A. Whether a C corporation that has preferred stock and common stock with both voting and nonvoting rights, eight shareholders among whom there are a Swedish individual and Plantation Sugar partnership, may elect to be an S corporation, under section 1361(b)(1)(B), 1361(b)(1)(C) and 1361(b)(1)(D)?
B. Whether all the shareholders must consent to the election of S status, under section 1362(a)(2)?
C. Whether the election of S status is effective if a C corporation does not meet all the requirements in the election year, under Reg §1.1362-6(2)(ii)(B)?
D. Whether an S corporation can keep its C corporation tax year, which ends in June 30, without documenting any business purpose, under the provision of section 1378(b)?
E. Whether a newly
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E. For an S corporation converted from a C corporation, it shall recognize the LIFO recapture amount, which is the excess of FMV on the first day of S year over the adjusted basis, by including it in the gross income of the last C corporation year.
F. An S corporation has to recognize built-in gain of assets from C corporation years, which is the least of taxable income, unrealized built-in gain minus recognized built-in gain and built-in gains reduced by net operating losses from previous years.
G. A corporation cannot use net operating losses between C corporation years and S corporation years, with the only exception that net operating losses from C corporation years can reduce net recognized built-in gains from S corporation years.
List of Applicable Law:
A. §1361(a)(1); §1361(b)(1)(B); §1361(b)(1)(C); §1361(b)(1)(D); Reg §1.1361-1(I)(1)
B. §1362(a)(2)
C. §1362(b)(1); Reg §1.1362-6(2)(ii)(B)
D. §1378(b); Reg §1.1378-1(d)
E. §1363(d)(1); §1363(d)(2); §1363(d)(3)
F. §1371(b)(1); §1374(b)(2); Reg §1.1374-2(a); Reg §1.1374-1(d)
G. §1374(b)(1); Reg §1.1374-2(a)
Discussion of law:
A.
Section 1361(a)(1) provides that an S corporation is a small business corporation with an S status election in effect. To qualify for a small business corporation, a corporation cannot have a partnership as a shareholder according to
Now that s-corporation has been established, successful planning must be a serious consideration for Mr. Jones business. “Under the American Taxpayer Relief Act that was passed in 2013, the s corporation get an exemption from the
The company should report the change in the contingency accrual as a 2009 event due change in estimate. ASC 250-10-45-17 specifies that “a change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts reported in financial statements of prior periods.” Additionally, ASC 450-20-25-7 indicates that “all estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments”.
25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”
21.Boutique Corporation would like to change its corporate status to avoid income taxes at the corporate level. To
In corporations, issuing new shares belongs to the Board 's power. It is the management issue that cannot be inferred by members: RR s 198A. Therefore, Hearts and Flowers Pty Ltd can issue a new class of ordinary shares in company to for fundraising. However, the new shares are attached with doubled voting rights than the existing shares, which means there is a variation of class rights. Generally, when it comes to a variation of class right, corporations would apply with s 246C of Corporation Act, yet, if the company has a constitution that sets out the procedure for varying or cancelling rights, the procedure must be complied with: s 246B(1). This illustrates that the constitution 1 of Hearts must be followed. Therefore, the variation of class right must be approved by the ordinary resolution with above 50% votes of the company as a whole.
a. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met.
8. The replaceable rules built into the Corporations Act deal with which of the following?
TRUE/FALSE 1. ANS: F Section 351 does not permit the recognition of realized losses. PTS: 1 DIF: Difficulty: Easy REF: p. 18-3 OBJ: LO: 18-1 NAT: BUSPROG: Analytic STA: AICPA: FN-Reporting KEY: Bloom 's: Application MSC: Time: 2 min. 2. ANS: F To determine E & P, it is necessary to add all previously excluded income items back to taxable income. PTS: 1 DIF: Difficulty: Easy REF: p. 19-3 | Concept Summary 19.1 OBJ: LO: 19-2 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement KEY: Bloom 's: Comprehension MSC: Time: 2 min. 3. ANS: F Distributions cannot create or add to a deficit in E & P. Deficits in E & P can only arise through losses. PTS: 1 DIF: Difficulty: Easy REF: p. 19-14 OBJ: LO: 19-5 NAT: BUSPROG: Analytic STA: AICPA: FN-Measurement KEY: Bloom 's: Knowledge MSC: Time: 2 min. MULTIPLE CHOICE 4. ANS: B As § 351 applies, Mitchell cannot recognize the realized loss of $15,000
Unrecaptured section 1250 gain See the Partner’s Instructions 10. Net section 1231 gain (loss) See the Partner’s Instructions 11. Other income (loss) Code A Other portfolio income (loss) See the Partner’s Instructions B Involuntary conversions See the Partner’s Instructions C Sec. 1256 contracts & straddles Form 6781, line 1 D Mining exploration costs recapture See Pub. 535 E Cancellation of debt Form 1040, line 21 or Form 982 F Other income (loss) See the Partner’s Instructions 12. Section 179 deduction See the Partner’s Instructions 13. Other deductions A Cash contributions (50%) B Cash contributions (30%) C Noncash contributions (50%) D Noncash contributions (30%) See the Partner’s E Capital gain property to a 50% Instructions organization (30%) F Capital gain property (20%) G Contributions (100%) H Investment interest expense Form 4952, line 1 I Deductions—royalty income Schedule E, line 19 J Section 59(e)(2) expenditures See the Partner’s Instructions K Deductions—portfolio (2% floor) Schedule A, line 23 L Deductions—portfolio (other) Schedule A, line 28 M Amounts paid for medical insurance Schedule A, line 1 or Form 1040, line 29 N Educational assistance benefits See the Partner’s Instructions O Dependent care benefits Form 2441, line 12 P Preproductive period expenses See the Partner’s Instructions Q Commercial revitalization deduction See Form 8582 instructions from rental real estate activities R
Potentially two layers of Tax: Corporate layer – Target recognizes a taxable gain or loss on the sale of assets. Shareholder layer – Selling shareholders recognize a gain taxed as ordinary income if the target liquidates equal to the after-tax liquidating dividend less shareholders’ basis in the stock. The acquirer assumes a stepped-up (FV) basis in the target’s net assets. The acquirer allocates the purchase price to the acquired assets and liabilities for tax purposes in the same manner as it does for accounting purposes. The depreciation and amortization of all asset write-ups and intangibles recognized in the transaction, including goodwill, are tax-deductible. The target’s tax attributes, such as non-operating losses (NOLs), may be used immediately to offset the target’s taxable gain. Any remaining tax attributes are lost if the target liquidates. An acquisition of a freestanding C corporation will usually be structured as a purchase of stock because an asset purchase usually results in double taxation (i.e. the seller is taxed on the sale of assets, and the seller’s shareholders are taxed on any after-tax proceeds from the sale distributed by the seller).
(a) owns, directly or indirectly, not less than 10 per cent of the issued shares of any class of the capital stock of the employer or of any other corporation that is related to the employer,
c) Dress Inc can still be considered as an S corporation filing on April 11, 2013. It may be considered to be a late election, but the company this is allowable.
The terminal year cash flow accounts for the recovery of NWC, the after-tax salvage value of the new machine, and the lost
of minority shareholder claims (personal and derivative) for oppression under Section 216 of the Companies Act.
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