Mac 743 - Corporate Taxation

Front 1

A ________ occurs when a corporation pays out cash/property to shareholders without requiring something in return. A ______ is when a corporation pays, but gets outstanding stock in return.

-Redemptions - most treated as a recognized captial gain / loss (unless everyone sells a fixed proportion - distribution)
-Distributions: can be taxed 1 of 3 ways:
1. ________ - special 15% rate
2. _________ - nontaxable, but does ________.
3. _________ - if distribution large enough to reduce basis to zero - this is rest.

Ex:
A's basis in stock is $7000, receives $10,000 nontaxable ROC. Consequnce?

Back 1

distribution; redemption;
1. dividend
2. return of captial; reduce basis;
3. capital gain;

Ex: $0 basis in the stock and $3000 capital gain.

Front 2

When are considered dividends?
Tax _________ ~= GAAP NI
Tax _________ ~= GAAP RE

However, current earnings and profits is not the same as taxable income:

Additions:
1. _______ - not in TI, but in CE&P / NI.
2. _______ - like from NOL carrybacks, increase CE&P / NI.
3. ________ - decrease CY TI, but not CY CP&E / NI
4. ________

Subtractions:
1. __________ - don't get to deduct from TI (duh), but do get to for CE&P / NI
2. Nondeductible _______ - do get to reduce CE&P and NI, not TI.

** Also, ______ is more generous to TI, than CE&P, so add-back some Earnings in early years of asset's life.

_________ - is the sum of all PY CE&P minus all distributions paid. The distributions are considered dividends if there is enough ____ OR _____ to cover.

Example: AP&R = -50,000, CP&E = 100,000. Distr. = 75,000. What is it?

Back 2

Current Earnings & Profits
Accumulated Earnings & Profits

1. Muni bond interest
2. Federal Tax refund
3. Federal Tax deduction
4. Corp. Dividends received

1. Federal Taxes paid
2. fines / penalties

depreciation

AE&P
AE&P OR CE&P

Ex: ALL DIVIDENDS - because there is enough CE&P to cover.

Front 3

Property Distributions:

Corporation must recognize ____, but never _____. (If not taxed - can avoid double tax, if allow losses, corps could 'manage' TI). Gain may be Ordinary or Capital. Shareholders' basis in property is ___ and taxed as distributions, ie. _____ income.

_______ dividends:

occurs when shareholders receive benefit without formal declaration: ie. unreasonably large ______, use of ________, below market ______, etc. These are taxed the same as dividends if enough CE&P/AE&P.

Ex: Shareholder receives $150 in income. Fair amount $40. TI deduction?

Stock dividends:

A nonevent, just simply change _____.

Back 3

Gains; Losses; FMV; dividend;

Constructive; compensation; corporate jet; loans;

Ex: Only $40 for TI (Dividends are deductible from CE&P? so full $150 for that?)

basis.