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Flashcards in Corporate Taxation Deck (45)
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2

How is shareholder basis calculated for a new interest in a corporation?

Adjusted basis of property transferred
+ Gain recognized (if less than 80% ownership)
- Boot received
= Shareholder basis

If shareholders have 80% control after a property transfer; no taxable event occurs.

If liabilities exceed basis on contributed property to a corporation; a gain is recognized.

3

How is shareholder basis calculated for a TRANSFEROR of an interest in a corporation?

Transferor's basis
+ Gain recognized by shareholder
= Basis

OR

FMV of Corporate Interest
- Adjusted basis of property
= Gain

4

What basis do shareholders and corporations use for property?

They both use ADJUSTED BASIS; NOT FMV of property.

5

Describe how loss is taken on Section 1244 small business corporation stock?

A loss on worthless stock is an ordinary loss.

6

What are the requirements for taking an ordinary loss on Section 1244 small business corporation stock?

Taxpayer must be original stock owner; and either an individual or partnership

$50k (single) or $100k (MFJ) limit - remainder is a capital loss

Must have been issued in exchange for money or property (not exchanged for services)

Shareholder equity must not be in excess of $1 million

Both common and preferred stock is allowed

7

What are the basic rules for filing a form 1120?

Return is due regardless of income level

Return is due 3/15 if on a calendar year basis; or 2 1/2 months after end of fiscal year

An automatic six-month extension is available

8

When are corporate federal tax estimated payments required; and how are they calculated?

Required if more than $500 in tax liability expected; or

100% current year liability

100% previous year liability

Note: If corporation had more than $1 Million in revenue the previous year; the first estimated payment must be based on the previous year and the remainder based on the current year.

9

Describe the AMT calculation for C-Corporations

Taxable Income
+Tax Preference Items
+/- Adjustments
= Pre-ACE
+/- ACE Adjustments
= AMTI
- 40;000 Exemption
= Tax Base
x 20%
= Tentative Minimum Tax
- Regular Tax Liability
= AMT

10

What are the pre-ACE adjustments for C-corporation tax AMT calculations?

Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 years

Personal Property - use 150% MACRS; not 200%

Construction must use % completion method

11

What are the ACE adjustments in the C-corporation AMT tax calculation?

Municipal Bond Interest
Life Insurance Proceeds
70% Dividends Received Deduction
Organizational Expenditures must be capitalized; not amortized

Note: AMT paid gets carried forward indefinitely; but never carried back

12

When are C-corporations exempt from AMT?

In year one

In year two; if year one gross receipts were less than $5 Million

In year three; if the average gross receipts for years 1 and 2 were less than $7.5 Million

In year four and beyond; if the average from the previous 3 years is less than $7.5 Million

13

How are gains and losses handled with respect to a corporation's transactions involving its own stock?

Corporations have no gain/(loss) from transactions involving their own stock; including Treasury Stock.

If Corporation gets property in exchange for stock; there is no gain/(loss) on the transaction.

14

How are corporate organization costs handled?

Amortization of costs begin the month the corporation commences business activity

If the corporation doesn't amortize organization costs in year one; they can never be amortized

Costs associated with offerings are neither deductible nor amortized

15

How are a C-corporation's deductible charitable contributions calculated?

Sales -COGS= Gross Profit
Gross Profit + Rent; Royalties; Gross Dividends; Capital Gains
=Total Income
Total Income - Deductions (No charitable contributions; Dividends
Received Deductions (DRD); or NOL Carrybacks allowed)
- NOL Carryforwards
=Taxable Income before charitable contributions; DRD; NOL Carrybacks
x 10%
=Deductible Charitable Contributions

16

How are excess charitable contributions treated in a C-corporations?

Excess charitable contributions get carried forward 5 consecutive years (No Carryback)

17

When can a board of directors authorize charitable contributions for a tax year?

The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year

18

How is the dividends received deduction (DRD) calculated; and what are the limitations?

80% Interest = 100% DRD

20-79% = 80% DRD

less than 20% = 70% DRD

Only allowed if no consolidated return is filed. Qualified dividends from domestic corporations only.

19

What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?

Only take DRD % x Taxable Income

Note: If DRD brings a loss situation; then you can take the full DRD

If Taxable Income remains after DRD; only a partial DRD (T.I. x DRD %) is allowed

20

How are corporate losses on a sale to a corporation where a taxpayer owns a 50% or more interest handled in a C-corporation?

A loss on a sale to a corporation where taxpayer owns a 50% or more interest is disallowed

21

How are capital losses handled in a C-corporation?

Capital Losses are deductible only to the extent of Capital Gains

22

How are net short term capital gains taxed in a C-corporation?

Net Short Term Capital Gains are taxed at ordinary income rates

23

How are corporate losses carried back/forward?

Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss

24

How are bad debt losses handled in a corporation?

Bad debt losses are classified as ordinary

25

What is the casualty loss floor for a C-corporation?

No floor on corporate casualty loss like there is with an individual taxpayer

If destroyed; the loss is the property's basis (minus proceeds)

Calculation: Adjusted basis - Proceeds from Insurance = Loss

If partially destroyed; take the lesser of FMV or adjusted basis reduction (minus proceeds)

26

How are net operating losses handled in a C-corporation?

If loss includes NOL Carryforward; reduce the loss (add back the amount) to get the loss without the Carryforward

Then; carry back the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to the most recent year

Any leftover NOL = This year's NOL

27

How is investment interest expense handled in a C-corporation?

Unlike individual taxation; investment interest expense is not limited to investment income.

Investment interest on tax-free investments are NOT deductible.

28

What is the purpose of Schedule M-1 on a corporate tax return? Which items are included?

Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction

Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation; straight-line; etc)

29

What is the purpose of Schedule M-2 on a corporate tax return? How is it calculated?

Reconciles beginning to ending retained earnings

Beginning Unappropriated Retained Earnings
+ Net Income
+ Other Increases
- Dividends paid
- Other decreases
= Ending Unappropriated Retained Earnings

30

What is the purpose of Schedule M-3 on a corporate tax return?

Like M1; but for Corporations with $10M+ in assets

31

How are affiliated (80%) corporation tax returns handled?

Consolidation election is binding going forward

Dividends between them are eliminated; Advantage- Gains are deferred; Disadvantage- losses are deferred.

One AMT exemption

One accumulated earnings tax allowed

Note: In order to consolidate; the parent must have 80% voting power and own 80% of the stock value