Corporate Tax TEST

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the additional tax rate applied to corporate income exceeding $100,000 up to $11,750?

21%

10%

5% (correct)

What is the current flat tax rate imposed on corporations with income over $18,333,333?

39%

21% (correct)

35%

18%

Which of the following statements about charitable contribution limitations for corporations is correct?

Limitations are set at 60%.

Limitations are equal to the individual's deduction limit.

Limitations are set at 50%.

Limitations are set at 10%. (correct)

Which section defines taxable income for corporations?

Section 63(a) Signup and view all the answers

What is the primary deduction allowed under Section 199 for manufacturing?

9% of taxable income or qualified domestic production activity income, whichever is lesser Signup and view all the answers

What accounting method is generally required for tax purposes for corporations?

Accrual basis Signup and view all the answers

Which of the following is NOT a type of deduction available to corporations?

Personal exemptions Signup and view all the answers

Which section prohibits the deduction of losses between a shareholder and more than 50% owned corporation?

Section 267 Signup and view all the answers

Which of the following accurately describes the treatment of capital contributions according to Section 118?

They are not included in gross income for the transferee. Signup and view all the answers

What impact does Section 357(c)(3) have on corporate deductible liabilities?

They do not affect corporate deductibility for purposes of certain sections. Signup and view all the answers

How are recourse liabilities treated differently than non-recourse liabilities?

Recourse liabilities may still be considered taxable under certain conditions. Signup and view all the answers

What is the assignment of income doctrine's relationship with Section 351 treatment?

It may override Section 351 under specific circumstances. Signup and view all the answers

Under what condition can a corporation claim a deduction for a liability?

When the liability is tax-deductible and paid. Signup and view all the answers

What is the nature of S-Corporation distributable shares with respect to self-employment income?

They are not classified as self-employment income. Signup and view all the answers

What is a primary doctrine used by the IRS against abusive tax shelters?

Economic Substance Doctrine Signup and view all the answers

Which tax principles apply under normal tax governing?

All options are governed under normal tax principles. Signup and view all the answers

Which statement best summarizes S-Corporation taxation?

The income distributed isn't subject to self-employment taxes. Signup and view all the answers

What is indicated by the step transaction doctrine?

It views a series of transactions as a single transaction. Signup and view all the answers

Which of the following accurately describes the relationship between statutory law and common law in tax practice?

Statutory law takes precedence over common law in tax matters. Signup and view all the answers

What does the phrase 'substance over form' imply in tax law?

The actual economic realities of transactions will be prioritized over their labels. Signup and view all the answers

Which regulation changes affect the classification of LLCs for tax purposes?

Check the box regulations allow more flexibility in tax classification. Signup and view all the answers

Which entity's income is not subject to FICA and FUTA taxes?

S-Corp distributive share Signup and view all the answers

What is the time frame for utilizing Net Operating Losses that were accrued before 2018?

2 years back and 20 years forward Signup and view all the answers

Under which condition can a group of corporations elect to consolidate their returns?

If they meet the criteria of being a Combined Group Signup and view all the answers

What additional benefit is denied by Section 1561 to 'Controlled Corporations'?

Multiple tax benefits Signup and view all the answers

What is a defining characteristic of a 'Combined Group' under Section 1563?

There must be a common parent corporation Signup and view all the answers

How much of taxable income can be offset by net operating losses incurred post-2017?

100% Signup and view all the answers

Which of the following statements accurately depicts the characteristics of a 'Brother/Sister' corporation relationship?

They share a common parent and are part of a group of corporations Signup and view all the answers

What happens to unused Net Operating Losses after the specified time frame pre-2018?

They expire Signup and view all the answers

What is the minimum number of corporations needed to form a Combined Group?

Three Signup and view all the answers

Which section specifically defines 'Controlled Corporations' and their associated tax limitations?

Section 1563 Signup and view all the answers

What is true regarding the tax treatment of corporations in a Combined Group?

They are treated as a single entity for tax purposes Signup and view all the answers

What is the realized gain for A when they transfer a building with a basis of $100 and a FMV of $500?

$400 Signup and view all the answers

What is the basis in the C stock on the day of the exchange?

$30 Signup and view all the answers

According to Sec on 351(b), what type of gain is never allowed?

Realized loss on asset transfers Signup and view all the answers

What happens to the basis in the note after the exchange?

It is zero due to excess allocation to stock Signup and view all the answers

What amount of recognized gain does A have on day 1 of the exchange?

$0 Signup and view all the answers

How is the recognized gain determined when multiple assets are exchanged for stock and boot?

By allocating boot based on each asset's relative FMV Signup and view all the answers

If A receives cash of $50 and stock with FMV of $450, what is the total amount of boot received?

$50 Signup and view all the answers

What is the excess basis allocated to the note if A's total basis is $100?

$0 Signup and view all the answers

How much cash does A receive per year from the note if the total boot is $20 over 5 years?

$4 Signup and view all the answers

What is C's basis in the building transferred by A if the total recognized gain is $20?

$150 Signup and view all the answers

Study Notes

Corporate Tax Overview

Corporations are encouraged to park profits offshore (estimated at 2−2-2−3 trillion)
A 5% additional tax is levied on income exceeding 100,000,cappedat100,000, capped at 100,000,cappedat11,750
Income between 100,000and100,000 and 100,000and335,000 is subject to a 39% tax rate
Parking intangibles offshore and charging royalties (e.g., Google charging 3% on foreign profits) is another tactic
Inversions, where companies relocate to countries with more favorable tax environments (e.g., Burger King/Tim Hortons in Canada), is another common practice

Tax Rates and Structure

A 3% (or 100,000)additionaltaxisappliedtotaxableincomeexceeding100,000) additional tax is applied to taxable income exceeding 100,000)additionaltaxisappliedtotaxableincomeexceeding15,000,000
Corporations with income exceeding $18,333,333 are taxed at a flat 35% rate
The new tax rate is 21% for these corporations

Corporate Tax Differences from Individuals

Corporations lack personal or dependency exemptions, standard deductions, itemized deductions, and miscellaneous 2% rules or medical expense deductions
Corporations do not have spousal support deductions and section 212 only applies to individuals
Corporations, however, can deduct all expenses incurred in the pursuit of profit that are ordinary and necessary business expenses under Section 162
There is no limit on non-business losses for corporations, and non-business bad debts are generally not subject to short-term capital loss rules

Net Operating Losses

Before 2018, corporations could carry back net operating losses for 2 years and forward for 20 years
After 2017, corporations can only deduct net operating losses against current taxable income
Net operating losses can offset 100% of taxable income

Charitable Contribution Limitations

Corporations have a charitable contribution limit of 10%, unlike individuals who have limits of 50% or 60%.
At-risk rules generally still apply for corporate tax purposes
Passive activity rules generally do not apply to corporations

Corporate Taxable Year and Accounting Method

Corporations can typically use any fiscal year or calendar year
Professional service corporations (PSCs) have exceptions: a 3-month deferral or a valid business purpose
Elections on section 444 are required if using a deferral
If a valid business purpose exists, section 444 is not required
Corporate tax payments are levied on deferred income under section 444
Corporations generally use the accrual basis of accounting for tax purposes
Limited exceptions apply for PSCs, farmers, and small corporations

Section 199 – Manufacturing Deduction

This deduction is applicable for both regular and alternative minimum taxes
This deduction applies to both corporations and individuals
It allows a deduction for 9% of the lesser of taxable income or qualified domestic production activity income
It is a very broad deduction

Section 267 – Disallowed Losses

Section 267 disallows losses between a shareholder and a more than 50% owned corporation
Attribution rules apply
Section 267(a)(2) mandates a matching rule between accrual and cash method employee/owners

Dividends Received Deduction

Corporations can deduct dividends received from other corporations.
Dividend received deduction percentages have changed under tax reform:
- 50%
- 65%
- 100%

Multiple Corporations

Section 1561 denies multiple tax benefits to "controlled corporations"
These corporations are defined under Section 1563
"Combined Group" is defined as three (or more) corporations that are part of a larger group where one is the common parent - both are members of another larger group
"Brother-sister group" consists of multiple corporations, each being part of a broader group where a common parent is also included within the group

Affiliated Group

An "Affiliated Group" allows multiple corporations to be treated effectively as one
A group of corporations can elect to consolidate returns
Consolidated returns are covered in Chapter 13
All these groups are subject to normal tax principles and common law doctrines, including the step transaction doctrine

Substance over Form Doctrine

This doctrine emphasizes the substance of a transaction over its form, even if documents label it differently
This is a key tool used by the Internal Revenue Service (IRS) for dealing with abusive tax shelters
An example is section 358(a)(1)(B)(ii) where the taxpayer realizes a gain of 90(90 (90(100 - 10)butrecognizesagainonlytotheextentofthe"boot"(whichincludesthenote)of10) but recognizes a gain only to the extent of the "boot" (which includes the note) of 10)butrecognizesagainonlytotheextentofthe"boot"(whichincludesthenote)of20.

Section 351 – Tax-Free Exchanges

Section 351 facilitates tax-free exchanges for corporations
This section states that a corporation does not recognize gain (or loss) on contributions of property
The shareholder's basis in the existing stock is increased by the fair market value of the property contributed

Section 357 – Assumption of Liabilities

Section 357(c)(3) does not affect the deductibility of liabilities for corporations
Liabilities do not constitute "boot" unless there is clear tax avoidance intent
Recourse and non-recourse liabilities can be treated differently
If a shareholder remains liable, it may suggest that the liability was never assumed
Corporations can deduct liabilities when paid, even if they were assumed.

Economic Substance Doctrine

This doctrine ensures that a transaction has genuine economic effects.
The IRS often uses this doctrine against abusive tax shelters.
It assesses whether stated transactions have real economic substance beyond simply seeking tax advantages.

Service Ruling and Assignment of Income Doctrine

The IRS has ruled that a "transferee corporation" (the recipient of the property) is responsible for recognizing income and taking deductions when payments are made.
This aligns with case law like the "Hempt Brothers" case.
The assignment of income doctrine generally overrides Section 351 in cases where the tax benefit rule applies.
The transferee corporation recognizes income and deductions when the payments are made.

Tax Benefit Rule

According to the tax benefit rule, a corporation receives an advantage (a deduction) when an income-producing asset is transferred to a corporation.
This potentially overrides Section 351 when the tax benefit outweighs the potential tax-free nature of the exchange.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Explore the intricacies of corporate tax, including offshore profit strategies, tax rates, and unique corporate taxation differences from individuals. This quiz delves into recent tax changes and common practices that corporations adopt to optimize their tax liabilities.