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46 Cards in this Set
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How is shareholder basis calculated for a new interest in a Corporation?
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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.
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Corporate Taxation
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How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?
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Transferor's basis+ Gain recognized by shareholder= BasisORFMV of Corporate Interest- Adjusted basis of property = Gain
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Corporate Taxation
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What basis do shareholders and Corporations use for property?
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They both use ADJUSTED BASIS, NOT FMV of property.
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Corporate Taxation
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Describe how loss is taken on Section 1244 small business Corporation stock?
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A loss on worthless stock is an ordinary loss.
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Corporate Taxation
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What are the requirements for taking an ordinary loss on Section 1244 small business Corporation stock?
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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
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Corporate Taxation
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What are the basic rules for filing a form 1120?
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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
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Corporate Taxation
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When are Corporate federal tax estimated payments required, and how are they calculated?
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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.
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Corporate Taxation
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Describe the AMT calculation for C-Corporations
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Taxable Income+Tax Preference Items+/- Adjustments= Pre-ACE+/- ACE Adjustments= AMTI- 40,000 Exemption= Tax Basex 20%= Tentative Minimum Tax- Regular Tax Liability= AMT
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Corporate Taxation
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What are the pre-ACE adjustments for C-Corporation tax AMT calculations?
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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
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Corporate Taxation
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What are the ACE adjustments in the C-Corporation AMT tax calculation?
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Municipal Bond InterestLife Insurance Proceeds70% Dividends Received DeductionOrganizational Expenditures must be capitalized, not amortizedNote: AMT paid gets carried forward indefinitely, but never carried back
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Corporate Taxation
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When are C-Corporations exempt from AMT?
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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
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Corporate Taxation
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How are gains and losses handled with respect to a Corporation's transactions involving its own stock?
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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.
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Corporate Taxation
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How are Corporate organization costs handled?
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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
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Corporate Taxation
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How are a C-Corporation's deductible charitable contributions calculated?
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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
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Corporate Taxation
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How are excess charitable contributions treated in a C-Corporations?
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Excess charitable contributions get carried forward 5 consecutive years (No Carryback)
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Corporate Taxation
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When can a board of directors authorize charitable contributions for a tax year?
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The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year
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Corporate Taxation
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How is the dividends received deduction (DRD) calculated, and what are the limitations?
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80% Interest = 100% DRD20-79% = 80% DRDless than 20% = 70% DRDOnly allowed if no consolidated return is filed. Qualified dividends from domestic Corporations only.
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Corporate Taxation
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What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?
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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
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Corporate Taxation
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How are Corporate losses on a sale to a Corporation where a taxpayer owns a 50% or more interest handled in a C-Corporation?
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A loss on a sale to a Corporation where taxpayer owns a 50% or more interest is disallowed
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Corporate Taxation
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How are capital losses handled in a C-Corporation?
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Capital Losses are deductible only to the extent of Capital Gains
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Corporate Taxation
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How are net short term capital gains taxed in a C-Corporation?
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Net Short Term Capital Gains are taxed at ordinary income rates
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Corporate Taxation
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How are Corporate losses carried back/forward?
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Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss
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Corporate Taxation
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How are bad debt losses handled in a Corporation?
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Bad debt losses are classified as ordinary
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Corporate Taxation
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What is the casualty loss floor for a C-Corporation?
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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)
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Corporate Taxation
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How are net operating losses handled in a C-Corporation?
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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
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Corporate Taxation
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How is investment interest expense handled in a C-Corporation?
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Unlike individual taxation, investment interest expense is not limited to investment income.Investment interest on tax-free investments are NOT deductible.
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Corporate Taxation
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What is the purpose of Schedule M-1 on a Corporate tax return? Which items are included?
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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.)
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Corporate Taxation
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What is the purpose of Schedule M-2 on a Corporate tax return? How is it calculated?
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Reconciles beginning to ending retained earningsBeginning Unappropriated Retained Earnings+ Net Income+ Other Increases- Dividends paid- Other decreases= Ending Unappropriated Retained Earnings
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Corporate Taxation
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What is the purpose of Schedule M-3 on a Corporate tax return?
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Like M1, but for Corporations with $10M+ in assets
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Corporate Taxation
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How are affiliated (80%) Corporation tax returns handled?
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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
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Corporate Taxation
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How are Corporate distributions to shareholders handled?
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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)
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Corporate Taxation
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What is the order of treatment in a Corporation's distribution to a shareholder?
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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
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Corporate Taxation
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What is the basic calculation for accumulated earnings and profits in a Corporation?
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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
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Corporate Taxation
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What is the treatment of a gain in a complete Corporate liquidation?
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If Capital Property, then Capital Gain If Non-Capital Property, then Ordinary IncomeGain characterization is the same for both the Corporation and the shareholder
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Corporate Taxation
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What is the treatment of a loss in a complete Corporate liquidation?
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Corporation: Depends on if property is capital in nature, otherwise ordinary lossIndividual: capital loss only
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Corporate Taxation
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What is the treatment of the liquidation of a subsidiary?
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No G/L to parent company
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Corporate Taxation
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What is a consent dividend? How is it treated?
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Consented by the Board of Directors but not yet paidTreat as if distributed by the end of the year
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Corporate Taxation
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Describe the requirements for a personal holding company.
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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
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Corporate Taxation
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How is Corporate accumulated earnings tax (AET) different from PHC taxation?
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Not Self-Assessing like a PHC
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Corporate Taxation
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How is the accumulated earnings credit calculated for a Corporation?
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Take greater of $250,000 ($150,000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)
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Corporate Taxation
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What are the requirements for holding S-Corporation status?
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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
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Corporate Taxation
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How is an S-Corporation election made?
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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
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Corporate Taxation
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How is an S-Corporation terminated?
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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
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Corporate Taxation
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What items are not included in calculating an S-Corporation's ordinary income?
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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)
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Corporate Taxation
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How is S-Corporation shareholder basis calculated?
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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
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Corporate Taxation
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What is the formula for an S-Corp Built-in Gains Tax?
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FMV of Assets @ S-Corp Election Date - Adjust. Basis of Assets = Built-in Gain x 35% Corporate Rate
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Corporate Taxation
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