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Flashcards in REG 4 CORPORATION Deck (17):
1

Corporation:
Gross Income
- Ordinary Deductions
=Income b4 Ordinary Deductions
- Charity
- Dividend Received Deductions
- Net Operating Loss/Capital Loss Carry Over
=Taxable Income
x Tax Rate
= Gross Tax Liability
- Foreign Tax Credits
= Net Regular Tax
+ PHS Personal Holding Company (Can't cheat to get out of 39.6 highest rate)
+ Accumulated Earnings Penalty
+ AMT
Total Tax Liability

See above

2

Formation of a Corporation: Notes
Property Transferred to Corporation
FMV = $20, Basis= $10
What is the Value of the Asset to the Corporation?
What is the Value of the stock received to the Shareholder?

Tax free exchange if person has control.
Control is defined as 80% or more
Considered a non-event and is not basis
Corporation uses same basis (carryover basis) as taxpayer
Corporation uses same holding period as taxpayer

3

Section 351 Exchange: the tax free exchange when you transfer money or property to a corporation and control more than 80%

Services are specifically excluded!!!! and are taxed

If one person gives property and gets 50% control (see back) and other guy gives services both transfers are taxable. These are called WAGE TRANSACTIONS and are taxable for the FMV of the STOCK. WAGE EXPENSE FOR THE CORPORATION.

Then it gets confusing because it's actually only if the cash and property contributions equal less than 80%. So two of the three guys could own say, 10 and 70 percent and that would be a tax free transfer to them, and the third guy could give services for 20% and he has to pay.

4

Non event only applies to exchanges of property/cash solely in exchange for stock

If you receive cash/property/securities (called boot), it is taxable based on the FMV.
Basis of

Char gives corp property in exchange for 3,000 cash and stock worth 12,000. Would recognize 3,000 gain. Corp. recognizes @ 15,000

5

Section of code that talks about how to value transferred assets or recognize gain when forming a corporation.

Section 351

6

Forming A Corporation
Carlos 60 Shares for $600
Paulette 30 Shares for Land with CVU of $100 and FMV of $300
Sadie 10 Shares for Services
After formed corp. worth $1000

What are implications for gain recognized and value on books of land.

Carlos and Paulette contributed land and cash and hold over 80% of the shares, so non taxable event.

Sadie's 10% is worth $100 and she must recognize this on her income tax return.

7

Implications for forming Corporation:
Carlos 45 Shares for $450 in Cash
Paulette 30 Shares for Land with CVU of $100 and FMV of $300
Sadie 25 Shares for Services
Corporation is worth $1,000

1st is Basis
Now Carlos and Paulette only own 75% so this means that corporation will care on books at FMV and she will recognize gain on land. Sadie same as always, services = ordinary Income

Carlos $450 value of shares = $450 cash no gain
Paulette $300 Value of Shares - $100 CVU of land $200 gain, Land on Corp books@$300
Sadie: Ordinary Income of $250

8

If someone wants to form corporation and they trade:
Land with CVU of 12,000 and FMV of $20,000
For 80% of the stock
and $3,000 Cash
then what is implications for gain and cvu on books of corp.

Kind of a hybrid, yeah it's over 80%, so you use the CVU, but the corporation forked over another $3,000 so it's basis is the CVU plus the cash or $15,000.

Meanwhile the person has to recognize the $3,000 gain.

9

Now what if Carol exchanges land with a FMV a basis of $10,000 and it has a $15,000 mortgage for 80% of the stock

It was very confusing. The impression I got is the basis would be $10,000 (unless there was an election) and then allocate the loss somehow. The person who exchanged it would have a basis of 0 and would think some gain.

10

Formula ofr Shareholders Basis of In C=corp, tax free exchanges for corporate stock
must have at least ____%

80%
Adjustd Basis of Property Transferred.
+ Recognized Gain
+ Liabilities Assumed of Corporation
+ Transaction Fees and Costs
- Cash Received
- FMV of Property Received
- Liabilities Transferred

11

Basis of Property for C=corp in exchange

over 80% it's
CVU of Transferor
+ Gain recognized by Transferor

12

Claiming Deductions for Corporations when expenses can be taken
All Events Test
Economic Performance Test

Can recognize liability when existence is established and amnt determined with reasonable accuracy
Economic performance test property or services are actually provided

13

How are organizational fees or start up costs handled as far as corp. tax

May deduct up to $5,000 of expenditures don't really understand this but...
If the organ fees or start up costs exceed $50K any amount over this amount is not deductible immediately.

If it's not deductible immediately, amortize over 180 months (15 years) beginning with the month the business begins or the stock starts trading.

If don't expense the start-up or organizational costs then capitalize

14

Is the cost of issueing, printing and selling stock (including legal and accounting fees related to the offereing) an orgainzational expense

no, they are a reduction in APIC

15

How much of compensation can you deduct for each of the highest paid executives

Only up to $1M of compensation of a corporation 1125-E
Only $500K if under TARP

16

How much can you deduct of officers and directors and greater than 10% owners entertainment expenses.

Deducted only to the extent included in gross income

17

DUE DATES
Corporation:

C Corporation: Were 3/15 now 4/15 with 5 month extension (So Sept 15, exten stays same)
S Corporation: Stay 3/15 with a 6 month - so Sept. 15th
Partnerships: Was 4/15 now 3/15 with a 6 month - so Sept. 15thia