Corporate Taxation

Question 1

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

Answer 1

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.

Question 2

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

Answer 2

Transferor’s basis
+ Gain recognized by shareholder
= Basis

OR

FMV of Corporate Interest
- Adjusted basis of property
= Gain

Question 3

What basis do shareholders and Corporations use for property?

Answer 3

They both use ADJUSTED BASIS, NOT FMV of property.

Question 4

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

Answer 4

A loss on worthless stock is an ordinary loss.

Question 5

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

Answer 5

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

Question 6

What are the basic rules for filing a form 1120?

Answer 6

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

Question 7

When are Corporate federal tax estimated payments required, and how are they calculated?

Answer 7

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.

Question 8

Describe the AMT calculation for C-Corporations

Answer 8

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

Question 9

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

Answer 9

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%

Question 10

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

Answer 10

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