Study sheet

Question 1

A partnership that terminates before the end of the tax year, a Form 1065 must be filed and is due on ________ following the termination. An extension (6 mo) can be requested.

Answer 1

The 15th day of the third month following the termination

Question 2

A sale of partnership interest is treated as _________.

Answer 2

Capital gain or loss

Question 3

_______ are ordinary income-producing assets (i.e. inventory). If sold within 5 years, it is treated as ordinary income. If sold after 5 years, it is capital gain.

Answer 3

Hot assets

Question 4

What happens to basis when there’s a property distribution that exceeds a partner’s outside basis?

Answer 4

Basis is transferred to the property (asset)

Question 5

A cash distribution in excess of a partner’s basis results in _______.

Answer 5

Capital gain

Question 6

A liquidating distribution has what effect on a partner’s interest?

Answer 6

Terminates a partner’s entire interest in the partnership (because of retirement, death, or the partnership closing).

Question 7

Partners of a partnership are taxed on _______.

Answer 7

Their DISTRIBUTIVE share of income, whether or not it is DISTRIBUTED.

Question 8

Partnership loss is limited to _______.

Answer 8

“At-risk” limitation (what you have put into the partnership).

Question 9

When you contribute services to a partnership in return for partnership interest, the amount of value is treated as _______.

Answer 9

A guaranteed payment

Question 10

Separately stated items on a partnership return are ________.

Answer 10

Basically anything that a sole proprietor would report (i.e. net short term or long term capital gains and losses, charitable contributions, dividends received, foreign income taxes, etc) since partnerships are pass-through entities.

Question 11

___________ may have a single owner-shareholder or an unlimited number of shareholders.

Answer 11

C Corporation

Question 12

The filing date for a corporation is on ____________.

Answer 12

The 15th day of the fourth month after the end of its tax year. An extension can be filed using Form 7004.

Question 13

Corporations are required to make estimated payments if owing over _____.

Answer 13

$500+

Question 14

Corporate estimate due dates are: ______.

Answer 14

April 15, June 15, Sept 15, Dec 15.

Question 15

C Corporations do not receive a tax deduction for distribution of __________.

Answer 15

Dividends

Question 16

If a corporation does not distribute enough of its profits to shareholders, an Accumulated Earnings Tax is levied at ____% of excess.

Answer 16

20%

Question 17

If stock is exchanged for services, the recipient of the stock recognizes _______.

Answer 17

Taxable income at FMV of the stock.

Question 18

The basis of property contributed to a corporation by anyone other than a shareholder is ______.

Answer 18

$0

Question 19

A ________ exchange is when a taxpayer transfers property to a corporation in exchange for stock, and immediately afterward, the taxpayer controls the corporation (owning at least 80% of total voting power). It is a non-taxable event.

Answer 19

Section 351

Question 20

Most businesses can carry their net operating losses forward for how long?

Answer 20

Indefinitely

Question 21

Only qualified farming corporations and casualty insurance companies can carry back NOLs. It is carried back ____ years.

Answer 21

2 years

Question 22

Net Operating Losses may only offset up to ______% of taxable income (not other taxes or penalties).

Answer 22

80%

Question 23

Capital losses for a corporation can be carried back _____ years, or carried forward _____ years.

Answer 23

Carried back 3 years, carried forward 5 years.

Question 24

Only C Corporations can deduct charitable contributions as a business expense. They can deduct up to ______% of taxable income. Donations in excess can be carried forward for ______ years.

Answer 24

10%, carried forward 5 years

Question 25

_______ method corporations, they can deduct unpaid contributions if the board of directors authorized the contributions during the year, and if the corporation makes the contribution by the tax return due date (without extensions).

Answer 25

Accrual

Question 26

The dividends received deduction (DRD) means that a C Corporation can deduct a percentage of dividends from other corporations. The deduction is based on the percentage of stock ownership. More than 80% ownership means ____% deduction, while less than 20% ownership means ______% deduction. Between that is _______% deduction.

Answer 26

More than 80% ownership means 100% deduction. 21%-79% ownership is 65% deduction. Less than 20% ownership means 50% deduction.

Question 27

A controlled group is a group of corporations that are related through common ownership with 5 or fewer individuals own ______%).

Answer 27

80%

Question 28

Corporations can _________ to raise capital.

Answer 28

Issue stock. It has NO IMPACT on net income.

Question 29

When property is distributed as dividends, _______ becomes the shareholder’s basis in the property.

Answer 29

FMV

Question 30

Corporations must furnish Form 1099-DIV to each shareholder who receives a dividend of $______ or more during a calendar year.

Answer 30

$10+

Question 31

______________ are earnings from the prior year that have not been distributed.

Answer 31

Accumulated earnings and profits

Question 32

A nondividend distribution is when there is no ____________. It is not taxable to the shareholder until basis is recovered.

Answer 32

accumulated earnings

Question 33

A distribution of property is treated as if the corporation sold the property to the shareholder. So gain must be recognized based on _________.

Answer 33

FMV

Question 34

Stock dividend distributions does what to the per-share market price of the company’s stock?

Answer 34

Reduces it

Question 35

A __________ is a personal benefit to the shareholder, so it becomes non-deductible by the corporation and taxable to the shareholder. Examples include: payment of personal expenses, unreasonable compensation, unreasonable rent, cancellation of shareholder debt, property transfer for less than FMV, or below market or interest-free loans.

Answer 35

Constructive distribution (constructive dividend)

Question 36

A stock redemption is when a corporation ________.

Answer 36

Buys back its own stock from a shareholder. It is not taxable if they pay cash.

Question 37

Form 966 must be filed to dissolve a corporation within ______ days after the resolution is adopted to dissolve.

Answer 37

30

Question 38

A corporation must file an income tax return for the year it goes out of business, even if it has no income or business activity in that year. If the dissolution is effective on any day other than the last day of the corporation’s tax year, the final return is due on _____________.

Answer 38

The 15th day of the fourth month following the close

Question 39

__________ cannot have unequal distributions between shareholders. Profits and losses must be allocated to shareholders in proportion to each one’s interest in the business.

Answer 39

S Corporations

Question 40

___________ can only have 1 class of stock (common, preferred, etc), but it can have different voting rights. They just need to have identical rights to distribution and liquidation proceeds.

Answer 40

S Corporations

Question 41

Who cannot own or operate an S Corporation?

Answer 41

Foreign citizens, nonresident aliens, a partnership, or a C Corporation

Question 42

Corporate officers must sign the S Corporation return, which is due on _________.

Answer 42

March 15th

Question 43

All of the income of an S Corporation must be __________________, even if it is not distributed.

Answer 43

allocated to the shareholders

Question 44

If a farmer rents their farmland to someone else, the revenue is classified as __________.

Answer 44

Rental income. (This includes sharecropping.)

Question 45

If at least ___________ of a farmer or fisherman’s income comes from those activities, they do not have to pay estimated tax.

Answer 45

2/3

Question 46

A farmer or fisherman, whose majority income comes from those activities, does not have to pay estimated tax if they file their return and pay tax owed by ______.

Answer 46

March 1. If they cannot file by March 1, they can make one required annual payment by January 15.

Question 47

The crop method of accounting allows the farmer to capitalize all the costs of the crop and delay claiming expenses until _______.

Answer 47

the year harvested

Question 48

If a partnership has ANY __________, they must file formation docs with the state.

Answer 48

limited partners, whereas a partnership with only general partners may not have to file.

Question 49

Limited partners are only subject to self-employment tax on ___________ because they are considered investors.

Answer 49

guaranteed payments (i.e. salaries)

Question 50

A partnership does not need to file a tax return if _________________.

Answer 50

it has no income and no expenditures that would be treated as a deduction or credit.

Question 51

Partnership returns are generally due on _________.

Answer 51

March 15. (6 month extension is allowed.)

Question 52

A partnership agreement cannot be modified after __________.

Answer 52

The due date for filing the return (before extensions).

Question 53

For a partnership, income and loss is determined at the _____________ level.

Answer 53

Partnership. And it is taxable to the individual partners.

Question 54

Section 1033 is for involuntary conversions, in which property is lost, damaged, or destroyed, and payment is received as a result (i.e. from insurance reimbursement). The gain is reported or the loss deducted in the year that it is realized. To defer the gain, the replacement property should be done within ___________.

Answer 54

2 years after the end of the first tax year (unless it is a federally declared disaster zone).

Question 55

Section 1031 exchanges (like-kind exchange) allow the business to not pay tax on gain. Exchange property must be identified within _________ after the date of transfer.

Answer 55

45 days. (In a deferred exchange, you have 180 days.)

Question 56

For NEW farm equipment, the depreciation period is _________ years.

Answer 56

5 years (not the usual 7). Used farm equipment retains the 7 year depreciation.

Question 57

Fuit and nut-bearing plants and trees qualify for __________.

Answer 57

bonus depreciation

Question 58

A single-purpose property on a farm (i.e. greenhouse, milking parlors, etc) can qualify for __________ instead of being real property.

Answer 58

Section 179 or Bonus depreciation

Question 59

Farmers can postpone gain due to weather conditions (i.e. drought), but they must use the ___________ method.

Answer 59

Accrual

Question 60

Insurance proceeds (including govt disaster payments) received as a result of destruction or damage to crops, are generally taxable. The farmer can delay reporting until the following year if they use the ________ method.

Answer 60

Cash

Question 61

If a farmer forgoes planting crops altogether and receives agricultural program payments, the full amount of payment is subject to ___________.

Answer 61

self-employment tax

Question 62

Farmers can claim______% of car or truck expenses WITHOUT any records such as mileage log if the vehicle is used most of the day in farming.

Answer 62

75%