Corporate Taxation

Front 1

How is shareholder basis calculated for a new interest in a Corporation?

Back 1

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.

Hint 1

Corporate Taxation

Front 2

How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?

Back 2

Transferor's basis+ Gain recognized by shareholder= BasisORFMV of Corporate Interest- Adjusted basis of property = Gain

Hint 2

Corporate Taxation

Front 3

What basis do shareholders and Corporations use for property?

Back 3

They both use ADJUSTED BASIS, NOT FMV of property.

Hint 3

Corporate Taxation

Front 4

Describe how loss is taken on Section 1244 small business Corporation stock?

Back 4

A loss on worthless stock is an ordinary loss.

Hint 4

Corporate Taxation

Front 5

What are the requirements for taking an ordinary loss on Section 1244 small business Corporation stock?

Back 5

Taxpayer must be original stock owner, and either an individual or partnership$50k (single) or $100k (MFJ) limit - remainder is a capital lossMust have been issued in exchange for money or property (not exchanged for services)Shareholder equity must not be in excess of $1 millionBoth common and preferred stock is allowed

Hint 5

Corporate Taxation

Front 6

What are the basic rules for filing a form 1120?

Back 6

Return is due regardless of income levelReturn is due 3/15 if on a calendar year basis, or 2 1/2 months after end of fiscal yearAn automatic six-month extension is available

Hint 6

Corporate Taxation

Front 7

When are Corporate federal tax estimated payments required, and how are they calculated?

Back 7

Required if more than $500 in tax liability expected, or100% current year liability100% previous year liabilityNote: 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.

Hint 7

Corporate Taxation

Front 8

Describe the AMT calculation for C-Corporations

Back 8

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

Hint 8

Corporate Taxation

Front 9

What are the pre-ACE adjustments for C-Corporation tax AMT calculations?

Back 9

Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 yearsPersonal Property - use 150% MACRS, not 200%Construction must use % completion method

Hint 9

Corporate Taxation

Front 10

What are the ACE adjustments in the C-Corporation AMT tax calculation?

Back 10

Municipal Bond InterestLife Insurance Proceeds70% Dividends Received DeductionOrganizational Expenditures must be capitalized, not amortizedNote: AMT paid gets carried forward indefinitely, but never carried back

Hint 10

Corporate Taxation

Front 11

When are C-Corporations exempt from AMT?

Back 11

In year oneIn year two, if year one gross receipts were less than $5 MillionIn year three, if the average gross receipts for years 1 and 2 were less than $7.5 MillionIn year four and beyond, if the average from the previous 3 years is less than $7.5 Million

Hint 11

Corporate Taxation

Front 12

How are gains and losses handled with respect to a Corporation's transactions involving its own stock?

Back 12

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.

Hint 12

Corporate Taxation

Front 13

How are Corporate organization costs handled?

Back 13

Amortization of costs begin the month the Corporation commences business activityIf the Corporation doesn't amortize organization costs in year one, they can never be amortizedCosts associated with offerings are neither deductible nor amortized

Hint 13

Corporate Taxation

Front 14

How are a C-Corporation's deductible charitable contributions calculated?

Back 14

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

Hint 14

Corporate Taxation

Front 15

How are excess charitable contributions treated in a C-Corporations?

Back 15

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

Hint 15

Corporate Taxation

Front 16

When can a board of directors authorize charitable contributions for a tax year?

Back 16

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

Hint 16

Corporate Taxation

Front 17

How is the dividends received deduction (DRD) calculated, and what are the limitations?

Back 17

80% Interest = 100% DRD20-79% = 80% DRDless than 20% = 70% DRDOnly allowed if no consolidated return is filed. Qualified dividends from domestic Corporations only.

Hint 17

Corporate Taxation

Front 18

What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?

Back 18

Only take DRD % x Taxable IncomeNote: If DRD brings a loss situation, then you can take the full DRDIf Taxable Income remains after DRD, only a partial DRD (T.I.. x DRD %) is allowed

Hint 18

Corporate Taxation

Front 19

How are Corporate losses on a sale to a Corporation where a taxpayer owns a 50% or more interest handled in a C-Corporation?

Back 19

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

Hint 19

Corporate Taxation

Front 20

How are capital losses handled in a C-Corporation?

Back 20

Capital Losses are deductible only to the extent of Capital Gains

Hint 20

Corporate Taxation

Front 21

How are net short term capital gains taxed in a C-Corporation?

Back 21

Net Short Term Capital Gains are taxed at ordinary income rates

Hint 21

Corporate Taxation

Front 22

How are Corporate losses carried back/forward?

Back 22

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

Hint 22

Corporate Taxation

Front 23

How are bad debt losses handled in a Corporation?

Back 23

Bad debt losses are classified as ordinary

Hint 23

Corporate Taxation

Front 24

What is the casualty loss floor for a C-Corporation?

Back 24

No floor on Corporate casualty loss like there is with an individual taxpayerIf destroyed, the loss is the property's basis (minus proceeds)Calculation: Adjusted basis - Proceeds from Insurance = LossIf partially destroyed, take the lesser of FMV or adjusted basis reduction (minus proceeds)

Hint 24

Corporate Taxation

Front 25

How are net operating losses handled in a C-Corporation?

Back 25

If loss includes NOL Carryforward, reduce the loss (add back the amount) to get the loss without the CarryforwardThen, carry back the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to the most recent yearAny leftover NOL = This year's NOL

Hint 25

Corporate Taxation

Front 26

How is investment interest expense handled in a C-Corporation?

Back 26

Unlike individual taxation, investment interest expense is not limited to investment income.Investment interest on tax-free investments are NOT deductible.

Hint 26

Corporate Taxation

Front 27

What is the purpose of Schedule M-1 on a Corporate tax return? Which items are included?

Back 27

Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received DeductionIncludes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation, straight-line, etc.)

Hint 27

Corporate Taxation

Front 28

What is the purpose of Schedule M-2 on a Corporate tax return? How is it calculated?

Back 28

Reconciles beginning to ending retained earningsBeginning Unappropriated Retained Earnings+ Net Income+ Other Increases- Dividends paid- Other decreases= Ending Unappropriated Retained Earnings

Hint 28

Corporate Taxation

Front 29

What is the purpose of Schedule M-3 on a Corporate tax return?

Back 29

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

Hint 29

Corporate Taxation

Front 30

How are affiliated (80%) Corporation tax returns handled?

Back 30

Consolidation election is binding going forwardDividends between them are eliminated, Advantage- Gains are deferred, Disadvantage- losses are deferred.One AMT exemptionOne accumulated earnings tax allowedNote: In order to consolidate, the parent must have 80% voting power and own 80% of the stock value

Hint 30

Corporate Taxation

Front 31

How are Corporate distributions to shareholders handled?

Back 31

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 GainDistribution amount = FMV of Property + Cash - Liability AssumedShareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)

Hint 31

Corporate Taxation

Front 32

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

Back 32

1. Distribution is a dividend to the extent of current and accumulated earnings and profits2. Shareholder basis is then exhausted3. Remainder, if any, is a Capital Gain

Hint 32

Corporate Taxation

Front 33

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

Back 33

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

Hint 33

Corporate Taxation

Front 34

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

Back 34

If Capital Property, then Capital Gain If Non-Capital Property, then Ordinary IncomeGain characterization is the same for both the Corporation and the shareholder

Hint 34

Corporate Taxation

Front 35

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

Back 35

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

Hint 35

Corporate Taxation

Front 36

What is the treatment of the liquidation of a subsidiary?

Back 36

No G/L to parent company

Hint 36

Corporate Taxation

Front 37

What is a consent dividend? How is it treated?

Back 37

Consented by the Board of Directors but not yet paidTreat as if distributed by the end of the year

Hint 37

Corporate Taxation

Front 38

Describe the requirements for a personal holding company.

Back 38

No banks or financial institutions can be PHCs5 or fewer individuals own more than 50% of the stock60% of the PHC's income must be from passive meansPHC tax is self-assessing - 20% tax rate on undistributed PHC Income

Hint 38

Corporate Taxation

Front 39

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

Back 39

Not Self-Assessing like a PHC

Hint 39

Corporate Taxation

Front 40

How is the accumulated earnings credit calculated for a Corporation?

Back 40

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

Hint 40

Corporate Taxation

Front 41

What are the requirements for holding S-Corporation status?

Back 41

Only individuals, estates and trusts can be shareholdersDomestic only, no international S-corps or foreign shareholdersUp to 100 shareholders allowed, and only one class of stock allowedCalendar tax year only

Hint 41

Corporate Taxation

Front 42

How is an S-Corporation election made?

Back 42

Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the yearTo make election, 100% of the shareholders must consent

Hint 42

Corporate Taxation

Front 43

How is an S-Corporation terminated?

Back 43

To terminate election, 50% of the shareholders must consentNo S Corp election allowed for 5 years after terminationS Corp termination effective immediately following an act that terminates status

Hint 43

Corporate Taxation

Front 44

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

Back 44

These items are included on Schedule K, not in ordinary income:Foreign Taxes paid deductionNo Investment Interest expenseSection 179 Deduction 1231 Gain or LossCharitable ContributionsPortfolio Income (dividends or interest)

Hint 44

Corporate Taxation

Front 45

How is S-Corporation shareholder basis calculated?

Back 45

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

Hint 45

Corporate Taxation

Front 46

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

Back 46

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

Hint 46

Corporate Taxation