Corporate Tax I Flashcards
(47 cards)
If corporation has 0 income in the prior year or this is their first year, what method do they use for estimates
Annualized income method
If a corporation’s tentative minimum tax exceeds the regular tax, the excess amount is
.
Payable in addition to the regular tax
What sources of income must Edge consider to determine if the income requirements for a personal holding company have been met?
(N) Net Rent (If less than 50% of ordinary gross income)
( I ) Interest that is TAXABLE (Non-taxable is excluded)
(R) Royalties (but not mineral, oil, gas or copyright roy’s)
(D) Dividends from an unrelated domestic corporation
When a corporation liquidates and distributes assets to shareholders, gain is recognized to the extent that
the fair market value of assets distributed to a shareholder exceeds the shareholder’s basis in the corporation’s stock
Tax on S Corp (Sting Tax) if:
1) C Corp elects S Corp Status AND
2) FMV of the Corp assets exceeds the adjusted basis of Corp assets on the election date
In computing undistributed personal holding company income, a personal holding company deducts
1) federal income taxes
2) net long-term capital gain less related federal income taxes
In filing a consolidated federal income tax return (owns 80% or more of a related company), a corporate group eliminates what?
Dividends from group members
Accumulated earnings tax on RE over $250,000 for a C Corp ($150,000 if Personal Service Corp) unless:
(N/A for Personal Holding Co’s, Tax Exempt Corps, or Foreign Investment Co’s.
1) Can show a reasonable need
2) Pay out dividends by the due date of the tax return.
Note: Add’l tax rate for accumulated earnings is flat 20%.
Only IRS assessed as a result of an audit, not self-assessed.
Corporation can take a credit for Foreign Income Taxes Paid ? Yes or No?
Yes - under certain circumstances.
Any distributions in excess of current + accumulated earnings and profits does what?
reduces the shareholder’s basis in their stock . It is treated as received on the sale or exchange of the stock. It is a nontaxable return of capital UP TO the shareholder’s basis. After that, it is a taxable CAPITAL GAIN distribution.
There is no delinquency penalty if a corporate taxpayer does 3 things:
1) files its return
2) pays at least 90% of the tax due by the due date AND
3) pays the balance due on or before the extended due date.
Statute of limitations for corporations is same as individuals, generally 3 yrs. from the later of the due date of the return OR the date the return was filed (including amended returns). Some rare cases where the statute is extended are:
1) Tax return can be reopened to avoid a hardship on the taxpayer or it IRS
2) Item is ruled deductible in a subsequent yr. after been taken in a closed year (IRS will reopen the statute of limitations to disallow the deduction in the prior year)
Corporate statue of limitation will be extended to 6 years for what % misstatement
25% misstatement or greater.
Note: If an omission was nonfraudulent, the statute of limitations cannot be reopened after it has expired
Definition of Personal Holding Corp:
1) 50% owned by 5 or fewer individuals
2) has 60% of adjusted ordinary inc. consisting of (NIRD):
N = Net rent (if less than 50% of ordinary gross income)
I = Interest that is taxable (nontaxable is excluded)
R = Royalties (but not mineral,oil, gas or copyright roy’s)
D = Dividends from an unrelated domestic corporation
Corporation Taxable Amount Paying Property Dividends - If a corporation distributes appreciable property, the tax results are as if it were sold, i.e. gain is computed
FMV of the Property
- NBV
Corp Gain
Example: Shareholder Taxable Amount when Receiving Property Dividends (This chain of events illustrates you have to INCLUDE the Corp Gain when considering if the Corp has any E&P-even when they started out with no E&P)
1) if Corp has no E&P (RE) then Div would NOT be taxable
2) Corp distributes appreciated property as a Div
3) Corp has recognized gain on property Div
4) Corp gain above increases/creates corporate E&P (RE)
5) Dividend to Shareholder is now taxable income (to extent of E&P)
Net Operating Loss of a Corporation is carried
back/forward what period?
Back 2/ Forward 20 (Remember Hind Sight is 20/20 )
Re: Expensable/Amortizable Organization Costs
Does not include any costs of selling corporate stock
Statute of Limitations “trick” question - The statute of limitations “begins”
It BEGINS the DAY AFTER the due date of the return or the date it was filed WHICH EVER IS LATER.
For Charitable Contributions Limitations - Total Taxable Income is calculated before these items:
1) Charitable contribution deductions
2) Dividends received deductions
3) NOL Carryback
4) Capital Loss Carryback
5) US Production activities Deduction
Unused capital losses of a CORPORATION that are carried back or forward are treated as __________capital losses whether or not they were short-term or long-term when sustained.
Short-term. Capital losses can only be used to offset capital gains up to the amount of the carryback or carryover, not ordinary income.
NOTE: INDIVIDUAL capital losses retain their short/long term status when carried back or forward.
Corp. had $300,000 in compensation expense for book purposes in Year 1. Included in this amount was a $50,000 accrual for Year 1 nonshareholder bonuses.
If they paid the actual Year 1 bonus of $60,000 on March 1, Year 2 - how much could they deduct on their yr 1 tax return?
Answer: $310,000. The additional $10,000 bonus paid on March 1, Year 2 is also deductible in Year 1, even though it was not accrued at year-end Year 1.
Inter-company sales of assets are
Eliminated for tax purposes. The gain is postponed until it is sold to an outside party.
Losses resulting from the sale, exchange or worthlessness of Section 1244 qualifying stock (also called small business stock) are treated as ordinary losses up to $50,000 in any tax year. However, this loss is available only to
Original owners (not thru inheritance)
