1. Section 351
    • Deferring gain or loss upon incorporation
    • - must transfer property
    • - must recieve stock
    • - must be in control of the corp immediately after the exchange (80%)
  2. Pro's & Con's to forming a C Corp
    Pros: Fiscal year end, (somewhat manipulate tax)

    Cons: pay double tax
  3. How to deal with boot?
    Gain realized vs Gain recognized: Choose the lessor of the two
  4. How much property needs to be contributed with services to be considered for Sec 351
  5. Stock Basis
    • Original asset basis
    • + gain recognized
    • - Recognized loss
    • - boot received
    • - liabilities given up
  6. If liabilities exceed the basis, what is the amount of the gain or loss?
  7. Most devastating rule applying to PSC's?
    If you are a corporation and make a profit, every dollar is taxed at 35%
  8. When are corporate tax returns due?
    Two months and 15 days after your year end
  9. Which corporations are not allowed to have a fiscal year end?
    • PSC
    • S Corp
  10. How are capital gains treated in corporations?
    • - there is no special tax rate, but you still need to keep track of them
    • - if you have capital losses, you only get to deduct to the extent of gains
    • - you can carry back capital losses 3 years and forward 5 years
  11. Section 1250 Real Estate
    • Take depreciation and multiply by 20%. You need to recapture 20% of the depreciation as ordinary income.
    • -Anything above the 20% is capital gain
    • - you can offset your capital losses against capital gain
  12. Section 1245 Equipment
    Recapture 100% of equipment as ordinary income
  13. Organizational expenses are?
    -intangible assets amortized over 15 years
  14. Organizational costs include?
    • attourney
    • accountant
    • formation costs
    • anything dealing with the process of setting up a corporation
  15. Organizational costs do not include?
    • cost to issue stock
    • cost to sell stock
    • printing stock
  16. How much of both organizational costs and start-up costs can be immediately expensed?
  17. What are start up costs?
    • Ordinary and necessary business expenses prior to opening
    • -rent
    • -salary
    • -supplies
  18. Charity Rules
    • - 10% of gross income limitation
    • - Needs to be for ill, needy, infants, or scientific research
    • -  tax deduction is going to be cost plus one half of your gain. (as long it is more than your cost doubled)
  19. Accrued Expenses need to be paid when?
    • Within 2 1/2 months after the fiscal year end
    • - for a controlling owner (more than 50% of the corp) the deduction and income need to happen in the same year.
  20. US Production Deduction
    • - 9% deduction of the lessor of your US production income, or taxable income
    • 1. look at how much profit is generated from US products
    • 2. Must have a total taxable income. It the total profit is lower than the US profit, you must use the lower amount.
    • 3. Limitation: limited to 50% US wages
    • 4. Report all income and subtract all expenses plus 9% deduction
    • 5. Farmers are eligable
  21. NOL
    • -equal to taxable loss
    • -back 2 years and forward 20 years
    • -If you carry back you must go back 2 years
  22. Dividend Received Deduction
    • - If you own 0-20% ownership you receive a 70% deduction
    • - 20-80% in stock you get an 80% deduction
    • - More than 80% gets a 100% deduction
  23. What is the Dividend Received Deduction limited to?
    • - the lessor of taxable income or dividend income
    • -if you end up with a loss after deducting the higher number than you are allowed to use the higher number.
  24. Tax Schedule
    • - First 50,000 = 15%
    • - Next 25,000 = 25%
    • - From 75-10Mil = 34%
    • At 100,000 of taxable income, you are charged a 5% surtax until all the benefits related to the lower tax brackets are gone.
    • -Once you hit 335,000 you are in a flat tax of 34%
  25. Controlled Groups
    • 80% common ownership or more
    • - you only get one 50,000 at 15% and one 25,000 at 25% no matter how many corporations you own
  26. Related Parties
    • 51% ownership or more
    • - If the corp pays you a bonus, you need to receive income same period as they deduct it
    • - losses between related parties is not allowed
    • - If property is ordinary income in hand of either property neither one gets capital gain treatment
  27. If you file an extended deadline to file tax what do you need to do?
    • - still need to estimate the tax you are going to owe. If you had 0 tax due last year than you default to 90% of this years tax
    • - If you are a large corp (5Mil) you pay 90% of current years tax
  28. Stock Dividends
    • Not taxable
    • Not deductible
  29. Liquidation
    • - Property is distributed at FMV
    • - When you sell an asset the character of the gain is always related to the asset you are selling.
    • - Corp must pay tax on the difference between what they paid and the FMV
  30. Related Party Liquidation
    • - if you own 80% of corp then it is not liquidation just a merger
    • - Property is transferred at basis. No gain or loss
    • - If you buy stock from the liquidation at a lower price than their FMV you have a gain but don't report it. The new assets just increase your equity.
Card Set
TAX Test #1