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182 Cards in this Set

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  • Back
for corporations tax consequences, there is no gain or loss to the corporation issuing stock in exchange for property in the following transactions:
1. formation -- issuance of common stock
2. reacquisition - purchase of treasury stock
3. resale - sale of treasury stock
in a corporation formation, the general rule is that the basis of the property received from the transferor/shareholder is the greater of:
greater of:
- adjusted basis (nbv) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder), or
- debt assumed by corporation (transferor may recognize gain to prevent a negative basis)
if the aggregate adjusted basis of property contributed to a corp by each transferor/shareholder in a tax-free incorporation exceeds the aggregate fmv of the property transferred:
the corp's basis in the property is limited to the aggregate fmv of the property to prevent the transfer of property with "built in losses" to the corporation
the shareholder contributing property (not services) in exchange for corporation common stock has no gain or loss if the following conditions are met:
1. 80% control of the voting stock and 80% of the non-voting stock
2. boot not received
what are three gross income items that represent temporary differences between tax and book items?
interest, rental, and royalty income received in advance
what are GAAP income items that are not includible as taxable income?
interest income from municipal or state obligations/bonds, proceeds from life insurance on the life of an officer where the corp is the beneficiary, and federal income taxes are not deductible
what is the limit on the domestic production deduction?
can't exceed 50% of the W2 wages paid by the corporation for the year
how much is the domestic production deduction?
9% of the lesser of:
1. qualified productions activities income (QPAI)
2. taxable income (disregarding the QPAI deduction)
How is QPAI calculated?
domestic production gross receipts
- cogs, other expenses, and other deductions
a publicly held corporation may not deduct compensation expenses in excess of _____ paid to the CEO or ________ unless based upon __________
$1,000,000; the four other most highly compensated officers; qualifying commissions or a performance based plan of the company
entertainment expenses for officers, directors, and 10% or greater owners may be deducted only to the extent that ___
they are included in the individual's gross income
bonuses paid by a(n) ____ basis taxpayer are deductible in the tax year when all events have occurred that establish a liability with reasonable accuracy, and provided they are paid within ____
accrual; within 2.5 months after year end
accrual method taxpayers must use the _____ method to write off bad debts
specific charge off (direct write-off method)
all interest paid or accrued during the taxable year on indebtedness incurred for _______ is deductible
business purposes
interest expense on loans for investment has a limitation on deductibility of _____
net investment income (taxable)
prepaid interest expense must be allocated to _____
the proper period to which it is related. (incurred & paid)
corporations making contributions to recognized charitable orgs are allowed a max deduction of ___
10% of their taxable income
for charitable deductions, total taxable income is calculated before the deduction of:
1. any charitable contribution deduction
2. the dividends received deduction
3. any NOL carryback
4. any cap loss carryback
5. u.s. production activities deduction
is business property is partially destroyed, the loss is:
the lesser of:
a. the decline in value of the property
b. the adjusted basis of the property immediately before the casualty
if business property is fully destroyed, the amount of the loss is:
the adjusted basis of the property
what is the deduction for organizational expenditures and start-up costs?
may elect to deduct up to 5,000 or each, and the excess is amortized over 180 months from when the business started. (5,000 reduced if costs are over 50,000)
what are the included costs for the organizational expenditures and start up costs deduction?
fees paid for legal services in drafting the corporate charter, bylaws, minutes of organization meetings, fees paid for accounting services and fees paid to the state of incorporation
what costs are excluded from the organizational expenditures and start up costs deduction?
costs of issuing and selling the stock, commissions, underwriter's fees, and costs incurred in the transfer of assets to a corporation
(cost of raising $)
what is the GAAP rule for organizational expenditures and start-up costs?
how are goodwill, covenants not-to-compete, franchises, trademarks, and trade names amortized?
on a straight-line basis over a 15 year period beginning with the month that the intangible was acquired
what is the difference in the treatment of purchased goodwill (yrs 2002 and forward)?
tax rule - amortized on a straight line basis over 15 years

GAAP rule - not amortized; test for impairment
what is the deductibility for life insurance premiums for corporations?
if the corporation is names as the beneficiary, it is not tax deductible. if an insured employee is named as beneficiary
what is the deductibility of business gifts?
$25 per person per year
which taxes are deductible for corporations?
all state and local taxes and federal payroll taxes are deductible when incurred on property or income relating to business. federal income taxes are not deductible. foreign income taxes may be used as a credit
are lobbying and political expenditures tax deductible?
what is the capital loss carryover for corporations?
3 years back, 5 years forward
what rates are capital gains taxed at for corporations?
same rate as ordinary corporate income (no special cap gains rates apply, as with individual taxpayers)
what is the carryforward for net operating losses for corporations?
2 back, 20 forward
when must form 1120X be filed?
3 years from the filling date
is the charitable deduction allowed in calculating the NOL for a corporation?
is the dividends received deduction allowed to be deducted before calculating the NOL?
what is the cost method of valuation?
inventories are valued at cost (including DL, DM and attributable indirect costs), less discounts, plus freight-in. the cost methods of "prime cost" (no overhead) and "direct cost" (which includes variable overhead only) are not allowable for tax purposes
what is the lower of cost or market method of valuation?
inventories are valued at the lower of cost or market, which for normal goods is generally the current bid price at the date of inventory per each item in inventory (i.e. the lower amount is determined based on each item, not based on the aggregate value of the inventory)
what is the rolling-average method of valuation?
this method will generally not be allowed when inventories are held for long periods of time in some circumstances or when costs tend to fluctuate significantly (unless the taxpayer regularly re-computes costs and makes certain adjustments), as the method may not clearly reflect income in certain cases
what is the retail method of valuation?
in general, the retail method will approximate the cost or the market of items in inventory by subtracting the mark-up percentage to retail from the retail price, typically from inventory that has a large volume of items
what are common inventory identification methods (cost-flow assumptions)
fifo, lifo, specific identification method
if you use lifo for taxes, which methods can you use for financial statement purposes?
only lifo
how are unsalable or unusable goods valued?
they must be valued at the expected selling price ("bona fide selling price") within 30 days minus the costs to dispose of them
what is the formula for the general business credit?
the credit may not exceed "net income tax" (regular tax plus alt min tax less nonrefundable tax credits, other than the alt min tax credit) less the greater of:

25% of regular tax liability above $25,000
tentative minimum tax for the year
how are unused business credits carried over?
although some limits must be applied separately, unused credits may generally be carried back 1 year and forward 20 years
what is the purpose of the dividends received deduction?
to prevent triple taxation of earnings
what is the percentage ownership needed to have a dividends received deduction of 70%?
0% to <20%
what is the percentage ownership needed to have a dividends received deduction of 80%?
20% to <80%
what is the percentage ownership needed to have a dividends received deduction of 100%?
80% or more
the dividends received deduction equals:
the lesser of:
70 or 80% dividends received
70 or 80% of taxable income without regard to the drd, any NOL deduction, or capital loss carryback
what is the exception to the taxable income limitation for the dividends received deduction?
the limit does not apply if, after taking into account the full drd, the result is a net operating loss.
the dividends received deduction does not apply to:
1. personal service corporations
2. personal holding companies
3. personally taxed S corporations
who can have a 100% dividends received deduction?
affiliated corporations - (80-100% ownerships)
small business investment corps - (makes equity and long-term credit available to small business concerns)
what does the half year convention apply to?
in general, a half year convention applies to personal property, under which such property placed in service or disposed of during a taxable year is treated as having been placed in service or disposed of at the midpoint of the year
when does the mid-quarter convention applied?
if more than 40% of depreciable property is placed in service in the last quarter of the year, the mid-quarter convention must be used
what are the macrs depreciation rules for property other than real estate?
200% and 150% declining balance method
what are the macrs depreciation rules for residential rental property? (apartments and duplex rental homes)
27.5 year straight line depreciation
what are the MACRS depreciation rules for non-residential real property (real property that is not residential rental property and that does not have an ADR midpoint of more than 27.5 yrs)
39 year straightline
what convention does macrs real estate use?
mid-month convention
what is the limit for the deduction of section 179 property?
limit is $250,000 of new or used property

maximum amount is reduced dollar for dollar by the amount that exceeds $800,000

deduction is not permitted when a net loss exists or if the deduction would create a net loss

SUVs can only be expensed to $25,000
a taxpayer may chose to depreciate property on a straight-line basis. if a taxpayer chooses straight-line, he may choose which recovery periods?
the regular recovery period or a longer alternative depreciation system (ADS) recovery period
what is depletion allowed for?
allowed on exhaustible natural resources, such as timber, minerals, oil and gas
what are the two methods of depletion?
1. cost depletion
2. percentage depletion
what is the cost depletion method?
the unit depletion rate multiplied by the number of nits sold for the year
what is the percentage depletion method?
the deduction is limited to 50% of taxable income (excluding depletion) from the well or mine. the allowable percentages range from 5% to 22% depending upon the mineral or substance being extracted. percentage depletion may be taken even after the costs have been completely recovered and there is no basis
what items can be expensed and/or amortized on a straight-line basis over a period of years, regardless of their useful life?
--business start up expenses or org costs ($5,000, 180 month)
-- research expenses (existing trades or businesses may amortize research expenses over a 60 month period)
--pollution-control facilities
how are section 1231 assets treated?
capital gain, ordinary loss
how is section 1245 treated?
personal business property. recapture all accumulated depreciation as ordinary income, the remaining is cap gain under 1231
how is section 1250 treated?
real business property. accelerated depreciation in excess of straight line dep is recaptured as ord income, and the remaining dep is taxed at a 25% max rate. the remaining gain is treated under sec 1231
when is the tax return due for a c corp?
march 15
what is form 7004?
the 6 month extension for a c corp
the accrual basis method for accounting for tax purposes is required for the following:
1. accounting for purchases and sales of inventory
2. tax shelters
3. certain farming corps
4. some c corps, trusts, and partnerships, provided that the business has greater than $5 mil of average annual gross receipts for the three year period ending with the tax year
what is the statue of limitations for a corporation?
3 ears. 6 years for 25% misstatement.
when are corporations required to pay estimated taxes?
on the fifteenth day of the fourth, sixth, ninth, and twelfth months of their tax year
when can you get the underpayment penalty for estimated payments of corp tax?
if you don't make the estimated payments and the amount owed on the return is $500 or more.
how much estimated tax is a small corp supposed to pay?
lesser of:
- 100% tax for the current year
- 100% tax for the preceding year
[cannot be used if the corp owed no tax for the preceding year, or the preceding year was less than 12 months]
how much estimated tax is a large corp supposed to pay?
must pay 100% of the tax as shown on the current year return
who is defined as a large corporation for estimated tax purposes?
a corp whose taxable income was $1 mil or more in any of its three preceding tax years
what are the requirements to be entitled to file a consolidated return?
all the corporations in the group:
1. must have been members of an affiliated group at some time during the tax year
2. each member of the group must file a consent
what is an affiliated group?
a common parent directly owns:
1. 80% or more of the voting power of all common stock, and
2. 80% or more of the value of all outstanding stock of each corporation
who is denied the privilege of consolidating returns, even if they meet the ownership test?
s corps, foreign corps, most real estate investment trusts (REITs), some insurance companies, and most exempt orgs
are brother sister corps allowed to file consolidated returns?
what are the advantages of filing a consolidated return?
capital and operating losses may offset the gains of another corp, NOL carryover may be applied against the income of the consolidated group, and dividends received are 100% eliminated in consolidation because they are intercompany dividends
what are the disadvantages of filling a consolidated return?
1. mandatory compliance with complex regulations
2. in the initial consolidated tax return year, a double counting of inventory can occur if group members had intercompany transactions
3. tax credits may be limited by operating losses of other members
4. the election to file consolidated returns is binding for future years and may only be terminated by disbanding the group or seeking permission of the IRS
for corporate AMT, what are the adjustment items to income?
long term contracts,
installment sale dealer,
excess depreciation post-1986
for corporate AMT, what are the preference addbacks?
percentage depletion
private activity - issued post '86 tax exempt interest income
pre '87 acrs excess depreciation
for corporate AMT, what are the Adjusted current earnings differences?
muni interest income tax exempt interest income
increase CSV life insurance
Non S/L depreciation (after '89; excess over alt depr. sys. life)
Dividends received deduction (under 20% ownership)
for corporate AMT, what is the adjustment for long-term contracts?
the difference between revenue calculated under the completed contract method and revenue calculated under the percentage-of-completion method
for corporate AMT, what is the adjustment for installment sales - dealer?
difference between full accrual revenue and installment sales revenue
for corporate AMT, what is the adjustment for excess of depreciation of tangible property placed in service after 1986?
excess depreciation over:
1. straight line for real property using a 40 yr life, or
2. 150% declining balance (with a switch to straight-line for personal property using the applicable class life
for corporate AMT, what is the preference for percentage depletion?
a preference exists for the excess of percentage depletion over the adjusted basis of the property
for corporate AMT, what is the preference for private activity bonds?
a preference exists for tax exempt interest for certain private activity bonds issued after 1986
for corporate AMT, what is the preference for pre-1987 acrs depreciation?
a preference exists for the excess of ACRS accelerated dep over straight line on pre-1987 property
what is the exemption amount for corporate AMT?
$40,000 less 25% of AMTI in excess of $150,000
what is the tax rate on the amti?
flat 20%
what credits are allowed for corp amt?
the foreign tax credit
what is the carryforward of the corporate amt?
carried forward indefinitely, but not carried back.
who is the accumulated earnings tax imposed on?
regular C corps whos accumulated earnings are in excess of $250,000 if improperly retained instead of being distributed as dividends to (high bracket) shareholders [personal service corps are entitled to only $150,000]
who is not subject to the accumulated earnings tax?
personal holding companies
tax exempt corps
passive foreign investment corporations
what is the additional tax rate for accumulated earnings?
flat 15%
what is the purpose of a personal holding company?
coporations set up by high tax bracket taxpayers to channel their investment income into a corporation and shelter that income by the low normal tax or the corp, instead of paying their higher individual tax rates on that income
what is the definition of a personal holding company?
corps more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of:
Net rent
Interest that is taxable
dividends from an unrelated domestic corp
what is the additional tax assessed for personal holding companies?
additional 15% on personal holding company net income not distributed
are personal holding company's subject to the accumulated earnings tax?
taxable income must be reduced by ______ to determine the undistributed personal holding company income prior to the dividend paid deduction
federal income taxes and net long-term capital gain
are the accumulated earnings tax and personal holding company tax self-assessed?
AET is assessed by IRS. PHC tax is self-assessed.
what is the tax rate for personal service corporations?
denied graduated rates. taxed at a flat 35%
how is E&P calculated on the tax return?
adjusting the taxable income of the corp
a corp's E&P is a major factor in determining the ability of the corp to _____
pay a dividend to the shareholders
what are the negative adjustments that reduce current e&p?
1. federal income tax expense
2. non-deductible penalties, fines, political contributions, meals and entertainment, etc
3. officer life insurance premiums
4. expenses for production of tax exempt income
5. non-deductible charitable contributions
6. non-deductible capital losses
what are the positive adjustments that increase current e&p?
1. refunds of fed income tax paid
2. tax exempt income
3. refunds of items that were not subject to regular tax under the tax benefit rule
4. NOL deductions
5. life insurance proceeds where corp is beneficiary
6. dividends received deduction
7. carryovers of cap losses
8. carryovers of charitable contribution
9. non-taxable cancellation of debt not used to reduce basis of property
what are examples positive or negative adjustments that increase or decrease e&p?
1. losses and gains that have diff effects on taxable income vs. E&P
2. changes in the csv of certain life insurance policies
3. excess dep for e&p over that for regular income tax
4. diff in allowable deductions for org and start-up expenses
5. installment income method adjustments
6. completed contract income vs. percentage of completion income adjustments
7. amortization of intangible drilling costs adjustments
8. section 179 expense per reg tax vs. ratable dep of the same property using a five year life
what is the general calculation for the ending accumulated e&p?
beginning acc e&p
+ current e&p
- distributions from current e&p
- distributions from acc e&p
= accumulated e&p at end
corp distributions are first applied to _____, then to _______, and then to _____.

if any excess remains, it is classified as ___________
current E&P, accumulated E&P, and return of capital.

"excess distributions" and reported as capital gains distributions
can current and accumulated e&p be netted?
not generally. only if current e&p is negative and acc e&p is positive
how are current earnings and profits allocated to distributions?
on a pro rata basis to each distribution
how are accumulated earnings and profits allocated to distributions?
applied in chronological order, beginning with the earliest distribution
what are constructive dividends?
transactions, while not in the form of dividends, are treated as such when the payments are not in proportion to stock ownership
what are examples of constructive dividends?
1. excessive salaries paid to shareholder employees
2. excessive rents and royalties
3. loans to shareholders where there is no intent to repay
4. sales of assets below fmv
what is a stock dividend?
distribution by a corporation of its own stock to its shareholders
when are stock dividends taxable?
if the shareholder as a choice of receiving cash or other property
what is the general rule for the taxable amount of a corporation paying a dividend
payment of a dividend does not create a taxable event. a dividend is the reduction of e&p
what is the chain of events for a corporation distributing appreciated property?
1. corp has no e&p (div would not be taxable income
2. corp distributes appreciated prop as a dividend
3. corp has a recognized gain (on property div)
4. corp gain increase/creates corp e&p
5. div to shareholder is not taxable income (to the extent of e&p)
what happens if a stock redemption is proportional?
it is taxable dividend income to shareholder-ordinary income. generally, the corp either redeems or cancels the stock pro-rata for all shareholders
what happens if a stock redemption is disproportional?
sale by shareholder subject to taxable capital gain/loss to shareholder. the percentage ownership after the redemption must be less than 50% and must be less than 80% of the percentage ownership before the redemption
if the corporation is liquidated, the transaction is subject to ____
double taxation (the corp and shareholder must generally recognize gain or loss)
what are the two general forms of how a corporation can be liquidated?
corp sells assets and distributes cash to shareholders, or corp distributes assets to shareholders
what are the types of tax-free reorganizations?
type a - mergers and consolidations
type b - acquisition by one corp of another corp's stock, stock for stock
type c - the acq by one corp of another corp's assets, stock for assets
type d - dividing of the corp into separate operating operations
type e - recaptializations
type f - mere change in identity, form, or place of org
what is the gain or loss recognized when a parent liquidates its subsidiary?
no gain or loss recognized by either. parent assumes basis of sub's assets as well as any unused nol or cap loss or charitable contribution carryovers
what constitutes non taxable event for a corporation?
the reorg is a nontax transaction and all tax attributes remain
what constitutes non taxable event for a shareholder?
the reorg is a nontaxable transaction, the shareholder continues to retain his orig basis, and the shareholder recognizes gain to the extent he receives boot in the reorg
a reorg is treated as a nontaxable transaction because _______
it results in the continuation of a business in a modified form
when a corporation's stock is sold or becomes worthless, an original stockholder can be treated as __________
having an ordinary loss instead of a capital loss, up to $50,000 (100,000 for mfj). any loss in excess would be capital loss
who is eligible for the 50% exclusion of gain from small business stock?
a noncorp shareholder who holds qualified small bus stock for more than 5 years.
what is the maximum exclusion and limitation of the 50% exclusion of gain from small business stock?
50% of the greater of:
-10 times the taxpayer's basis in the stock
- 10 million dollars
a qualified corp eligible for the 50% exclusion of gain of small bus stock must have the following:
1. stock issued after 1993
2. acquired at the original issuance
3. c corp only
4. less than $50 mil of capital as of date of stock issuance
5. 80% of the value of assets must be used in the active conduct of qualified trades or businesses
what is the gain for small business stock taxed at?
to qualify as a small business corp, who would meet the qualified corporation requirement?
-may not file with a C corp
to qualify as a small business corp, who would meet the eligible shareholders requirement?
- must be individual, estate, or certain types of trusts
- may not be a nonresident alien
- qualified retirement plans and 501c3s may be shareholders
- neither corps nor partnerships are eligible shareholders
- grantor and voting trusts are permissible shareholders
to qualify as a small business corp, who would meet the shareholder requirement?
there may not be more than 100 shareholders.
to qualify as a small business corp, who would meet the class of stock requirement?
there may not be more than one class of stock outstanding. however, differences in common stock voting rights are allowed. preferred stock is not permitted
when do you have to elect s corp status for the year?
before march 15
generally all the tax on an s-corp is passed on. however, what are the three taxes that are imposed on S corps?
1. lifo recapture tax
2. built in gains tax
3. tax on passive investment income
what is the lifo recapture tax for s corps?
C corps that elect S status must include in taxable income for the last c corp year the excess of inventory computed under fifo over lifo. resulting tax paid in four equal installments - first is paid with the final c corp return, remaining paid by the s corp
what is the built-in gains tax for s corps?
an unrealized built in gain results when the following two conditions occur:
1. a c corp elects s corp status
2. the fmv of the corp assets exceeds the adj basis of corp assets on the election date
an s corp is exempt from a tax on built in gains if:
1. the s corp was never a c corp
2. the sale or transfer does not occur within 10 yrs (7 years for 2009-2010) on the first day of the first year the s election was made
3. the s corp can demonstrate that the appreciation occurred after the s election
4. the s corp can demonstrate that the asset was acquired after the s election
5. the net unrealized built-in gain has been completely recognized in prior tax years
what is the built in gains tax rate for s corps?
multiply 35% by the lesser of:
1. recognized built in gain for the current year or
2. the taxable income of the s corp if it were a c corp
what is the tax on passive investment income for an s corp?
an s corp is subject to an income tax of 35% on the lesser of net income or excess passive investment income if:
1. the s corp has acc c corp e&p and
2. passive investment inc (royalties, divs, interest, rents, and annuities but not gains on sales of securities) exceeds 25% of gross receipts
how are allocations to shareholders of an s corporation made?
on a per share, per day basis
do s corps report separately not non-separately stated items of income or loss?
they report both, just like partnerships
what is the limitation of losses for a shareholder of an s corp?
limited to adjusted basis in s corp stock plus direct shareholder loans to the corp. shareholder guarantees do not increase basis.
what is the carryforward for shareholder's disallowed losses on an s corp?
may be carried forward indefinitely and will be deductible as the shareholder's basis is increased
how are the partnership rules for loss limitations for a shareholder different than in an s corp?
in a partnership, liabilities increase partners' basis
in an s corp, whose fringe benefits are tax deductible?
non-shareholder employees and those employee shareholders owning 2% or less of the s corp
in an s corp, whose fringe benefits are nondeductible?
shareholders owning over 2%, unless the corp includes the benefits in the employee/shareholder's w2 income
what is the purpose of the accumulated adjustments account?
the tax effects of distributions paid to shareholders of an s corp that has accumulated e&P since the inception are computed using the AAA.
what are examples of increases to the AAA?
increased by separately and nonseparately stated income and gains (except tax exempt income and certain life insurance proceeds)
what are examples of decreased to the AAA?
corp distributions, separately and non separately stated expense items and losses (except for certain nondeductible items that don't affect the capital account) and non deductible expenses (except insurance prems w corp as beneficiary) that relate to income other than tax exempt income
an s corp shareholder is permitted to deduct on their personal income tax return their pro rata share of the s corp loss subject to the following limitation:
loss limitation = basis + direct shareholder loans - distributions
how can AAA become negative?
distributions may not reduce AAA below zero; however, AAA may be negative from s corp losses
what is the order of a distribution for an s corp with c corp e&p?
1st dist - to the extent of AAA [not subject to tax, reduces basis in stock. s corp (already taxed) profits]

2nd dist - to the extent of c corp e&p [taxed as a dividend, does not reduce basis in stock. old c corp taxable dividend]

3rd dist - to extent of basis in stock [ not subject to tax, reduces basis in stock. return of capital]

4th dist - in excess of basis in stock [taxes as ltcg. cap gain dist]
what will make the s corp status terminate?
1. holders of a majority of the corps stock (any combo of voting and nonvoting) consent to a voluntary revocation

2. the corp fails to meet any of the eligibility reqs for s corp status

3. more than 25% of the corps gross receipts come from passive investment income for 3 consecutive years and the corp had c corp earnings and profs at the end of each year. 3 strikes you're out!!
once an s corp election is terminated or revoked, a new election cannot be made for ______
5 years, unless irs consents to an earlier election
if the termination occurs in mid year, ______
the corp will have two short yeas, a short S year and a short C year. earnings are prorated on a daily basis to each of the short years.
what is a 501(c)(1)
type of corp organized under an act of congress as a u.s. instrumentality
what is a 501(c)(2)
corp organized for the exclusive purpose of holding title to property, collecting income from that property, and turning over the net income to an exempt org
almost all exempt orgs (besides 501c1) must:
make written application for exempt status
be approved by IRS
become incorporated
issue capital stock
what are the reqs of a 501(c)(3)?
1. no part of the net earnings may inure to the benefit of any private shareholder or individual
2. no substantial part of the activities may be non-exempt activities
3. the org may not directly participate or intervene in any political campaign
what is a 509 private foundation?
all section 501(c)(3)s, except:
1. max (50% type) charitable deduction donees
2. broadly publicly supported orgs receiving more than 1/3 of their annual support from members and the public and less than 1/3 from investment income and unrelated business income
3. supporting orgs
4. public safety testing orgs
what are the required returns for section 509 private foundations?
annual information return (form 990-PF) that discloses substantial contributors and amounts of contributions received is required
how will section 509 private foundations go through involuntary termination?
willl terminate when they become public charities. or if they commit repeated violations r a willful and flagrant violation of any of the private foundation provisions
how will section 509 private foundations go through voluntary termination?
achieved by notifying the IRS of the plan to terminate, subject to a termination tax payback of the value of its aggregate tax benefits or its net assets, whichever is lower. otherwise, may elect to distribute its assets to an org qualifying for the max 50% deduction or it may operate as a public charity itself for at least 5 years
unrelated business income is defined as income that is:
1. derived from a trade or business
2. regularly carried on, and
3. not substantially related to the orgs tax exempt purposes
what is the ownership limitation on unrelated business income for an exempt or?
20%. if 3rd parties have effective control of the business enterprise, then 35%
what is the specific deduction for exempt corps?
$1,000 deduction
what types of income are excluded from tax of an exempt org?
1. loyalties, divs, int, and annuities
2. rents from real property, rents from personal property leased with real property, and income from debt financed property
3. G/L on the sale of property
4. income from research of a college or hospital
5. income of labor unions used to establish a retirement home, hospital, etc
6. activities limited to exempt orgs by state law (bingo games)
7. the value of securities loaned to a broker and the income received by a lender, provided the identical securities are returned to the lender
8. income from the exchange or rental of membership lists of tax exempt charitable orgs
can an organization operated for the purpose of carrying on a trade or business for profit be exempt if all its profits are payable to exempt orgs?
feeder organization - no! it must rely on its own activities and exempt nature to gain tax exemption
when is form 990 due?
15th day of the fifth month following the close of the tax year
when can a form 990-EZ be filled out?
if the exempt org has gross receipts less than $200,000 and total year end assets of less than $500,000
what are the three types of exempt orgs that do not have an annual filing req of form 990?
1. religious or internally-supporting orgs
2. certain orgs that have less than $5000 gross receipts
3. orgs that normally have less than $50,000 in gross receipts
what is a form 990N for?
electronic "postcard" filing if the exempt org does not regularly have gross receipts less than $50,000
what happens if an exempt org does not file a required tax form?
penalties. if three consecutive years, tax exempt status of org is revoked