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Flashcards in Chapter 2 Deck (48)
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1

What are C corporations?

Legal entities that are separate and distinct from its owners.

2

How are C corporations created?

They are formally created by filing its Articles of Incorporation.

3

When is an exchange tax free?

Exchange of cash/property of 80% or more or a reorganization.

4

When is an exchange taxable?

Services or less than 80% of stock.

5

What if shares are issued in exchange for rendering of services?

Shares issued in exchange for rendering of services to the corporation result in ordinary income to the service provider and is reported at FMV by the service provider.

6

When is property contribution reported at FMV?

When less than 80% of the total voting stock is in the hands of shareholders that contributed cash or property.

7

When does a non-recognition of gain apply?

Applies only to amounts transferred solely in exchange for stock.

8

What if the shareholder receives cash or property in addition to stock?

A gain is recognized up to the amount of cash or FMV of other property received.

9

What if a shareholder contributes property subject to liabilities?

The shareholder's basis in the stock received is reduced by the amount of liability relief. If liabilities exceed the shareholder's adjusted basis in the property, gain is recognized on the excess and the shareholder's basis in the stock is zero.

10

When is revenue recognized for a C corporation?

The earlier of when earned or collected

11

Can a corporation deduct capital losses?

Capital losses are not deductible to a corporation and may only offset capital gains.

12

How are loss carrybacks and carryforwards treated for a corporation?

They are all considered short term.

13

Which entity has the most flexibility in choosing an accounting period?

C corporation

14

What is the purpose of the M-1 recon?

To identify to the IRS amounts that are reported differently for GAAP and tax purposes.

15

When is a gain or loss recognized when a corporation makes a nonliquidating distribution of its stock?

A gain/loss is recognized when the property is appreciated property.

16

What tax credit cannot be claimed by a corporation?

EIC

17

How much compensation expense can be deducted for the highest paid executives of an issuer?

Only up to $1M can be deducted for the top 5 executive officers.

18

Who has to complete an M-3?

Companies with assets of $10M or more.

19

When are quarterly estimated tax payments due for corporations?

4th, 6th, 9th, and 12th month.

20

When would an underpayment penalty of tax for corporations not apply?

When the balance is less than $500, when the installment payments are accurate, when the tax payments made are 100% of this year or last year.

21

What qualifies as a personal service corporation?

Health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting services.

22

What is a type C reorganization?

Use of voting stock to acquire at least 80% of the target's net assets

23

What is a type E reorganization?

Recapitalization to change the capital structure of a single corporation.

24

What is a type A reorganization?

Merger or consolidation.

25

In a qualifying stock redemption, when are losses disallowed?

When a shareholder directly or indirectly owns more than 50% at the time of redemption.

26

How are AET and PHC calculated?

AET is as a result of an audit and PHC is self-assessed.(sch. PH)

27

The PHC tax only applies to what kind of income?

The tax only applies to undistributed income.

28

What is the tax rate for PHC and AET?

20%.

29

What are the safe harbor amounts for AET?

$250k for manufacturing and $150k for PSCs and for the purpose of federal income taxes owed.

30

What are the 2 qualifications of PHC?

5 or fewer individuals AND 60% or more of revenue are from passive sources (interest, dividends, rent, royalty).