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Flashcards in R3- Corporate Taxation Deck (107)
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1

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.

2

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

Transferor's basis
+ Gain recognized by shareholder
= Basis

OR

FMV of Corporate Interest
- Adjusted basis of property
= Gain

3

What basis do shareholders and Corporations use for property?

They both use ADJUSTED BASIS, NOT FMV of property.

4

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

5

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

6

Describe the AMT calculation for C-Corporations

Taxable Income
+Tax Preference Items
+/- Adjustments
= Pre-ACE
+/- ACE Adjustments
= AMTI
- 40,000 Exemption
= Tax Base
x 20% (Tax Rate)
= Tentative Minimum Tax
- Regular Tax Liability
= AMT

7

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

8

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)
'MOLDD"

9

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

10

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.

11

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

12

How are excess charitable contributions treated in a C-Corporations?

Carried forward 5 consecutive years
(No Carryback)

13

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

14

How is the dividends received deduction (DRD) calculated?

80% Interest ownership = 100% DRD

20-79% = 80% DRD

less than 20% = 70% DRD

15

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

16

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

17

How are capital losses deductible in a C-Corporation?

Capital Losses are deductible only to the extent of Capital Gains

18

How are net short term capital gains taxed in a C-Corporation?

Net Short Term Capital Gains are taxed at ordinary income rates

19

How are Corporate losses carried back/forward?

- Carry back losses 3 years
- Carry forward losses 5 years
(as a Short Term Capital Loss)

20

How are bad debt losses Classified in a Corporation?

Bad debt losses are classified as ordinary

21

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

22

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

23

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

24

What is the purpose of Schedule M-2 on a Corporate tax return?

Reconciles beginning to ending retained earnings

25

What is the purpose of Schedule M-3 on a Corporate tax return?

Like M1, but for Corporations with $10M+ in assets

26

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

27

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

28

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

29

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

30

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