Round 2 - Corporations

Question 1

How much boot is recognized to shareholders?

Answer 1

The lower of:
Realized gain
The FMV of the boot received

Question 2

If the only property received from the corp is stock and the stock is received in exchange for property or cash and the group collectively own 80% of the voting power and each nonvoting class of stock, is G/L recognized?

Answer 2

no

Question 3

When is no gain or loss recognized to the SH at the formation of a corp

Answer 3

When:

1. the only stock is received
2. stock is received in exchange for property or cash
3. collectively the group owns 80% of the voting power and each nonvoting class of stock

Question 4

what is the corporations basis in property received from a control club member?

Answer 4

the basis in the property from the member plus any gain recognized by the transferor.

Question 5

is a net capital loss deductible for computing taxable income?

Answer 5

no

Question 6

when reconciling between book income and tax income on schedule M-1 of Form 1120 must temp differences and perm differences be considered?

Answer 6

both temp(acclerated depr on tax return and straightline on books) and perm (tax exempt interest) must be considered

Question 7

How much of dividend income will a SH report as income?

Answer 7

they will recognize dividend income to the extent of the corporations earnings and profits.

Question 8

what is the word for someone who dies before making a will

Answer 8

intestate

Question 9

for a tenancy in common (4 people each having an equal share in a parcel of land) if 2 people die, how much of an interest in the land will the 2 surviving people have?

Answer 9

each will have 1/4 as when they est. There is no right of survivorship under tenancy in common

Question 10

if a parent sells their child stock and then the child sells it. can the parent and child both recognize a G/L?

Answer 10

the parent cannot recognize a G/L. If the parents have a disallowed loss from the sale to their child, the child cannot recognize a G/L

Question 11

in a trust’s accounting income, what is not included?

Answer 11

items allocated to corpus

Question 12

To be eligible to defer a gain on the contribution of appreciated property to a corporation

Answer 12

the SH must receives stock in exchange for the property

Question 13

who must use the accrual method of accounting?

Answer 13

C corps (cannot use the cash method of accounting unless their average annual gross receipts for the previous three years do not exceed $5,000,000)
Partnerships that have regular C corps as partners
Tax shelters

Question 14

Who can use the cash method of accounting?

Answer 14

Personal Service Corps
S corps
Small Corps (avg gross receipts of $5M)

Question 15

Who may not choose their fiscal year?

Answer 15

S corps

Personal Service Corps

Question 16

Can a retail store use the cash method?

Answer 16

Only if its gross receipts do not exceed $1M

Question 17

When can a C corp use the cash method of accounting?

Answer 17

If their average annual gross receipts for the previous three years do not exceed $5,000,000.

Question 18

What are the percentages for the dividends received deduction?

Answer 18

<20% = 70%
20 - 80% = 80%
+80% = 100 %

Question 19

The domestic production deduction may not exceed what percent of the wages allocable to domestic production income

Answer 19

50%

Question 20

How much of organizational expenses of a corp may me deducted?

Answer 20

$5,000. Phased out $1 for $1 once org expenses exceed $50k. The remaining amount is amortized over 180 months.

Question 21

Can corp deduct charitable contributions?

Answer 21

Yes can deduct accrued - if paid within 2.5 months following year end.
The limit if 10% of taxable income
Excess is carried forward for 5 years

Question 22

What are qualifying org expenses

Answer 22

legal fees
temp directors meetings
state incorp fees
(stock issuance and commisions to underwriters are not included)

Question 23

How much is a corps charitable contribution deduction?

Answer 23

Limited to 10% of its taxable income computed before the charitable deductions and dividend received deductions

Question 24

Do you have to pay AMT in your first year?

Answer 24

No - auto exempt in first year

Question 25

Will org have to pay AMT in second year?

Answer 25

Wont have to pay in CY if gross receipts in PY were less than $5M

Question 26

Will org have to pay AMT in 3rd year?

Answer 26

Wont have to pay in CY if the two periods prior have average gross receipts of less than $7.5M

Question 27

the consent dividend can be used to reduce..

Answer 27

the accumulated earnings tax and the personal holding company tax

Question 28

what are consent dividends

Answer 28

hypothetical dividends that are treated as if they were paid prior to YE. Since they are not actually distributed, SH increase their stock basis by the amt of the consent div included in their gross income

Question 29

What is a deficiency dividend?

Answer 29

a dividend paid withing 90 days of tax imposition and paid expressly to avoid the tax

Question 30

a company cannot be a PHC unless its passive income is __% of AGI

Answer 30

60%

Question 31

What types of orgs are exempt from the PHC tax?

Answer 31

bank, insurance, finance

Question 32

how is the accumulated earnings credit calc? The greater of…

Answer 32

1) the amt of the current earnings and profit needed for the reasonable needs of the business.
2) $250k ($150K for personal service corps) less than the acc earnings and profits at the close of the prior year.

Question 33

what is the PHC ownership test

Answer 33

it is met if 50% or more of the value of the stock is owned by directly or indirectly by 5 or less individuals in the last half of the year.

Question 34

Can an S corp have the acc earnings tax imposed?

Answer 34

no, bec an S corps earnings pass through and are taxed to SH regardless of whether the earnings are actually distributed.

Question 35

When does a PHC exist?

Answer 35

If five or fewer individuals own more than 50% of its stock during the last half of its taxable year and
at least 60% of its adjusted gross income is derived from investment sources (e.g., dividends, interest, rents).

Question 36

What are the requirements of a controlled group?

Answer 36

Each corporation, except for the parent, must be owned 80% (value or voting power) or more by the other corporations in the group on the last day of the tax year; the common parent must own at least 80% of one other corporation.

Question 37

What are the requirements of an affiliated group?

Answer 37

Each corporation (except for parent) must be owned 80% (value and voting power) or more by the other corporations in the group on every day of tax year; common parent must at least 80% of one other corporation.

Question 38

Describe the brother/sister controlled group total control test.

Answer 38

No more than five common shareholders must own in aggregate 80% or more of the stock of each corporation within the group

Question 39

Who can file consolidated returns?

Answer 39

The election to file consolidated returns is limited to affiliated corporations. Affiliated corporations are parent‐subsidiary corporations that are connected through stock ownership wherein at least 80% of the combined voting power and value of all stock (except the common parent’s) is directly owned by other includible corporations.

Question 40

In order to qualify as a substantially disproportianate redemption of a SHs stock, the SH must own ___% of the voting shares after the redemption.

Answer 40

50%. The shareholder must own less than 80% of the shares that were owned prior to the redemption and less than 50% in total.

Question 41

What tests must be passed for a redemption of stock to qualify as a sale?

Answer 41

Must pass one of these tests:

• Not essentially equivalent to a dividend (NEED).
• Redemption is substantially disproportionate
• Complete termination of stockholder’s interest

Question 42

What conditions must exist to treat a redemption to pay death taxes as a sale?

Answer 42

Stock held by the decedent must be 35% or more of the adjusted gross estate.
Redemption is limited to the total of federal and state death taxes and funeral and administrative expenses.

Question 43

Will G/L be recognized by a parent corp on the receipt of property in complete liquidation of an 80% owned sub?

Answer 43

no

Question 44

When a parent corporation liquidates its 80% or more owned subsidiary, will it recognize G/L?

Answer 44

the parent corporation (as stockholder) will ordinarily not recognize any gain or loss on the receipt of liquidating distributions from its subsidiary.

Question 45

Will a corporation recognize gain or loss on the distribution of its property in complete liquidation just as if the property were sold to the distributee for its fair market value

Answer 45

yes

Question 46

what kind of deduction is allowed for any amount incurred by a corp in connection with the redemption of its stock

Answer 46

interest expense on loans to repurchase stock

Question 47

What is a Type B Reorganization?

Answer 47

Stock for Stock
The acquiring corporation must have control of the target corporation immediately after the acquisition

An acquisition of the stock of the target solely in exchange for voting stock of the acquiring firm. Acquiring exchanges its own stock for stock in Target. Target remains in existence, but it is now owned at least 80% by Acquiring. The former Target shareholders now own stock in Acquiring.

Question 48

if SHs receive property in addition to stock (during a tax-free reorganization) how is it treated?

Answer 48

It is treated as boot.
Gain is recognized - the lower of :
-boot received or
- realized gain (any gain recognized will be div income to the extent of the SH’s proportionate share in the company’s E&P.

Question 49

Type A Reorganization:

Answer 49

Merger or Consolidation
Most of the assets of the target firm are exchanged for equity (qualified stock) in the acquiring firm.

A merger or consolidation under state law (called a statutory merger). Note that Target is exchanging its assets for Acquiring’s stock. Once Target dissolves, the shareholders of Target own Acquiring stock.

Question 50

Type C Reorganization:

Answer 50

An acquisition of “substantially all” of the assets of the target solely in exchange for voting stock of the acquiring firm. Note, that Target is exchanging its assets for Acquiring’s stock. The shareholders of Target own Acquiring stock after the reorganization.

Question 51

Type D Reorganization:

Answer 51

A divisive reorganization (not acquisitive) in that a corporation (the parent) divides by transferring assets to a subsidiary in exchange for subsidiary shares.

Question 52

When an organization is reorganized, what gain or loss, if any, is required to be recognized by the acquiring corporation?

Answer 52

The acquiring corporation does not recognize gain or loss on the transfer of its stock for the acquired corporation; if it transfers assets, then gain (but not losses) in the assets is recognized.

Question 53

Type E

Answer 53

recapitalization

Question 54

Type F

Answer 54

a mere change in identity, form, or place of organization

Question 55

What is the SH’s basis in property and cash received as dividends?

Answer 55

will be a distribution to the extent of accumulated earnings and profit

Question 56

How do ERs treat FUTA (unemployment) taxes on their taxes?

Answer 56

taxes paid are deductible by the employer as a business expense for federal tax purposes

Question 57

how many years can one claim a lifetime learning credit?

Answer 57

unlimited number of years

Question 58

how much can one claim for a lifetime learning credit?

Answer 58

10% of tuition and fees, up to $10,000 max

Question 59

what type of org can have a net op loss deduction

Answer 59

trusts and estates

Question 60

Is a partner taxed on the value of services contributed to a partnership in exchange for a partnership interest.

Answer 60

yes

Question 61

how is a partners basis in a partnership decreased?

Answer 61

by distributions, expenses, and debt decreases

Question 62

What taxable year must a partnership use?

Answer 62

If partners owning more than 50% do not have the same taxable year, a partnership must adopt the same taxable year as used by all of its principal partners (i.e., partners with a 5% or more interest in capital and profits). If its principal partners have different taxable years, a partnership must adopt the tax year that results in the least aggregate deferral of income to partners.

Question 63

when will there be a gain recognized when property is transferred to a partnership

Answer 63

However, gain will be recognized if the transferred property is encumbered by a mortgage, and the partnership’s assumption of the mortgage results in a decrease in the transferor’s individual liabilities that exceeds the basis of the property transferred

Question 64

What is synidication and can it be amortized?

Answer 64

Selling ones partnership interest. syndication expenditures are capitalized and cannot be amoritzed

Question 65

A partnership serves as a pass-through entity -

Answer 65

its items of income and deduction are passed through to partners according to their profit and loss sharing ratio (which may differ from the ratio used to divide capital)

Question 66

If a partnerhisp had E&P of $40 and a P had a 75% profit sharing interest and $5k was distributed to the P. How much should the P report as income from the partnership?

Answer 66

$30k. That is the Ps distributive share of the oridinary income, even though only $5k was distributed to him.

Question 67

How is income allocated in a family partnership?

Answer 67

Services performed by family members must first be reasonably compensated before income is allocated according to the capital interests of the partners

Question 68

How are losses treated in a partnership?

Answer 68

since a partnership functions as a pass through entity, the nature of a loss as an ordinary loss is maintained when passed through to partners. However, the amount of partnership loss that can be deducted by a partner is limited to a partners tax basis in the partnership at the end of the partnership taxable year. Therefore, a partner can deduct its share of ordinary loss to the extent of its basis. the remaining loss will be carried forward and can be deducted after his partnership basis has been increased.

Question 69

What does ordinary income in a partnership consist of?

Answer 69

income from operations. (does not include charitable contributions or LTCG). It is net of salary, utility, office expense.
Net rental income and dividends from foreign corps are separately allocated to partners and must be excluded from ordinary income. Tax-exempt income remains tax-exempt and must also be excluded from ordinary income.

Question 70

is gain/loss recognized when a corp issues/buys back their stock?

Answer 70

No - No gain or loss is recognized by a corporation on the receipt of money or other property in exchange for its stock (including treasury stock). The excess of selling price over cost is treated as an addition to paid-in capital.

Question 71

When does a gift tax return need to be filed?

Answer 71

a gift tax return must be filed by a donor if the donor makes a taxable gift (e.g., a gift of a future interest, or a gift of a present interest that exceeds the amount of annual exclusion [$14,000 for 2015]). In determining the amount of taxable gifts, there is an unlimited exclusion that is available for amounts paid on behalf of a donee to an educational organization for tuition, as well as for amounts paid on behalf of a donee to medical care providers for medical services.

Question 72

what must happen in order to have a firm offer under the UCC?

Answer 72

the offer must be made by a merchant offeror in a signed writing which gives assurance that the offer will be held open. There is no requirement that the offeree also be a merchant. A firm offer does not need to state the period of time for which it is irrevocable. If no time period is stated, the offer will be irrevocable for a reasonable period of time, not to exceed 3 months. A firm offer need not be supported by consideration to be irrevocable.