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Flashcards in Tax - Corporate Taxation Deck (46):

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.

Corporate Taxation


Transferor's basis
+ Gain recognized by shareholder
= Basis


FMV of Corporate Interest
- Adjusted basis of property
= Gain

Corporate Taxation


They both use ADJUSTED BASIS, NOT FMV of property.

Corporate Taxation


A loss on worthless stock is an ordinary loss.

Corporate Taxation


Taxpayer must be original stock owner, and either an individual or partnership

$50k (single) or $100k (MFJ) limit - remainder is a capital loss

Must have been issued in exchange for money or property (not exchanged for services)

Shareholder equity must not be in excess of $1 million

Both common and preferred stock is allowed

Corporate Taxation


Return is due regardless of income level

Return is due 3/15 if on a calendar year basis, or 2 1/2 months after end of fiscal year

An automatic six-month extension is available

Corporate Taxation


Required if more than $500 in tax liability expected, or

100% current year liability

100% previous year liability

Note: If Corporation had more than $1 Million in revenue the previous year, the first estimated payment must be based on the previous year and the remainder based on the current year.

Corporate Taxation


Taxable Income
+Tax Preference Items
+/- Adjustments
= Pre-ACE
+/- ACE Adjustments
- 40,000 Exemption
= Tax Base
x 20%
= Tentative Minimum Tax
- Regular Tax Liability

Corporate Taxation


Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 years

Personal Property - use 150% MACRS, not 200%

Construction must use % completion method

Corporate Taxation


Municipal Bond Interest
Life Insurance Proceeds
70% Dividends Received Deduction
Organizational Expenditures must be capitalized, not amortized

Note: AMT paid gets carried forward indefinitely, but never carried back

Corporate Taxation


In year one

In year two, if year one gross receipts were less than $5 Million

In year three, if the average gross receipts for years 1 and 2 were less than $7.5 Million

In year four and beyond, if the average from the previous 3 years is less than $7.5 Million

Corporate Taxation


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.

Corporate Taxation


Amortization of costs begin the month the Corporation commences business activity

If the Corporation doesn't amortize organization costs in year one, they can never be amortized

Costs associated with offerings are neither deductible nor amortized

Corporate Taxation


Sales -COGS= Gross Profit
Gross Profit + Rent, Royalties, Gross Dividends, Capital Gains
=Total Income
Total Income - Deductions (No charitable contributions, Dividends
Received Deductions (DRD), or NOL Carrybacks allowed)
- NOL Carryforwards
=Taxable Income before charitable contributions, DRD, NOL Carrybacks
x 10%
=Deductible Charitable Contributions

Corporate Taxation


Excess charitable contributions get carried forward 5 consecutive years (No Carryback)

Corporate Taxation


The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year

Corporate Taxation


80% Interest = 100% DRD

20-79% = 80% DRD

less than 20% = 70% DRD

Only allowed if no consolidated return is filed. Qualified dividends from domestic Corporations only.

Corporate Taxation


Only take DRD % x Taxable Income

Note: If DRD brings a loss situation, then you can take the full DRD

If Taxable Income remains after DRD, only a partial DRD (T.I.. x DRD %) is allowed

Corporate Taxation


A loss on a sale to a Corporation where taxpayer owns a 50% or more interest is disallowed

Corporate Taxation


Capital Losses are deductible only to the extent of Capital Gains

Corporate Taxation


Net Short Term Capital Gains are taxed at ordinary income rates

Corporate Taxation


Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss

Corporate Taxation


Bad debt losses are classified as ordinary

Corporate Taxation


No floor on Corporate casualty loss like there is with an individual taxpayer

If destroyed, the loss is the property's basis (minus proceeds)

Calculation: Adjusted basis - Proceeds from Insurance = Loss

If partially destroyed, take the lesser of FMV or adjusted basis reduction (minus proceeds)

Corporate Taxation


If loss includes NOL Carryforward, reduce the loss (add back the amount) to get the loss without the Carryforward

Then, carry back the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to the most recent year

Any leftover NOL = This year's NOL

Corporate Taxation


Unlike individual taxation, investment interest expense is not limited to investment income.

Investment interest on tax-free investments are NOT deductible.

Corporate Taxation


Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction

Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation, straight-line, etc.)

Corporate Taxation


Reconciles beginning to ending retained earnings

Beginning Unappropriated Retained Earnings
+ Net Income
+ Other Increases
- Dividends paid
- Other decreases
= Ending Unappropriated Retained Earnings

Corporate Taxation


Like M1, but for Corporations with $10M+ in assets

Corporate Taxation


Consolidation election is binding going forward

Dividends between them are eliminated, Advantage- Gains are deferred, Disadvantage- losses are deferred.

One AMT exemption

One accumulated earnings tax allowed

Note: In order to consolidate, the parent must have 80% voting power and own 80% of the stock value

Corporate Taxation


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)

Corporate Taxation


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

Corporate Taxation


Beginning Accumulated Earnings and Profits
+ Net Income
+ Gain on Distribution (if not already in book income)
- Distribution (but cannot create a deficit)
- NOL of prior years
= Ending Accumulated Earnings and Profits

Corporate Taxation


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

Corporate Taxation


Corporation: Depends on if property is capital in nature, otherwise ordinary loss

Individual: capital loss only

Corporate Taxation


No G/L to parent company

Corporate Taxation


Consented by the Board of Directors but not yet paid

Treat as if distributed by the end of the year

Corporate Taxation


No banks or financial institutions can be PHCs

5 or fewer individuals own more than 50% of the stock

60% of the PHC's income must be from passive means

PHC tax is self-assessing - 20% tax rate on undistributed PHC Income

Corporate Taxation


Not Self-Assessing like a PHC

Corporate Taxation


Take greater of $250,000 ($150,000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)

Corporate Taxation


Only individuals, estates and trusts can be shareholders

Domestic only, no international S-corps or foreign shareholders

Up to 100 shareholders allowed, and only one class of stock allowed

Calendar tax year only

Corporate Taxation


Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year

To make election, 100% of the shareholders must consent

Corporate Taxation


To terminate election, 50% of the shareholders must consent

No S Corp election allowed for 5 years after termination

S Corp termination effective immediately following an act that terminates status

Corporate Taxation


These items are included on Schedule K, not in ordinary income:

Foreign Taxes paid deduction
No Investment Interest expense
Section 179 Deduction
1231 Gain or Loss
Charitable Contributions
Portfolio Income (dividends or interest)

Corporate Taxation


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

Corporate Taxation


FMV of Assets @ S-Corp Election Date - Adjust. Basis of Assets = Built-in Gain x 35% Corporate Rate

Corporate Taxation