Flashcards in Corporate Taxation Deck (46)
How are Corporate distributions to shareholders handled?
Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income)
Then, remainder (if any) is a return of basis. Then, add'l remainder (if any) is a Capital Gain
Distribution amount = FMV of Property + Cash - Liability Assumed
Shareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)
What is the order of treatment in a Corporation's distribution to a shareholder?
1. Distribution is a dividend to the extent of current and accumulated earnings and profits
2. Shareholder basis is then exhausted
3. Remainder, if any, is a Capital Gain
What is the basic calculation for accumulated earnings and profits in a Corporation?
Beginning Accumulated Earnings and Profits
+ Net Income
+ Gain on Distribution (if not already in book income)
- Distribution (but cannot create a deficit)
- NOL of prior years
= Ending Accumulated Earnings and Profits
What is the treatment of a gain in a complete Corporate liquidation?
If Capital Property, then Capital Gain
If Non-Capital Property, then Ordinary Income
Gain characterization is the same for both the Corporation and the shareholder
What is the treatment of a loss in a complete Corporate liquidation?
Corporation: Depends on if property is capital in nature, otherwise ordinary loss
Individual: capital loss only
What is the treatment of the liquidation of a subsidiary?
No G/L to parent company
What is a consent dividend? How is it treated?
Consented by the Board of Directors but not yet paid
Treat as if distributed by the end of the year
Describe the requirements for a personal holding company.
No banks or financial institutions can be PHCs
5 or fewer individuals own more than 50% of the stock
60% of the PHC's income must be from passive means
PHC tax is self-assessing - 20% tax rate on undistributed PHC Income
How is Corporate accumulated earnings tax (AET) different from PHC taxation?
Not Self-Assessing like a PHC
How is the accumulated earnings credit calculated for a Corporation?
Take greater of $250,000 ($150,000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)
What are the requirements for holding S-Corporation status?
Only individuals, estates and trusts can be shareholders
Domestic only, no international S-corps or foreign shareholders
Up to 100 shareholders allowed, and only one class of stock allowed
Calendar tax year only
How is an S-Corporation election made?
Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year
To make election, 100% of the shareholders must consent
How is an S-Corporation terminated?
To terminate election, 50% of the shareholders must consent
No S Corp election allowed for 5 years after termination
S Corp termination effective immediately following an act that terminates status
What items are not included in calculating an S-Corporation's ordinary income?
These items are included on Schedule K, not in ordinary income:
Foreign Taxes paid deduction
No Investment Interest expense
Section 179 Deduction
1231 Gain or Loss
Portfolio Income (dividends or interest)
How is S-Corporation shareholder basis calculated?
+Share of Income Items (including non-taxable income!)
-Distributions (cash or property)
-Ordinary Losses (but don't take income below zero)
= Ending basis