Special deck-Corporate Taxation Flashcards Preview

NINJA-2016-REG-TAX > Special deck-Corporate Taxation > Flashcards

Flashcards in Special deck-Corporate Taxation Deck (20)
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1
Q

How is shareholder basis calculated for a new interest in a Corporation?

A

Adjusted basis of property transferred + Gain recognized (if less than 80% ownership) - Boot received = Shareholder basis. If shareholders have 80% control after a property transfer, no taxable event occurs. If liabilities exceed basis on contributed property to a Corporation, a gain is recognized.

2
Q

How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?

A

Transferor’s basis + Gain recognized by shareholder = Basis OR FMV of Corporate Interest - Adjusted basis of property = Gain

3
Q

How are gains and losses handled with respect to a Corporation’s transactions involving its own stock?

A

Corporations have no gain/(loss) from transactions involving their own stock, including Treasury Stock. If Corporation gets property in exchange for stock, there is no gain/(loss) on the transaction.

4
Q

How are Corporate distributions to shareholders handled?

A

Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income) Then, remainder (if any) is a return of basis. Then, add’l remainder (if any) is a Capital Gain Distribution amount = FMV of Property + Cash - Liability Assumed Shareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)

5
Q

What is the order of treatment in a Corporation’s distribution to a shareholder?

A
  1. Distribution is a dividend to the extent of current and accumulated earnings and profits 2. Shareholder basis is then exhausted 3. Remainder, if any, is a Capital Gain
6
Q

What is the treatment of a gain in a complete Corporate liquidation?

A

If Capital Property, then Capital Gain If Non-Capital Property, then Ordinary Income Gain characterization is the same for both the Corporation and the shareholder

7
Q

How is S-Corporation shareholder basis calculated?

A

Beginning Basis +Share of Income Items (including non-taxable income!) -Distributions (cash or property) -Non-deductible expenses -Ordinary Losses (but don’t take income below zero) = Ending basis

8
Q

Name the DRD exception equation.

A

Div * % < Pre-DRD income < Div.

Then you use % * Pre-DRD income

9
Q

List adjustments and preference for AMT computation

A

Mneumonic - A SLIM PILE

A SLIM is used in determining ACE, PILE used in arriving at pre-ACE adjustment AMTI

  • Amortization of business expenses
  • Seventy percent dividends received deduction
  • Life Insurance proceeds
  • Municipal Bond Interest
  • Private activity bond interest
  • Installment sales of inventory-difference between accrual and installment method when installment method used for tax purposes
  • Long term construction contract method used must be %-of-completion
  • Excess depreciation on personal property - when DDB (200%) was used, use 150% DB
10
Q

How does one compute Corporate AMT?

A

Regular Taxable income

+/- adjustments and preferences

= AMTI before ACE adjustment

+/- Adjusted Current Earnings (ACE) adjustment( SLIM x 75%)

=AMTI before exemption

- AMT Exemption($40,000 - 25%(AMTI before exemption-$150,000))

AMTI

x Tax Rate (20%)

= Tentative Minimum tax

- Regular tax

AMT

11
Q

What is the ACE adjustment actually comprised of?

A

ACE adjustent is comrsied of the following 4 items

Mneumonic - SLIM

  • Seventy-five percent DRD deduction on dividends from unrelated companies(70% only)
  • Life Insurance proceeds from death of key employee
  • Municipal bond interest

75% of all these values comprise the ACE Adjustment. Or you can add all three values, then take 75% and that will be your ACE adjustment.

12
Q

What is the Adjusted Current Earnings (ACE) comprised of?

A

The total of AMTI before the ACE adjustment, and the items that comprise the adjustment itself (SLIM)

13
Q

How does one compute corporate tax?

Show the procedure as outlined on the corporate return.

A

Corporate Income Tax Return 1120

Gross Income (worldwide)

(ordinary deductions)

Income before “special deductions

(Charitable Contribution)

(Div Received Deduction) (DRD)

Taxable Income

x Tax Rate

Gross tax liability

(Foreign tax credit)

Net regular tax liability

+ Personal Holding Company Tax (PHC)

+ Accumulated Earnings Tax (ACE)

+ Alternative Minimum Tax (AMT)

Total Tax Liability

14
Q

Show how DRD is calculated

A

Gross business income

+ Dividend income

xxxxxxxxxxxx

  • business deductions

Taxable income before DRD

  • DRD(dividend inc * %)

Taxable income

15
Q

C corp, S corp; built in gain applies in switching from which to which?

A

Switching from C-corp to S-corp

16
Q

What is it and how does it work?

A

When a company switches fron c corp to s corp, any difference between adjusted basis and FMV of equipment is recognized at highest tax rate applicable to companies (35%) and taxes as such. It can be recognized over a perio of 10 years, also.

17
Q

Are capital losses deductible.

A

No NEVER!. They can be carried back 3 years and carried forward 5 years,and reduce the amount of taxable capital gains by being netted against them, but they are never directly deductible.

18
Q

If a shareholder recieves boot during reorganization, is g/l recognized?

A

Gin is recognized, but not loss

19
Q

Define boot within a reorganzation? Can it include things other than cash?

A

Yes, boot can include the the FMV of an excess of principal (face amount) of securities received over face amount of securites surrendered.

20
Q

How would boot (involving excess of principal of securities received by shareholder) be calculated?

A

Excess face amount of security/face amount of security

* FMV of security = boot amount

Example:

old bond (surrendered)-$1,000

New bond (received)-$1500, FMV $1575

500/1500 *1575 = 525