Chapter 3 - C and S Corps, and Exempt Org Taxes

Question 1

What are the tax stages for C-Corps? (FOTDL)

Answer 1

F - Formation
O - Operations
T - Taxation (Regular Tax, Minimun, Accum Earnings)
D - Distributions
L - Liquidations

Question 2

What is important to know for S-Corp? (EEEET)

Answer 2

E - Eligibility requirements
E - Electing Status
E - Effect on Corporation
E - Effect on Shareholders
T - Termination of S-Corp

Question 3

What are the stages to know for Partnerships? (FOTDL)

Answer 3

F - Formation
O - Operations 
T - Tax Returns 
D - Distributions
L - Liquidations

Question 4

What do you need to know about LLCs? (FT)

Answer 4

F - Formations

T - Taxation

Question 5

What do you need to know about Exempt Orgs? (TU)

Answer 5

T - Types of Exempt Orgs

U - UBI

Question 6

Personal Holding Company must know (4 things)

Answer 6

1) 60% of AGI held by <5 people. Made of Net Rent, Interest Income, Royalties, Dividends.
2) The additional tax (penalty) is self-assessed
3) Not subject to accumulated earnings tax
4) There is only a penalty if earnings are NOT distributed

Question 7

What happens for C-Corp shareholders on Liquidation?

Answer 7

Gain recognized FMV of assets - Basis

Question 8

When is the formation of a C-Corp taxable for Shareholder? (4 times)

Answer 8

1) Services are rendered
2) Liability contributed > NBV of property
3) Shareholder(s) own < 80% after formation.
4) Boot is recieved

Question 9

What is the C-Corp’s basis in Contributed Property?

Answer 9

GREATER OF:

1) Adjusted Basis
2) Debt assumed by Corporation
3) Cash paid to get property

Question 10

What is DRD limited to?

Answer 10

It is limited to Appropriate % times the DRD Modified Taxable Income (TI before DRD, NOL, capital loss carryback/forward, any domestic production activities deductions)

Question 11

What is the C-Corp taxation Form formula?

Answer 11

GROSS INCOME
(Deductions)
SUBTOTAL A
(Charity) - 10% of A
SUBTOTAL B
(Dividends Recieved Deduction) 70%, 80%, 100%
TAXABLE INCOME

Question 12

Personal Holding Company income?

Answer 12

NIRD

Question 13

what costs are expensable and amortizable for Organizational expense?

Answer 13

ONLY Costs of organizing Corp (i.e legal fees for drafting the corporate charter)
COSTS of Selling Stock ARE NOT!

Question 14

WHat percentage means CORP can consolidate return?

Answer 14

Common parent must own 80% of voting stock to consolidate tax return

Question 15

what is important about General business tax credit? (2 things)

Answer 15

1) It COMBINES several tax credits

2) to PROVIDE UNIFORM rules for carryback and carry forward years

Question 16

What is a Type B Reorg?

Answer 16

1) Acquiring company acquires stock for voting stock of another company
2) Acquiring company is “in control” immediately after acquisition

Question 17

Corporate tax return due date?

Answer 17

The ides of March (15).

Statute of limitations begins on your BDAY

Question 18

Upon Formation of C-Corp, when does a Stockholder recognize a gain?

Answer 18

1) When FMV services are rendered.
2) LIABILITY GIVEN EXCEEDS BASIS (same as partnership)
3) BOOT RECEIVED
4) Own < 80% of the stock

Question 19

Upon Liquidation of C-Corp, what expense are deductible and to whom?

Answer 19

Fees for liquidating the C-Corp are deductible to C-Corp

Question 20

What are the carryback/forward year rules for C-Corps?

Answer 20

NOL (2 back - 20 forward)
Capital gains (3 back - 5 forward)
Charity contributions (forward FOREVA)

Question 21

What is the CORPORATIONS basis in Assets upon formation?

Answer 21

GREATER OF:
NBV of Property & LIABILITY ASSUMED
PLUS any cash paid to attain it

Question 22

How do shareholders treat liquidated property from Complete liquidating dividends (c-corp)?

Answer 22

Treated like selling property

As a Capital Gain or Loss (FMV - Basis of surrendered stock)

Question 23

What is the minimum AE credit that can be taken for manufacturing companies?

Answer 23

$250K after federal income taxes have been taken.

Question 24

what entities may take NOL deduction at entity level? (3 entities)

Answer 24

Individuals
C-Corps
Trusts and Estates

Question 25

What entities may not file consolidated return? (5 SFReIE)

Answer 25

``` S-Corps Foreign Corps Real Estate Investment Trusts Some Insurance Companies Most exempt orgs ```

Question 26

What's the difference between Cash dividend and Property dividend (appreciated) when dividend is taxable.

Answer 26

Shareholder's recognize Cash rec'd or FMV of property rec'd for Dividend income Corporations reduce taxable earning by cash distributed and basis of asset distributed. (Pay taxable gain for appreciated portion of property)

Question 27

How to determine (upon Formation of C-Corp) if shareholder's appreciated property yields a taxable gain?

Answer 27

IRC Section 351. if shareholders contributing cash and property don't own 80% of stock (voting/non-voting) then the Appreciated FMV of property will be taxable as a gain.

Question 28

What is amortization of intangible for tax purposes?

Answer 28

15 years

Question 29

Difference between Section 1244 and Worthless stock treatment

Answer 29

Section 1244 - Ordinary loss (if original owner) | Worthless - Capital loss

Question 30

S-Corp things to know (GRIT)

Answer 30

General Rule = No tax Rules to become S-Corp Income/Loss Recording Termination Rules

Question 31

Must be to become S-Corp

Answer 31

Must be: Individual Estate Certain Trusts

Question 32

Who can't become S-Corp

Answer 32

Corporations and Partnerships

Question 33

SH limit for S-Corp?

Answer 33

<100 people & One Class of stock

Question 34

Election due date for S-Corp

Answer 34

The Ides of March

Question 35

S-Corp status terminates when:

Answer 35

1) For three consecutive years. S-Corp's prior C-Corp income is passive investment in nature and exceeds 25% of total S-Corp income 2) If >50% of total shares issued elect to

Question 36

For S-Corp what items are included separately from k-1 form? (DCLGF)

Answer 36

``` Dividend Income Charitable Contributions Long term capital loss Gain or loss on sale of collectibiles Foreign Income Taxes ```

Question 37

FOr built-in gains sold before 10 years, how much is taxed as C-Corp tax?

Answer 37

Only the amount that was appreciated at election date.

Question 38

Are there any taxes on distributions for S-Corps?

Answer 38

Yes. Appreciated property

Question 39

What increases/(decreases) Accumulated Adjustment Account (AAA) for S-Corps?

Answer 39

Separately and non-separately stated items on K-1

Question 40

Are tax exempt orgs taxed on unrelated business income <$1000?

Answer 40

No.

Question 41

what happens if unrelated business expenses Exceed unrelated business income?

Answer 41

A net operating loss occurs and is carried back and forward

Question 42

A private foundation may terminate it's exempt status by becoming what?

Answer 42

Max 50% charitable deduction donees Broadly publicly supported organization Public safety organization Supporting organization i.e: if it becomes public

Question 43

Who qualifies as an exempt organization? (SRCS)

Answer 43

Social Clubs Religious Org Charitable Org Scientific Org

Question 44

Who DOES NOT qualifiy as an exempt org?

Answer 44

"Feeder orgs" (Make profit and send 100% to exempt org) | "Lobbyist" (Legislation influencers)

Question 45

What tax rate is unrelated business income (exempt org) subject to?

Answer 45

Corporate tax rates unless org is taxable as a trust.

Question 46

For corporations what is the exemption amount for AMTI?

Answer 46

THe exemption amount for ALternative Minimum Taxable Income is $40K. Phase out is 25% of the AMTI >$150K

Question 47

What increases and decreases shareholder's basis in S-CORP?

Answer 47

INCREASES- 1) ALL INCOME (tax free or not) 2) Adjusted basis for Land contributed 3) Amount of Cash contributed DECREASES- 1) All loses (Limited to Basis+Direct shareholder loan to S-Corp Recourse-Distributions 2) Distributions to shareholders Similar to partnership without liability rules

Question 48

Does a corporation have to use the Direct-write off method instead of the reserve method for bad debts?

Answer 48

If the corporation is NOT a Small Bank or thrift institution, then YES.

Question 49

BELOW what amount does the corporation's total tax have to be for the corporation to NOT have to pay any UNDERPAYMENT TAX PENALTY?

Answer 49

$500

Question 50

What is AMT for corporations formula?

Answer 50

Regular Taxable Income +/- LID + PPP +/- Adjusted Current Earnings (MOLDD) =AMTI =AMT Base *20% =Gross AMT =Tentative Minimum Tax Liability =AMT

Question 51

Which Tax payers are required to use ACCRUAL BASIS ACCOUNTING? (CATF)

Answer 51

C - C-Corp with > $5M annual gross reciepts for 3 years A - Accounting PURCHASE and sale of inventory T - Tax Shelters F - Farming corporations

Question 52

What effects the Shareholder's basis in a C-CORP?

Answer 52

``` Increases + Cash contributed + AB of Property + FMV of services rendered + Gain recognized by shareholder is an increase Decreases - Cash Rec'd from corp - Liabilities assumed by the corporation - FMV of non money boot. ```

Question 53

When does a shareholder NOT recognize a gain on formation?

Answer 53

1) when Shareholders end up with 80% CONTROL | 2) NO BOOT INVOLVED

Question 54

How are distributions/dividends of Land treated in a C-Corp from the Shareholder perspective? (DIFFERENT FROM PARTNERSHIP)

Answer 54

The land is received at its FMV not adjusted basis. (DIFFERENT FROM PARTNERSHIP) NOT AB. Liability reduces the tax on it BUT NOT BASIS. It is taxable up to earnings and profit (Accum & Current)

Question 55

How does the C-Corp treat distributions of assets to shareholders?

Answer 55

Like a sale GREATER OF FMV or Liabilities Relieved =GAIN

Question 56

On what amount is charitable contribution limitation (10%) deducted?

Answer 56

Income including Dividends received minus expenses NOT INCLUDING: 1) DRD 2) NOL 3) CAPITAL LOSS CARRYBACK/FORWARD