Flashcards in R3- Corporate Taxation Deck (107)
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.
How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?
+ Gain recognized by shareholder
FMV of Corporate Interest
- Adjusted basis of property
What basis do shareholders and Corporations use for property?
They both use ADJUSTED BASIS, NOT FMV of property.
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
When are Corporation with LESS then $10Mil Corp. federal tax estimated payments required, and how are they calculated?
- Required if more than $500 in tax liability expected
- Lessor of :
100% current year liability
100% previous year liability
Describe the AMT calculation for C-Corporations
+Tax Preference Items
+/- ACE Adjustments
- 40,000 Exemption
= Tax Base
x 20% (Tax Rate)
= Tentative Minimum Tax
- Regular Tax Liability
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
What are the ACE adjustments in the C-Corporation AMT tax calculation?
- Municipal Bond Interest
- Organizational Expenditures must be capitalized, not amortized
- Life Insurance Proceeds (key employees)
- Difference betwn AMT & ACE Depreciation
- Dividends Received Deduction
(under 20% ownership/ 70% unrelated)
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
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.
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
How are excess charitable contributions treated in a C-Corporations?
Carried forward 5 consecutive years
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
How is the dividends received deduction (DRD) calculated?
80% Interest ownership = 100% DRD
20-79% = 80% DRD
less than 20% = 70% DRD
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
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
How are capital losses deductible in a C-Corporation?
Capital Losses are deductible only to the extent of Capital Gains
How are net short term capital gains taxed in a C-Corporation?
Net Short Term Capital Gains are taxed at ordinary income rates
How are Corporate losses carried back/forward?
- Carry back losses 3 years
- Carry forward losses 5 years
(as a Short Term Capital Loss)
How are bad debt losses Classified in a Corporation?
Bad debt losses are classified as ordinary
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
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
What is the purpose of Schedule M-1 on a Corporate tax return?
Schedule M-1 Reconciles:
- Book to Tax Income before Net Operating Loss/Dividend Received Deduction
- Ex: Premiums paid on key-person life insurance
What is the purpose of Schedule M-2 on a Corporate tax return?
Reconciles beginning to ending retained earnings
What is the purpose of Schedule M-3 on a Corporate tax return?
Like M1, but for Corporations with $10M+ in assets
How are affiliated (80%) Corporation tax returns handled?
Consolidation election is binding going forward
Dividends between them are eliminated
One AMT exemption
One accumulated earnings tax allowed
How are Corporate distributions to shareholders handled?
Distribution is a dividend to the extent of Current Accumulated E&P (ordinary income)
Then, remainder (if any) is a return of basis.
Then, add'l remainder (if any) is a Capital Gain
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