Flashcards in REG 14 Deck (17):
C Corp To S Corp
Capital Losses of Corp flow through to shareholders of S?
Can NOL's carryovers go over to the S Corp?
Yes the capital losses of the C Corp can go to the S Corp where they can offset capital gains (doesn't say whether can take the 3K loss?)
NOL carryovers can go over to the S, but not immediately deductible.
C corp to S Corp
Are corps tax free fringe benefits for shareholders deductible by S Corp?
No - the fringe paid by the corp are income to the shareholders if they own more than 2% of the stock
What is recourse debt versus non-recourse?
Recourse is secured by personal assets in addition to the collateral.
What type of entity doesn't increase basis for income.
What is an S Corps AAA account and what does it do.
Do you increase it by current year earnings.
AAA - accumulated adjustments account
Collects undistributed earnings (including the current year before you distribute)
What happens to an S corps AAA account when it was previously a C corporation and it paid taxes?
Nothing. The undistributed earnings of the former C corp are collect in an earnings and profits account. When these monies are distributed they are treated as a taxable dividend.
What is an earnings and profits account?
Collects undistributed earnings and profits of a C corp that is now an S corp
Distributions from this account are treated as dividends to S corp. shareholders.
E and P comes after AAA if it's a distribution and the AAA is increased first by the current year earnings.
What are distributions over the S corps basis considered on the individuals tax return.
Capital gains - doesn't say LT or ST
When an S corp makes distributions, what pots of money does it come out of first. I.e., AAA, basis, E and P
First the AAA is used up (doesn't effect basis because it's already been added in)
Then the next distribution reduces basis
If anything is left it's the E and P
Distributions from an S corp with AAA and E & P affect shareholders in which order?
E & P
Return of Capital
and how is it taxed?
AAA - reduces basis no tax
E & P - Treated as a dividend, no impact on basis
Return of Capital - Reduce basis up to 0, no tax
Capital Gain - Over 0
What happens when an S corp distributes property, what basis do you use?
Tough one - Question 1225 in Gleim Property was worth 32,500 basis of 26,000
Then it said after accounting for the gain her basis was 25,000, which means it was 18,500 before the 6.500 gain
The answer says distribution should be 25,000 return of capital and 7,500 capital gain.
Makes sense this way:
U use the market value to compare to the basis
U add the gain onto the basis (this means the 6,500 has been taxed as income, sep. std item)
Difference between MVU of what you got and your basis is gain
Why does it feel like it's double counting it. 6,500 taxed as earnings of the S corp. passed through to shareholder as a separately stated gain. Well say it was regular income passed through and then that cash would be sitting in the account of the S Corp. I think confusion-is that they you are associating it with the asset itself. If the corp had sold it and sent her $32,500 in cash you would clearly see that as a gain on the basis.
Liquidated Damages versus Compensatory Damages
Three conditions for liquidated damages
Liquidated damage clause - parties agree in advance to damages in the even of a breach. Example finish in 80 days or Pay $100/day.
1. Can't be considered a penalty.
2. REasonable forecast probable loss due to breach
3. Loss is difficult to calculate
Compensatory damages are actual damages. Meant to reimburse for damages incurred from the breach.
Punish and very rare in contract disputes.
What is this an example of:
"Account Piad in Full to Date" on a check
Accord and Statisfaction
Substituion of Performance
Only works if the debt is disputed, if not, you can't do this because there's no consideration
Composition with Creditors: Common law or (what is the other kind)
Common law, when some or all of the creditors negotiate for some kind of change to the payment terms usu because of debtor is in financial trouble.