T2 - Tax Compliance for the Corps Flashcards
(34 cards)
state NOL and Capital loss carry back/carryforward
Capital Losses:
Back 3 ; Forward 5
NOL
2017 : Back 2, Forward 20
Offset 100% of Tax Income
2018 - 2020: Back 5, Forward Forever
offset 100% of taxable income
2021+ : Back 0; Forward Forever
offset 80% of taxable income
When does the Section 382 ownership change
These people are 5% owners and together their combined ownership increases by 50% or more during a 3 year period
A shareholder is contributing property for stock. When if there no gain or loss recognized?
- No boot or Debt Payoff
- They own 80% of company after transaction
What is the Shareholder’s Basis of the Stock received?
Cash contributed
+
NBV of Property aka adjusted basis
+
FMV of Services
+ Gain recognized by shareholder
- LESS BOOT/DEBT (money given back to SH)
Order of Cash distributions from corporation
- Current E&P first = Ordinary income to SH
- Accumulated E&P = Ordinary Income to SH
- Return of Capital = decreases the SH basis
- Excess is capital gain
Example of constructive dividends
- excessive salaries paid to shareholders
- excessive rents and royalties
- “loans”
- sale of assets below FV
Tax treatment of C Corp distribution of appreciated noncash property to a shareholder
Corporation - Recognize as taxable gain as if it was sold
Recipient - FMV of property is taxable income as dividend income
Recipient Basis - FMV of property at the date of distribution
When is stock redemption treated as a sale or exchange
Sale would be Amount Realized LESS Basis in Stock
Situations
1. Disproportionate redemption
2. Partial liquidation
3. Complete redemption
4. Redemption is not = to dividends
5. redemption is pay estate taxes or expenses
Tax treatment of Corporate liquidation - They sold the assets/distributed the cash to shareholders
Corporation recognizes gain on sale of assets
Sales Price
- Adjusted Basis
Taxable gain
Shareholder recognize gain on difference between cash and adjusted basis in stock
Cash Received
- Stock Basis
Taxable Gain
Tax treatment - Corporation Liquidation - Corporation distribute assets to shareholders
Corporation recognizes gain/loss if it sold the assets for FMV:
FMV
<Debt>
= Amount Realized
<Basis>
= Taxable Gain/Loss
Shareholder: Gain/Loss is the difference between
FMV
<Debt>
= Amount realized
<Shareholder>
= Taxable Gain/Loss
</Shareholder></Debt></Basis></Debt>
Corporate Tax Free Reorganizations
A - Merger/Consolidation
B - Stock for Stock
C - Stock for assets
D - One division into separate operating corporations
E - Recapitalization
F - Change in identity, for, place of organization
Key attribute of a Qualified corporate reorganization
- the Business continues
- nontaxable transactions. if boot is received then it is taxables
- Acquire at least 80% of Stock
Section 1244 Stock - Definition and tax treatment when sold or becomes worthless?
Section 1244 Stock:
Cash/property given to corporation by a shareholder for the companies first $1M
Tax Treatment:
Loss are treated as Ordinary Loss up to $50,000 (single); the excess is capital loss
QSBS - Qualified Small Business Stock
- Stock issued after you were born 1993
- Acquired at the original issuance
- C corp ONLY
- Less than $50M was issued
- Is apart of the 80% of corporation’s assets
Treatment
a. 100% nontaxable gain if held more than 5 years
b. Exclusion from Taxable Income is the greater of:
10x stock basis
or
$10M
c. Excess over exclusion is taxed
Requirements to file a consolidated return
- They all have the same tax year of the parent
- each member must file a consent
- 80% or more voting power
Advantages of Consolidated Returns
- Dividends given to one another are 100% eliminated (intercompany dividends)
- Capital and operating losses an offer other corps gains/profits
- NOL can be carried forward and applied to consolidated group
Formula for foreign tax credit limitation
Total Taxable income
X
Foreign/Total Taxable
GILTI - Global Intangible Low Taxable Income
Minimum tax imposed on low-taxed income that is intended to reduce the incentive to relocate CFC. Can only deduct 50% of deductions
BEAT - Base Erosion and Anti-Abuse Tax
Minimum tax on large Corps that have average of $500M of gross receipts over 3 years
They have a lot of deductible payments from foreign affiliates which reduces their U.S. tax base
FDII - Foreign Derived Intangible income
Involves a non-US person located outside of the US.
IRS Code 250
Substantial Presence Test
a. has spent at lease 31 days within the US
b. within 3 years they spent 183 days in the US with this weight calculation:
a. Days in Year 1 X 1
b. Days in year 2 x (1/3)
c. Days in year 3 x (1/6)
Controlled Taxpayer
They are owned or controlled directly or indirectly by the same interest
Even if its themselves
Transfer Pricing Adjustments
This is the IRS making such that reported prices between affiliate would have been the same if it was between a controlled and uncontrolled taxpayer (arm’s length)
When will the courts reverse the IRS
If the controlled taxpayers shows that the transactions are within arm’s length (established by 2+ uncontrollable transactions)
Must do a 482 study
