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R4 Corporate Taxation
Terms in this set (88)
The only type of entity whose earnings are subject to double taxation
In corporate formation, basis of property that a corporation receives is the greater of...
1) NBV of the property + any gain recognized by the shareholder
2) Debt assumed by the corporation
The shareholder contributing property in exchange for corporation has no gain or loss if what two conditions of IRC Section 351 have been met?
1) 80% control group
2) No receipt of boot
A shareholder who only contributes ____________ is not counted as part of the control group for the purposes of 80% control
Formula for excess liability (gain) when liabilities assumed by a c corp exceed the adjusted basis of the total assets transferred (this is treated as boot)
NBV Assets - Liabilities= Excess Liability (GAIN)
Formula for shareholders' tax basis in shares (c/s)
NBV of transferred property + cash contributed + FMV of services rendered + gain recognized by shareholder - cash received - liabilities assumed by corporation - fmv of nonmoney boot received
What is the numeric threshold of gross receipts that triggers the required use of accrual basis accounting for tax purposes?
When must accrual basis method for accounting for tax purposes be used (FACT)?
1) Farming corporations that have average gross receipts above $26 million for last 3 years
2) Accounting for purchases/sales of inventory if taxpayer had greater than $26 million in average gross receipts for the last 3 years
3) C Corporations that have average gross receipts greater than $26 million for the past 3 years
4) Tax shelters
What method is used for deductible bad debts for accrual basis taxpayers?
Direct write off
T or F bad debt is tax deductible for cash basis taxpayers?
F (never included in taxable income)
How much of capital losses can be deducted every year for corporate taxpayers?
only to the extent of capital gains
Executive compensation maximum deduction
$1M for CEO, CFO, and 3 other highly compensated officers
Entertainment expenses for officers and 10% or greater shareholders are deductible to the extent that
they are included in an individual's gross income
Bonuses (by an accrual basis corporate taxpayer) paid to non-shareholder employees are deductible in the year accrued if paid by
2.5 months after tax year end (March 15)
Bonuses (by an accrual basis corporate taxpayer) paid to shareholders are deducted when
Business interest expense is normally deducted when both incurred and paid subject to a limit of ______________ of EBITDA; the limitation doesn't apply if average gross receipts for the three previous tax years are less than __________.
30%; 26 million
When is prepaid interest expense deductible?
Deduct in the year incurred
Maximum charitable contribution deduction
10% of adjusted taxable income (calculated before deduction of charitable contribution deduction, dividends received deduction, and any capital loss carryback)
For charitable contributions to be deductible, they must be accrued and paid by
3.5 months after tax year end (April 15)
For business losses of partially destroyed property, the loss is limited to the lesser of
the decrease in FMV or the NBV before casualty
For business losses of fully destroyed property, the loss is
the adjusted basis of the property
How much of business organizational deducted? Phase out begins when org costs exceed ________.
$5000 and amortize the excess over 180 months; $50,000
How much of start up costs deducted? Phase out begins when start up costs exceed ________.
$5000 and amortize the excess over 180 months; $50,000
The $5000 amount of immediate deduction for startup/business org costs is reduced by (i.e. how does the phase out work)
the amount of costs over $50,000
How is goodwill to be deducted?
Amortized on a straight-line basis over a 15-year period
For life insurance premiums, if the corporation is named the beneficiary (key person), the premiums are (deductible/nondeductible). If an insured employee is named as the beneficiary (fringe benefit), the premiums are (deductible/nondeductible)?
How much of business gifts deductible?
$25 per person, per year
How much of business meals are deductible
50% tax deductible
How much of entertainment meals deductible
0% tax deductible
Unusable or unsaleable inventories are valued at
expected (bona fide) selling price within 30 days - cost to dispose
To qualify for the DRD, a corporate shareholder must own investee stock for a specified minimum holding period of more than __________.
Dividends received deduction for ownership 0% to < 20%
Dividends received deduction for ownership 20% to <80%
Dividends received deduction for ownership of 80%+
DRD equals the lesser of (DRD taxable income limitation)
1) 50% or 65% dividends received OR 2) 50% or 65% of taxable income before DRD
When does the DRD taxable income limitation not apply?
If taking the full DRD results in an NOL
What entities are not eligible for the DRD (don't take it personally)
Personal service corporations, personal holding companies, personally taxed S corporations
Which is calculated first: charitable contributions deduction or dividends received deduction
charitable contributions deduction
Which schedules reconcile net income and taxable income
Which schedule does not distinguish between temporary and permanent differences, M-1 or M-3?
If the total assets of the company are __________ or greater, the company is required to reconcile book and taxable income on Schedule M-3
Accrued expenses (50% owner/family) deducted when
paid (and incurred)
C Corp can get an extension on filing their return by _______ months by filing Form _______
For estimated payments of corporate tax, small corporations are required to pay the lesser of
1) 100% of current year tax or 2) 100% of preceding year tax (unless the corporation owed no tax for the preceding year or the preceding tax year was less than 12 months, then you must use current year tax)
For estimated payments of corporate tax, large corporations must pay
100% of current year tax
Unused general business credits (for C Corps) can be carried back _________________ and carried forward ________________
one year; 20 years
Foreign tax credits for c-corps are carried back ___________ and carried forward _____________.
one year; 10 years
Limitation of general business credit for c-corps
Credit cannot exceed Net income tax - 25% of net regular tax liability above $25,000
Research and Development Tax Credit Calculation
20% of the increase in qualified research expenditures over defined base amount
Regular C-corps are entitled to ______________ of lifetime accumulated earnings without having to pay the accumulated earnings tax
Personal service corporations are entitled to ____________ of lifetime accumulated earnings without having to pay the accumulated earnings tax
Additional accumulated earnings tax rate
Personal holding companies are corps more than ____ owned by ____ or fewer individuals and having ______ adjusted ordinary gross income consisting of (NIRD)
50%; 5; 60%;
1) Net rent (if less than 50% of ordinary gross income)
2) Interest that is taxable
4) Dividends from unrelated domestic corp
PHC's are taxed an additional _____ on NI not distributed
To determine PHC undistributed taxable income, the taxable income must be reduced by what two things prior to the dividend paid deduction?
1) Federal income taxes
2) Net LTCG (net of tax)
To be an affiliated group, the common parent must directly own ___________ or more of voting power in outstanding stock and __________ or more of the value of all outstanding stock of each corporation.
NOL arising on Dec 31, 2017 or before gets carried back _______ years and carried forward ________ years.
NOL arising in 2018, 2019, or 2020 is carried back __________ and carried forward _____________.
5 years; indefinitely
NOL arising in 2021 and beyond is carried back _________ and carried forward ____________.
0 years; indefinitely subject to 80% taxable income limitation
Dividend from current E+P is considered a
Dividend from accumulated E+P is considered a
Return of capital to the extent of stock basis (no E+P) is considered
nontaxable, reduces basis of common stock
Capital gain distribution (no E+P and no basis) is considered a
taxable capital gain
In the general netting rules, if current E&P is positive and accumulated E&P is negative, distributions are...
dividends to the extent of current E&P only
In the general netting rules, if current E&P is negative and accumulated E&P is positive the two amounts are ________ and distributions are...
netted; dividends if the net amount is positive
Order of distribution allocation
1) Current E&P
2) Accumulated E&P
3) Nontaxable return of capital that reduces shareholder basis
Stock dividends are generally (taxable/nontaxable)
Exception to the general taxation of stock dividends:
If the shareholder has a choice of receiving cash or other property, it is a taxable at FMV
General rule for corporation paying the dividend: payment of a dividend (does/does not) create a taxable event
Exception to the general rule for corporations paying the dividend: if the corporation distributions appreciated property, the corporation recognizes _______; the recipient shareholder includes the _________ of the property in income as a dividend. Is a loss on depreciated property deductible?
gain as if the property has been sold; FMV; no
Proportional stock redemption is treated as ___________________________________ to the shareholder
taxable dividend income
Disproportional stock redemption is treated as ___________________________ to the shareholder
taxable capital gain or loss
A stock redemption due to a complete or partial liquidation of a corporation is treated as an ______________________, not as a ________.
exchange of stock; dividend
Disproportional Redemption Qualification means that the percentage ownership after the redemption must be ________________ and ownership reduction was at least ______________.
less than 50%; 20%
Corporate liquidation (either the corporate sells assets and distributions cash to shareholders or simply distributions assets to shareholders) is [taxable/nontaxable] to the corporation and [taxable/nontaxable] to the shareholder
Corporate reorganizations are (taxable/nontaxable) to the corporation and (taxable/nontaxable) to the shareholder
If the property's FMV is less than the amount of liability assumed by a sole shareholder (when property is being distributed), the FMV to be used in the calculation of the gain/loss to the corporation is
the amount of liability assumed by the shareholder
Is the liquidation of an 80% or more owned subsidiary taxable or not? What is the basis of the transferred assets?
Worthless stock- Section 1244 Stock (Small Business Stock): an original shareholder can have an ___________________ (fully tax deductible) instead of a capital loss up to _______________ (individual) or _________________ (MFJ)
ordinary loss; $50,000; $100,000
Qualified small business stock exclusion: an individual shareholder who owns QSBS for more than _____ years can exclude _______ of the gain on the sale or exchange of stock
Maximum QSBS gain exclusion is limited to 100% of the greater of
1) 10 times taxpayer's basis in stock or 2) $10 million
What % of gain or loss in a subsidiary liquidation of an 80% or more owned sub is recognized by the parent?
Type A Tax-free reorganization
Mergers and consolidations
Type B tax-free reorganization
acquisition by one corporation of another corporation's stock, stock for stock
Type C tax-free organization
acquisition by one corporation of another corporation's assets, stock for assets
Type D tax-free reorganizations
dividing the corporation into separate operating corporations
Type E tax-free reorganization
Type F tax-free reorganization
mere change in identity, form, or place of organization
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R2: Individual Taxation Part II
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