R3: C Corporations

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  1. general rule of tax consequences on the formation, reacquistion, and resale of c corps
    There is no gain or loss to the corporation issuing stock in exchange for property.
  2. basis of property that a C Corp receives
    the basis of the property received from the transferor/shareholder is the greater of:

    adjusted basis (NBV) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder)


    debt assumed by corporation (transferor may recognize gain to prevent a negative basis)
  3. exception to the general rule of basis of property received by a corporation
    if the NBV of property contributed exceeds the FMV in a tax-free incorporation, the corproation's basis is limited to the FMV of the property. This prevents the transfer or property with built-in losses.
  4. The shareholder contributing property (not services) in
    exchange for corporation common stock has no gain or loss if the following two
    conditions are met
    1. 80% Control Immediately after the transaction the s/h involved must own at least 80% of the voting AND non-voting stock.

    2. boot not received i.e. cash withdrawn or receipt of debt securities.

    **Note: cancellation of debt where liabilties > NBV transferred to corp. is not boot per se but does generate gain.
  5. basis of common stock to share shareholder
    • NBV
    • +FMV of services rendered
    • + gain recognized by s/h (debt>adjusted basis)
    • -cash received
    • -cancellation of debt
    • -FMV of non-money boot received

    =basis of common stock
  6. gaap vs tax: temporary income differences
    • 1. interest income received in advance
    • 2. rental income received in advance
    • 3. royalty income received in advance
  7. gaap vs tax: permanent income differences
    • 1. interest income from municipal or state obligations/bonds
    • 2. proceeds from life insurance on the life of an officer ("key person" policy) where the corporation is the beneficiary
    • 3. federal income taxes are not deductible on tax return
  8. trade or business deductions
    all of the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a business are deductible.
  9. domestice production deduction
    a business may deduct a specific percentage of their qualified production activities

    limit: 50% of W-2 wages paid for the year.
  10. calculation of domestic production deduction
    The deduction is 9% of the lesser of:

    • 1. Qualified production activities income (QPAI)
    • 2. Taxable income (disregarding the QPAI deduction)
  11. calculate QPAI
    • domestic production gross receipts
    • -COGS
    • -other directly allocalbe expenses or losses
    • - proper share of other deductions
    • =QPAI

    QPAI: qualified production activities income
  12. domestic production gross receipts defined & list of 7
    gross receipts derived in significant part within the US from any disposition of qualified production property that is:

    • 1. manufactured
    • 2. produced
    • 3. grown
    • 4. extracted
    • 5. constructed
    • 6. engineering services
    • 7. architectural services
Card Set
R3: C Corporations
Becker CPA Review Regulation 3: C Corporations, Depreciation, and MACRS
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