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R4 Flashcards

1
Q

Corporation basis of property received=

A

Greater of:
Adjusted basis of transferor (plus [gain] cash received by transferor)
OR
Debt assumed by corp

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2
Q

No G/L on property contributed to corp if shareholder:

A

Transferors own at least 80% of stock after transaction
(shareholder who only contributes services is not included)
AND
No Boot received

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3
Q

Basis of common stock received by shareholder:

A

Cash= amt contributed
Property contributed= adj basis (NBV)
Services=FV (taxable as ordinary income)
*Less any gain recognized by the shareholder

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4
Q

Amount of gain recognized on property contributed=

A

Lesser of:
Boot received (cash or excess [over adj basis] debt put in)
AND
Realized gain (property received- adj basis)
((shareholders basis-boot))

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5
Q

Business entities that can have 1 owner

A

Sole proprietorship, corporation, limited liability corporation
*Partnership must have 2

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6
Q

Entity with the most flexibility in choosing an accounting period:

A

C- corporation: same choice of accounting periods as individuals

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7
Q

Accrual basis of accounting is required for:

A

-Corporations with inventory
-tax shelters
-farming corporations
-C-corporations (when >$5 mill avg annual gross receipts for 3 yr period)
Manufacturer

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8
Q

May use the cash method of accounting:

A

-Personal service corporations

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9
Q

Book income –> taxable income

A

Book income
Plus: Federal income tax expense
Less: Excess of tax amortization over book impairment of goodwill
Taxable income

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10
Q

Charitable contribution for corporations

A

Max deduction of 10% of taxable income before:

  • charitable contribution
  • dividends received deduction
  • NOL carryback
  • capital loss carryback
  • U.S. domestic production activities deduction
  • *Add these back to income
  • 5 yr carryforward
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11
Q

Accrual basis corp can deduct when:

A
  • Authorized before year end

- Paid by the 15th day of the 4th month after the yr of accrual

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12
Q

Eligible organizational/ Start-up cost deductions:

A
  • Legal services, accounting services and fees paid to the state of incorporation
  • NOT included: costs to issue and sell stock & incurred in transfer of assets
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13
Q

Dividends received deduction:

A

70%: Unrelated entity (0%-<20%)
80%: (20%-<80%)
100%: Affiliated companies (>80%)
*Deduction=lesser of dividends received or taxable income
-Include dividends in income then take deduction
-Must own stock for at least 45 days

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14
Q

Organizational/ Start-up cost deduction calculation:

A
  • $5,000 for each
  • Excess amortized over 180 months (15 yr)
  • Deduction in yr 1= $5000 + amt to amortize
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15
Q

Income before special deductions=

A

Excludes dividends received deduction

full amt of dividends are added as income

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16
Q

Treatment for Net Long-term loss for corps:

A

*Not deductible in current yr, only to offset gains
-carried back 3 yrs, carried forward 5 yrs
($3000 deductions for individuals does not apply!)

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17
Q

Deduction of advertising expenses:

A

deduct currently as ordinary and necessary business expenses

No amortization

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18
Q

LIFO method:

A
  • Inventory on hand at the end of the yr is treated as being composed of the earliest acquired goods
  • Must be elected in first yr used
  • Must use same method for FS
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19
Q

Insurance on an officer’s life where corp is the owner and beneficiary:

A
  • Premiums are non deductible

- Proceeds from insurance are not includable in income

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20
Q

Group term life insurance with employees as owners and beneficiaries:

A

-Premiums paid are deductible

=fringe benefit

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21
Q

Deducting bad debts:

A

-Must use charge- off method if not a financial institution

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22
Q

Taxable income when bad debt is not written off:

A

Add back bad debt expense

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23
Q

Nondeductible business expenses:

Add back to find reportable taxable income

A
  • Bad debts (allowance method)
  • Business meals & entertainment (50%)
  • Political contributions
  • Executive contributions >$1 mill per yr for CEO
  • Federal income taxes
  • Penalties
  • Estimated liabilities for contingencies (warranties)
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24
Q

Subtract to find reportable taxable income:

A
  • Amortizable amount of organizational expenditures (amt after 5,000)
  • Interest from municipal bonds (add back interest exp to carry bonds)
  • Dividends received deduction
  • Depreciation greater than amt on FS
25
Actual warranty cost incurred=
Beginning warranty reserve Add: estimated warranty expense Less: ending warranty reserve
26
Treatment of income and expenses from illegal activity
- Gain included in income | - Cost of merchandise is only deductible exp
27
Personal holding company
-corps with >50% of stock owned by 5 or fewer individuals AND -at least 60% of income is personal holding income (net rent,taxable interest,royalties,dividends) *taxed an additional 20% on net income not distributed (stock ownership test=50%, income test=60%) *Shareholder considered to own stock of family --not in-laws, aunts, nephews, cousins or former spouses
28
Accumulated earnings tax
Penalty tax on C corps when: - accumulated earnings> $250,000 (=credit) * Additional tax rate = 20%
29
Personal service corp:
-Primarily involved in providing a service to customers (Accounting,law consulting,engineering) -penalty when accumulated earnings > $150,000 -Flat tax rate of 35%
30
How to eliminate/ reduce accumulated earnings tax:
- demonstrate "reasonable needs" (a plan) | - pay out dividends by April 15th (may be consent dividends)
31
General business credit
- combines several nonrefundable tax credits | - provides uniform rules for current and carryback yrs
32
Which entities must include 100% of dividends from unrelated taxable domestic corps:
-dividends are fully includable in gross income for all corps
33
No penalty tax for corp if liability is under:
$500 | 1,000 is for individuals
34
Corps must pay the LESSER of for no penalty tax:
100% preceding yr (unless no tax was owed) OR 100% current yr
35
Corporate AMT rate and exemption amt:
Rate= 20% Exemption= $40,000 minus (25% of AMTI over $150,000) Exemption completely eliminated at AMTI of $310,000
36
Corporate AMT preferences:
- percentage depletion - private activity bonds - Pre-1987 ACRS excess depreciation
37
Corporate AMT adjustments:
- Adjustments for G/L - Long-term contracts - Installment sales - Excess depreciation
38
AMT=
Excess of TMT over regular tax liability | -payable in addition to regular tax
39
Effect of unfavorable adjustments on AMTI
Increase AMTI (add back to increase income like preferences)
40
Tentative minimum carryforward=
Excess of TMT over regular liability | -can only be used to offset a corporation's regular tax liability (when not subject to AMT in that yr)
41
Requirements to file a consolidated return:
All corporations in group must: - have been members of an affiliated group at some time during the tax yr - each member must file a consent (consolidated return)
42
Affiliated group=
Common parent directly owns: -80% or more of VOTING power of all outstanding stock AND -80% or more of the VALUE of all outstanding stock *only group that may file consolidated corp return
43
Advantages of filing a consolidated return:
- capital and operating losses of one corp can offset gains of another - elimination of tax on intercompany transactions - intercompany dividends are 100% eliminated
44
Treatment of corporate capital gains:
-taxed the same as ordinary corp income (no special rates like for individuals)
45
Treatment of corporate capital losses:
- may not deduct capital losses from ordinary income - deductible to extent of capital gains - may be carried back 3 years and forward 5 as SHORT TERM losses
46
Net operating loss carryback/forward rules:
Back 2, forward 20 "Hindsight is 20/20" -same as individuals
47
Order of allocation for cash distributions from a corp:
1-current E&P (taxable) 2-accumulated E&P (taxable) *1 & 2 considered dividends 3-return of capital (tax free&reduces basis) 4-capital gain distribution (taxable as capital gain)
48
Calculation for accumulated earnings and profits at yr end:
Beginning deficit in accumulated E&P Plus: current yr E&P Less: amt distributed End of yr accumulated E&P
49
Losses from worthless section 1244 (small business) stock:
- treated as an ordinary loss up to $50,000 ($100,000 MFJ) - excess loss is capital * *only applies to OG owner of stock - 53,000/103,000 loss deductible as ordinary income per yr
50
G/L recognized by shareholders when corp distributes assets in liquidation:
-recognized G/L to extent FMV of assets received exceeds adjusted basis of stock
51
G/L recognized by corp when corp distributes assets in liquidation:
- recognizes G/L as if they sold asset @ FMV (use basis) - loss not recognized/deducted, only gains - inventory not included
52
Shareholder recognition of property dividend:
-includes FMV of property in income as a dividend to the extent of E&P (plus any gain on distribution itself)
53
Corp recognition of property dividend:
- as if property has been sold (FMV-basis) - corp gain= increase of E&P (taxable) - taxable when appreciated property
54
Stock dividends
-generally not taxable (unless shareholder has decision to receive other property)
55
Type of G/L recognized by a shareholder in complete liquidation:
- Capital G/L (amt excess of E&P) | - treated as full pymt for their stock
56
Type A reorganization=
Mergers/ Consolidation - taax-free to shareholders and corps - No G/L unless other consideration is received
57
E&P is first allocated to:
- preferred dividends | - chronologically by pymts in yr
58
Basis of land received from a subsidiary=
carryover basis
59
Recognized gain when liability assumed is greater than the property's FMV:
Gain=amt of liability-basis | -liability amt becomes the FMV

REG (12 decks)

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