Advanced Tax Essay

Cash Method can’t be used for C Corp unless avg gross receipts less than or equal to $5 M. Cap losses can only be offset by cap gains (carry loss back 3 yrs, or fwd 5 yrs) PSC – activity is personal serv, performed by shareholders, >10% of stock is held by shareholder-employees Closely Held C Corps can offset passive losses against active income, but if PSC – none of passive loss is offset again active/portf inc Charitable Contrib – paid with 2 ½ mo of yr end, authorized by board at yr end. If tangible personal property and donate to org that doesn’t put it to related use, can only deduct basis, not FMV – limited to 10% of taxable inc. and can carry forward 5 yrs . To find ded limit: (Inc from ops +div rec – expenses from ops) x 10% LT Cap Gain Prop Deduc = FMW. Ord income property (inventory, capital assets held less than 12 mo) –deduct basis. (next line also) OR if allowed by code: deduct lesser of 1) sum of basis plus 50% of appreciation or 2) twice the basis NOL – carry back 2 years or forward 20 to offset taxable income DRD: less than 20% ownership - 70% , 20% or more 80%, 80% or more 100% IF DRD results in NOL, take it. Otherwise multiply % by dividends received and taxable income, take the lesser ORG EXP: legal serv, acc serv, exp of temp directors or org meetings, fees paid to state. First 5,000 can be immed expensed. But is phased out dollar for dollar over 50,000. Remaining balance amortize over 180 mo. M1(book to tax) Add: fed inc tax per books, excess of cap loss over cap gain, ppd income, charit contrib in excess of 10% limit, prem paid on life ins policy, exp on books which aren’t tax deductible, int on loan to purch tax exempt bond Sub: tax-exempt int, DPAP, Life Ins Proceeds, deduct on return not charged against NI, exc of tax dep over book dep
S351 – required if property is transferred, for stock, in exchange for 80% control Transferring Services to be in control group – value of property transferred must be 10% of services provided, if not – all taxable S351 – liabilities assumed by transferee corp do not affect gain recognition for either party, only reduces shareholder basis of stock received 2 EXCEPTIONS: b) no bona fide business purpose (then liab = boot) or c) liabilities exceeds adjusted basis or property given (excess of liab is gain) SHAREHOLDER STOCK BASIS: adj basis of prop + gain recog(inc from services) – boot received (including any liab transf, N/P) – adj for loss property CORP BASIS IN PROP REC: adj basis of prop transf +gain recog by shareholder – adj for loss property GAIN LESSER OF REALIZED GAIN OR BOOT REC BUILT IN LOSS PROP: say tax basis = 450 FMV = 420 for 351 transfer. Shareholder’s stock basis now = 450 & Corps basis = 420 (450-30) BUILT IN LOSS ADJ CAN PLACE THE LOSS WITH EITHER THE SHAREHOLDER OR CORP BUT NOT BOTH Contributions by nonshareholders, like land, are not recognized in net income. But basis of property transferred is 0. If money is received by the corp, any property

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