Flashcards in R3- Pt2-5 Deck (42)
How is an S-Corporation election made?
Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year
To make election, 100% of the shareholders must consent
- Consent of New Shareholders - Not Req.
How is an S-Corporation terminated?
- 50% of the shareholders must consent
- Fails to meet any or all eligibility requirements
- More then 25% of Gross Receipts come from Passive Income for 3 consecutive years
- Had C-Corp E&P at end of each year
- Effective immediately
What items are not included in calculating an S-Corporation's ordinary income?
These items are included on Schedule K, not in ordinary income:
Foreign Taxes paid deduction
No Investment Interest expense
Section 179 Deduction
1231 Gain or Loss
Portfolio Income (dividends or interest)
How is S-Corporation shareholder basis calculated?
+Share of Income Items (including non-taxable income!)
+ Additional shareholder investments
-Distributions (cash or property)
-Ordinary Losses (but don't take income below zero)
= Ending basis
What is the formula for an S-Corp Built-in Gains Tax?
FMV of Assets @ S-Corp Election Date
- Adjust. Basis of Assets
= Built-in Gain
x 35% Corporate Rate
What are the requirements for holding S-Corporation status?
- Domestic only
- Up to 100 shareholders allowed
- Only one class of stock allowed
- Calendar tax year only
What are the Eligible Shareholders for a S-Corporation
- Only individuals, estates and trusts can be shareholders
- No Foreign Shareholders
- Corporations & Partnerships aren't Eligible
Built-in Gains resulted when 2 conditions occur:
- A C-Corp elects S-Corp Status
- The FMV of the Corporate assets exceeds the Adjusted Basis of the Corporate Assets on the Election Date
S-Corporations are Exempt from a tax on 'built-in gains' under any circumstances:
- The S-Corp was NEVER a C-Corp
- Sale or transfer doesn't occur within 10yrs
- Demonstrate the appreciation occurred AFTER the S Election
What is reported separately & Non-separately stated items in Net Income?
- Separately: Income & Deductions
- Non-Separately: Business Income or loss
How is Pass-through income allocated to Shareholders?
- On a Per-Share, Per-Day Basis
Pass-Through Losses are Limited to?
- A shareholder's Adjusted Basis in S-Corp stock
- Plus direct shareholder loans to the Corp.
-Shareholder Guarantees do not increase Basis
Fringe Benefits are deductible for?
- Non-Shareholder Employees
Fringe Benefits are Non-deductible for?
- Cost of Fringe Benefits for Shareholders owning over 2%
Accumulated Adjustments Accounts Computes:
- Tax Effects of distributions paid to shareholders of a S-Corp that has Accumulated E&P since inception
What is the Tax result & Treatment for the 1st distribution to Shareholders NO C-Corp E&P?
-Distribution is to extent of basis in stock
-Not Subject to Tax, reduces basis in stock
- Treatment is Return of Capital
What is the Tax result & Treatment for the 2nd distribution to Shareholders wit NO C-Corp E&P?
- Distribution in Excess of basis of stock
- Taxed as long-term Capital Gain
- Treatment: Capital Gain Distribution
What is the Loss Limitation Calc. for a Shareholder to deduct on their personal Tax Return?
- Pro Rata Share in S-Corp
+ Direct shareholder Loans
= Loss Limitation
What is the Tax result & Treatment for the 1st distribution to Shareholders WITH C-Corp E&P?
- To Extent of Acc. Adjustments Account
- Not subject to tax, Reduces basis in Stock
- Treatment: S-Corp Profits - Already taxed
What is the Tax result & Treatment for the 2nd distribution to Shareholders WITH C-Corp E&P?
- To Extent of C-Corp E&P
- Taxed as dividend, Does NOT reduce basis in stock
- Treatment: Old C-Corp Taxable Dividend
What is the Tax result & Treatment for the 3rd distribution to Shareholders WITH C-Corp E&P?
- To Extent of Basis of Stock
- Not subject to Tax, Reduces basis in stock
- Treatment: Return of Capital
What is the Tax result & Treatment for the 4th distribution to Shareholders WITH C-Corp E&P?
- In EXCESS of Basis of stock
- Taxed as Long-term Capital Gain
- Capital Gain Distribution
When can a S-Corporation Re-Elect?
- 5 years after termination
- Unless IRS consents
To be Exempt, Organizations not included in 'Section 501(c)(1) Must:
- Written Application & Approval by the IRS
- Become Incorporated
- Issue Capital Stock
An Organization can lose 'Exempt Status" if:
- Engage in activities to influence Legislation
- Participate or intervene in Political Campaigns
What Organizations are EXCLUDED from Section 509 Private Foundations?
- Max. 50% Charitable deduction donees
- Receiving more then 1/3 of their annual support from members
- Supporting organizations
- Public Safety testing Organizations
What is the Required Return for Private Organizations?
- Form 990-PF
- Discloses substantial contributors & amounts of contributions received.
Private Foundations will Involuntary terminate when?
They become Public Charities
Private Foundations will Voluntary terminate when?
- Achieved by notifying the IRS
- Status is not Permanent