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Flashcards in Federal Taxation: Corporate Taxation Deck (15):

What's the difference between Schedule M-1 and Schedule M-3?

Schedules M-1 and M-3 are reconciliations between Book income and Taxable Income.

Schedule M-1 is for corporations with assets $10M


Book to Tax Income Reconciliation Formula

+ Book Income
+ Non-Deductible expenses
+ Taxable income (not book income)
- Non-Taxable income (included in book)
- Deductions not expensed
= Taxable Income


What is Net Operating Loss (NOL) Carry Back/Forward timelines?

NOL can be carried back 2 years and carried forward 20 years.


Formula for Corporation's Basis in Property Received

+ Shareholder's basis in the property
+ Gain recognized by the shareholder
= Corporation's basis in the property received


Formula for Shareholder's Basis for Stock Received from Corporation

+ Basis of all property transferred to the corporation
+ Gain recognized by shareholder
- Boot received by shareholder
- Liabilities assumed by corporation
= Shareholder's basis in stock received from corporation


Holding period for corporation formation
- Shareholder (1231, other)
- Corporation

- Shareholder 1231 property: holding period tacks on

- Shareholder other property: does not tack on, begins day after transfer

- Corporation property: always includes holding period of property prior to transfer


Corporate Income Tax Formula

+ Realized income
- Nonrecognition of income (a. deferrals and exclusions, b. COGS)
= Gross income
- Deductions
= Taxable income before special deductions
- Special deductions
= Taxable income
x Tax rates
= Gross tax
+ Other taxes
= Net tax


How are net capital gains/losses handled?

Capital losses offset capital gains.

Net capital gains are reported as taxable income.

Net capital losses are carried back 3 year, carried forward 5 years.


5 Special Rules for Corporate Taxation

1. Fiscal years can be used, except "S" Corps or "Personal Service" corps that must use calendar year

2. Accrual accounting required except for small corps (<$5M), S corps, or personal service corps

3. Multiple tax brackets not available for controlled groups or personal service corps (35% flat tax applies)

4. Passive loss limits do not apply (except personal service corps, closely held corps)

5. Tax date is 2.5 months (or 15th day of 3rd month) after fiscal year


How are organizational and start-up costs handled?


- $5,000 can be deducted
- $5,000 is reduced by by amount exceeding $50,000
- Capitalize and amortize over 180 mo (15 years) starting with 1st mo corporation begins operations

- Syndication costs (costs to issue stock) are capitalized, but not amortized.


Corporation Charitable Contribution Deduction
- Limit
- Carrying
- Inventory

- Limit 10% taxable income (before special deductions/carryovers)
- Excess can be carried forward 5 years; no carry back
- Inventory lower of: a) AB + 50% x (FMV-AB) or b) 2 x AB


Domestic Production Deduction

+ Gross receipts of production activity
- Direct costs
- 40% Indirect costs
- Direct W-2 wages
= Qualified Production Activity Income (QPAI)
Lower of a) QPAI or b) Taxable income
x 9%
=DPD (cannot exceed 50% of direct W-2 wages)


Corporate Tax Formula - Special Deductions

+ Gross income
- Deductions
= Taxable income (for charitable deduction limitation)
- Charitable deduction (10% limit)
= Taxable income for DRD
= Taxable income for DPD, carry backs
- DPD, NOL carry back, STCL carry back
=Taxable income


What period of time must a corporation hold a stock in order to take the dividend received deduction?

46 days


4 Corporate AMT Test Rules

1. Corporations are exempt from AMT first year.

2. Exempt from AMT if previous three years average annual gross receipts <$5M

4. If corporate fails test any year, will be subject to AMT all future years