Reg - corporate tax
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102 terms
Terms | Definitions |
|---|---|
 What is the basis of the property received by a corporation during the formation? | the greater of (shareholders' basis in the property, the debt assumed) |
| What is the general rule of corporation tax basis (to corporation)? | No gain or loss recognized |
| What is the basis of common stock (to shareholder) during the formation of a corporation? | adjusted basis in stock = NBV - C.O.D. + gain recognized |
| If a shareholder contributes only services to the company, can he be regarded as own more than 80% of the voting stock and non-voting stock in the corporation? | No. |
| What are the requirements to meet if the shareholder recognize neither gain nor loss? | 1) 80% of voting stocks + 80% of non-voting stock 2) no boot received, no debt waived, no debt securities recived |
| What is the domestic production deduction phase over the years? | 07-09 6% 2010 9% the deduction is a percentage of the lesser of (QPAI, taxable income disregarding the QPAI deduction) |
| What is the limit of deductible compensation to executives? | $1,000,000 |
| How can a taxpayer who uses accrual basis deduct bonuses paid? | Only if the bonuses are paid by 2.5 months after year-end. |
| Can a cash basis taxpayer deduct bad debt? | No, he has no bad debt included in gross income. Except in the case of an uncollectible check that has been deposited and recorded as income. |
| Is there limitation on the domestic production deduction? | 50% of the W-2 wages paid by the corporation for the year. |
| what is the limitation on charitable contribution? | 10% of adjusted taxable income ( = taxable income - charitable contribution deduction - dividends received deduction - net operating loss carryback - capital loss carryback - US production activities deduction) |
| What is the deductible amount for partially destroyed property due to casualty loss? | lesser of (the decline in value, the adjusted basis immediately before the casualty) |
| What is the deductible amount for partially destroyed property due to casualty loss? | the adjusted basis of the property |
| Can disallowed charitable contribution carryforward? | yes, 5 years. |
| Is costs of selling shares of stock included in organizational costs? | No. It is a reduction in the capital stock account. |
| How is organizational and start-up expenses treated in the GAAP and tax? | GAAP: expense Tax: $5,000 deductible in the year occurred, 180 months amortization of remainder limited to $5,000 per year |
| How is purchased goodwill treated in the GAAP and tax? | GAAP: test for impairment, not amortized; Tax: 15 yr, straight-line basis |
| Is life insurance paid for employees deductible? | If the beneficiary is the company, not deductible. If the beneficiary is the employee, yes. |
| Is political contribution deductible? | No |
| What is the difference of capital loss between corporation tax and individual tax? | for corporation, capital loss is not deducible. It can only used to offset capital gains. Net capital loss can carryback 3-year and carryforward 5-year and are carried over as short-term capital loss. the tax rate is 15%, the same as ordinary loss. (individual: capital loss can be deducted up to $3,000, cannot carryback but carryforward indefinitely, has two lower tax rate) |
| What should be included in and excluded from NOL while computing? | include the dividends received deduction not include the charitable contribution deduction |
| How to calculate general business credit? | =net income tax less the greater of [25% of (regular tax liability - $25,000) , Tentative minimum tax] "Net Income Tax" = regular tax + alternative minimum tax - nonrefundable tax credits (other than the alternative minimum tax credit). (the same as individual tax) |
| How to deal with unused general business credit? | carryback 1 year forward 20 year (the same as individual tax) |
| What are the permanent differences between tax and GAAP? | 1) 100/80/70% dividends exclusion; 2) state and municipal bond interest income; 3) life insurance proceeds income; 4) interest expenses in tax-free investment; 5) contributions; 6) different basis of properties; 7) meals and entertainment expenses; 8) life insurance expenses 9) penalties 10) lobbying/political expenses 11) federal income taxes 12) R&D expense 13) related shareholder's net capital loss |
| What is the dividends received deduction rate? | 70% (0% to <20% ownership); 80% (20% to <80% ownership); 100% (80% or more ownership). |
| How to compute dividends received deduction? | the lesser of: a. 70% (or 80%) dividends received, or b. 70% (or 80%) of taxable income computed without regard to the DRD, any NOL deduction, or capital loss carryback. |
| What is the exception to dividends received deduction limitation? | If, after taking into account the full dividends received deduction, the result is a net operating loss (NOL). |
| What are the depreciation factor of computers, typewriters, copiers, duplicating equipment? | 5-year 200% |
| What are the depreciation factor of automobiles and light trucks? | 5-year 200% |
| What are the depreciation factor of office furniture and fixtures? | 7-year 200% |
| For what year class property are depreciated using the 200% declining method? | 3,5,7,10-year |
| For what year class property are depreciated using the 150% declining method? | 15, 20-year |
| When to begin to depreciate personal property? | half-year convention 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. |
| When to begin to depreciate real property? | half-month convention |
| What are the depreciation factor of residential real estate? | 27.5-year straight-line |
| What are the depreciation factor of non-residential real estate? | 39-year straight-line |
| What is the bonus depreciation? | 50% on new MACRS property (<= 20 recovery period). |
| Is bonus depreciation of 50% allowed for AMT purposes? | Yes. |
| What is Section 179 expense election? | A taxpayer (other than a trust or estate) may annually elect to treat the cost of qualifying depreciable property as an expense rather than a capital expenditure. $250,000 deduction if purchased up to $800,000 in machinery and equipment But the deduction is not applicable when a net loss exists or if it would create a net loss |
| Can a taxpayer elect to depreciate under straight-line basis? | Yes, once elected not irrevocable but not apply to similar property obtained in subsequent years. |
| Who must use alternative depreciation system? | property for foreign use, used 50% or more for personal use, and for purposes of computing earnings and profits |
| What is the limitation on natural resources depletion? | 50% of taxable income 100% for oil and gas properties |
| Can research expense deductible? | Yes, but amortized in 60 months. |
| What is the depreciation recapture rules for personal property (machinery and equipment)? | • Loss = Treat as ordinary loss (no limitation) • Ordinary income = Gain to extent of accumulated depreciation • Section 1231 (capital) gain = Gain for sale price in excess of original cost |
| What is the due date of filing for corporation? | March 15 |
| How long can a corporation apply for an extension? | 6 months, by filing form 7004. |
| Underpayment penalty is assessed when the unpaid income tax is above what amount? | $500 |
| Can a corporation pay the tax shown on the return for the preceding year? | Yes, only if the corporations are not large corporations ( a corporation whose taxable income was $1 million or more in any of its three preceding tax years). |
| What kind of corporations cannot enjoy the privilege of filing a consolidated return? | S corporations foreign corporations most real estate investment trusts some insurance companies most exempt organizations |
| How to compute AMTI? | = regular taxable income/loss before NOL +/- adjustment (LIE) +/- preferences (PPP) +/- adjusted current earnings (ACE) - AMT NOL deduction |
| What is the adjustment in AMT computation? | LIE (1) Long-Term Contracts (2) Installment Sales—Dealer (3) Excess of depreciation of tangible property placed in service after 1986 over: (a) Straight-line for real property using a 40-year life, or (b) 150% declining balance (with a switch to straight-line) for personal property using the applicable class life. |
| What are the preferences in AMT computation? | PPP (1) Percentage Depletion (2) Private Activity Bonds (3) Pre-1987 ACRS Depreciation |
| What are the adjusted current earnings in AMT computation? | = 75% of the difference (positive or negative) between ACE and AMTI before this adjustment and the alternative tax NOL deduction. MIND (1) Municipal bond interest (2) Increase life insurance cash surrender value (3) Non-straight-line depreciation after 1989 vs. ADS (4) Dividends received deduction (less than 20% ownership/70% deduction) |
| What are the exemptions in AMT computation? | $40,000 less 25% of AMTI in excess of $150,000. As a result, the exemption amount is completely eliminated at AMTI in excess of $310,000. |
| How to compute AMT? | AMT = (AMTI - exemption) x 20%- AMT foreign tax credit - regular income tax (less regular tax foreign tax credit) = tentative minimum tax - regular tax liability (less regular tax foreign tax credit) |
| What is tentative minimum tax? | = [regular taxable income/loss before NOL +/- adjustment (LIE) +/- preferences (PPP) +/- adjusted current earnings (ACE) - AMT NOL deduction - AMT exemption] x 20% - Foreign Tax credit |
| Can minimum tax credit carryforward? | Yes, indefinitely |
| What is the threshold to be entitled to accumulated earnings tax? | regular corporations: $250,000 personal service corporations: $150,000 |
| What corporations are exempted from the accumulated earnings tax? | personal holdings companies tax-exempt corporations passive foreign investment corporations |
| What is the tax rate of personal service corporate? | 35% |
| What are personal holding companies? | The tax law criteria define personal holding companies as corporations 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: (NIRD) a. Net rent (if less than 50% of ordinary gross income); b. Interest that is taxable (nontaxable is excluded); c. Royalties (but not mineral, oil, gas, or copyright royalties); or d. Dividends from an unrelated domestic corporation. |
| Is the distribution taxable if a corporation distributes appreciated property? | Yes, the corporation recognizes gain as if the property had been sold. The gain increases current earnings and profits. |
| Is the distribution deductible if a corporation distributes appreciated property? | No. |
| What qualifications must be met for worthless stock? | a. Cash or property paid to the corporation in exchange for its first $1,000,000 of capital stock. b. The stock must have been issued to an individual stockholder (or a partnership) for money or other property but not stock or securities or services rendered. |
| If an individual or partnership owns a corporation's stocks which become worthless, how can he claim the loss? | can be treated as having an ordinary loss (fully tax deductible), instead of a capital loss, up to $50,000 ($100,000 if MFJ). Any loss in excess of this amount would be a capital loss, which would offset capital gains and then a maximum $3,000 per year would be deductible. |
| If a noncorporate shareholder holds qualified small business stock for more than 5 years, what benefits can he enjoy? | He may exclude 50% of the gain on the sale or exchange of the stock. |
| Who are eligible shareholders of S corporations? | individual estate certain types of trusts |
| Is preferred stock permitted in S corporation? | No. |
| Are differences in common stock voting rights allowed in S corporation? | Yes. |
| At what time if the election of S corporation is made is effective as of the beginning of the year? | during the preceding year or any time before the Mar15 |
| Who can terminate S corporation status? | a shareholder who owns more than 50% of the stock |
| What kind of corporation must adopt the calendar year to tax? | S corporation. |
| What taxes S corporations may be subject to? | 1) LIFO recapture tax 2) built-in gains tax 3) tax on passive investment income |
| What is LIFO Recapture tax? | C corporations that elect S status must include in taxable income for the last C corporation year the excess of inventory computed under FIFO over LIFO. |
| What is a built-in gains tax? | when an S corporation used to be a C corporation and, upon conversion to an S corporation, the FMV of the corporate assets exceeds the adjusted basis. Any sale of such assets over a 10-year period will result in that gain being taxed at the corporate level. |
| How to calculate a built-in gains tax? | 35% x lesser of: (1) Recognized built-in gain for the current year, or (2) The taxable income of the S corporation if it were a C corporation. |
| What is a passive investment income? | 35% x the lesser of (net income, excess passive investment income) if the following two tests are met: a. The S corporation has accumulated C corporation earnings and profits b. Passive investment income exceeds 25% of gross receipts. |
| What is the interval between two election for a S corporation status? | 5 years |
| What may lead to terminate the S corporation status? | 1) a voluntary revocation 2) the corporation fails to meet the eligibility requirements (e.g., a nonresident alien shareholder) 3) or more than 25% of the corporation's receipts come from passive investment income for three consecutive years and the S corporation has C corporation E&P |
| What is the exception to the NO GAIN NO LOSS RECOGNIZED general rule in the formation of partnerships? | 1) a partner render services in exchange of a partnership interest 2) the property contributed is subject to a liability where the decrease in the partner's individual liability exceeds his partnership basis |
| If a partner's capital account in a partnership became negative due to the liabilities assumed by partnership are greater than the adjusted basis (NBV) of assets contributed, what can he do? | The excess liability is treated like taxable boot for the partner |
| How to determine a partner's holding period for his partnership interest? | property: the holding period of the property ordinary income asset: from the day of contribution |
| What is the difference between capital account and partnership basis? | Basis = Capital Account + Partner's Share of Liabilities |
| Is Form 1065 used to file partnership's income tax? | No, it is only an information return for a partnership tax. K-1 is used to indicate the amount and type of each partner's distributive share of income. |
| What is the proportion rate to allocate the taxable in partnership among partners? | according to their distributive share, in regardless of whether the distribution is actually made to the partner. |
| What is the due date of a partnership return? | April 15 |
| When does partnership terminates? | a. Operations cease. b. 50% or more of the total partnership interest in both capital and profits is sold or exchanged within any 12-month period. c. There are less than two partners. |
| Can a partner recognize gain or loss if he makes transaction, not in his capacity as a partner, with his partnership? | Yes. Any gains are always treated as ordinary gains (unless it is . But the losses are considered as related party (WRaP) and not permitted when the partner is a controlling partner (over a 50% interest in the partnership. |
| Can a partner carryforward the unused loss in a future year? | Yes, but he may be subject to passive loss limitations. |
| What payments are allowable for a partnership? | 1) guaranteed payments 2) retirement payments |
| What do syndication costs for partnerships include? Are they deductible? | No, they must be capitalized and can neither be amortized nor depreciated. They include the costs connected with the issuing and marketing of partnership interests such as commissions, professional fees, and printing cost. |
| If a partner receives both cash and property nonliquidating property form partnership, the total NBV of cash and property exceeds his adjusted basis in the partnership, is gain from cash recognizable? | No. Deduct the amount of cash from basis at first, and then decrease the NBV of property to the extent of zero. |
| If a partner receives nonliquidating distributions, can he recognize gain? | No, unless cash distributed exceeds the basis. |
| How may a partner liquidate his partnership interest? | (i) Complete withdrawal, (ii) Sale of partnership interest, and (iii) Retirement or death. |
| Is it a capital gain/loss or ordinary gain/loss for a partner who transfers a partnership interest? | Capital gain/loss |
| What are hot assets? | "Hot Assets" are: (1) Unrealized receivables (as if exchanged for cash) (2) Appreciated inventory (as if exchanged for cash) |
| What kind of transfer of a partnership interest by a partner is considered as ordinary income? | the transfer of hot assets |
| Is the municipal bond interest income included in calculating partner's tax basis? | Yes |
| Can accounting fees to prepare the representations in offering materials be deducted as eligible expenditures for partnerships? | No |
| Is taxes payable under the Federal Unemployment Tax Act deductible by the employer as a business expense for federal income tax purposes? | Yes |
| How should the director's fee reported? | As self-employment income subject to social security self-employment tax. |
| Gain is recognized by the partner who receives a nonliquidating distribution of property, where the adjusted basis of the property exceeds his basis in the partnership interest before the distribution. Is it right? | No. Only if the property is money. |
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