reported on 1099-MISC or 1099-S.

Question 78

When a property is distributed what happens to the E&P? Let's say property was FMV 30 AB 10 and liab of 16

Answer 78

E&P is increated by the gain on the distributions which is 30-10=20, then increased by the liabilities assumed by the shareholder 16, decreased by the FMV of 30. so 20+16-30=6, E&P would increase by 6

Question 79

What is the formula for E&P?

Answer 79

Beginning AE&P +Currnet Year E&P +Taxable Income as Adjusted +Gain (net of tax) on distribution of appreciated property +Liabilities assumed by shareholder on property distributed = E&P available for distributiosn - cash distributions - Greater of FMV or AB of property distributed if CEP =Net CEP -Distributions in excess of CEP (if AEP exists) =Ending AEP