Corporate Taxation Flashcards Preview

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Flashcards in Corporate Taxation Deck (16):

accumulated adjustments account

S-corp account that reflects the cumulative total of undistributed net income previously taxed to shareholders. Distributions are generally treated as nontaxable and are a return of a shareholder's stock basis


Accumulated earnings tax

penalty tax imposed on a corporation (in addition to regular income tax) if it accumulates earnings in excess of reasonable business needs in order to avoid a shareholder tax on dividend distributions. Does not apply to personal holding companies


Affiliated corporations

parent-subsidiary chain of corporations in which at least 80% of the voting power (and total value) of stock is owned by includable corporations. Affiliated group may elect to file a consolidated tax return.


Controlled group

two or more corporations owned by the same individuals or entities. (parent-subsidiary corporations, brother-sister corporations, and combined groups) corporations in a control group are in the aggregate limited to the tax benefits available to a single corporation.



corporate distribution of property to shareholders on their stock that is made from the corporation's current or accumulated earnings and profits.


Dividends received deduction

deduction allowed to a corporation for dividends received from other taxable domestic corporations (if held for more than 45 days). If ownership is less than 20%, DRD = 70% ownership 20 - 80%, DRD = 80% over 80%, DRD = 100%


Organizational expenditures

expenses of temporary directors and organizational meetings, state fees for incorporation, and accounting and legal service costs incident to incorporation. $5,000 may be immediately expensed, remaining is amortized over 180 months

$5,000 is reduced by any amount which organizational expenditures exceeded $50,000


Personal holding company tax

penalty tax imposed on personal holding company (in addition to regular income tax) to discourage individuals from placing investment property in a corporation in order to have investment income taxed at lower corporate rates. (self-assessing)


S corporation

qualifying small business corporation, generally pays no corporate income tax and is treated as a passthrough entity.

Eligibility: 100 shareholders, domestic corporation, one class of stock, shareholders are restricted to individuals, estates and certain trusts


Sec 1244 stock

stock issued by a qualifying small business corporation that entitles original holder to deduct an ordinary loss (rather than capital) if the stock is disposed of at a loss or becomes worthless. (annual ceiling on ordinary loss is $50,000 or $100,00 for MFJ) -stock cannot have been issued in exchange for other stock or services


Transfers to controlled corporation

no gain or loss recognized for exchange for stock if immediately following transaction, transferors own in aggregate 80% or more Boot will cause a gain but not a loss -corporation's assumption of liabilities will create a gain if the liabilities exceed the basis of the property


Corporate tax rates

Income $0-$50,000, 15% Income $50,001 - 75,000, 25% Income $75,001 - $10 mill, 34% Income over $10 mill, 35%


Adjusted Current Earnings (ACE) Adjustment

75% of ACE - PreACE AMTI


AMT Calc

Regular income

+tax preferences (tax-exempt interest on private activity bonds, Pre 1987 accelerated depreciation)

+- adjustments (1996 - 1999 accelerated depreciation on 40 year real property, post 1986 accelerated dep)


+- ACE Adjustment (75% ACE - Pre-ACE AMTI)

- AMT NOL (limited to 90% of pre-NOL AMTI)


- Exemption ($40,000 less 25% of AMTI over $150,000

Alternative miminum tax base

x 20% rate

Tentative AMT before foregin tax credit

- AMT foreign tax credit

Tentative minimum tax (TMT)

- Regular income tax (less regular tax foreign tax credit)

Alternative minimum tax (if positive) 


Book to Tax Income

Book Income

+ Federal income tax

+ Excess capital loss over capital gains

+ Income items on tax return not on book (prepaid rents, etc)

+ Charitable contributions in excess of the 10% limitation

+ Expenses deductived on books not on the teax return (business gifts in excess of $25, nondeductible life insurance premiums, 50% of business meals)


- Income reported on books but not on tax return (tax-exempt income, life insurance proceeds)

- Expenses deductied on tax return not on the books (MACRS depreciation over straight line, charitiable contribution carryforward, etc)

- Dividends received deduction

- Domestic production activities deduction


Termination of an S-corp

through revocation: requires approval from 50% of shareholders


failing eligibility requirements: domestic, one class of stock, shareholders must be individuals, estates or trusts, no resident alien shareholders, shareholders cannot exceed 100

has passive investment income exceeding 25% of gross receipts for three consecutive taxable years, if it also has subchapter C earnings and profits at the end of those years.