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Flashcards in Tax - Corporate Taxation Deck (46)
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31

How are Corporate distributions to shareholders handled?

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)

32

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

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

33

What is the basic calculation for accumulated earnings and profits in a Corporation?

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

34

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

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

35

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

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

Individual: capital loss only

36

What is the treatment of the liquidation of a subsidiary?

No G/L to parent company

37

What is a consent dividend? How is it treated?

Consented by the Board of Directors but not yet paid

Treat as if distributed by the end of the year

38

Describe the requirements for a personal holding company.

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

39

How is Corporate accumulated earnings tax (AET) different from PHC taxation?

Not Self-Assessing like a PHC

40

How is the accumulated earnings credit calculated for a Corporation?

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

41

What are the requirements for holding S-Corporation status?

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

42

How is an S-Corporation election made?

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

43

How is an S-Corporation terminated?

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

44

What items are not included in calculating an S-Corporation's ordinary income?

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)

45

How is S-Corporation shareholder basis calculated?

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

46

What is the formula for an S-Corp Built-in Gains Tax?

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