Regulation Ch 3

Regulation Ch 3 - Becker – 2009 Edition Chapter 3 Page 1...

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Unformatted text preview: Becker – 2009 Edition Chapter 3 Page 1 of 13 Chapter 3 – C Corporations, Depreciations, and MACRS FORMATION Corporation tax consequences: • No gain/loss recognized when issuing stock in exchange for property when: square4 Formation – issuance of common stock square4 Reacquisition – repurchase of treasury stock square4 Resale – sale of treasury stock • Basis of property received by corporation is the basis of property received is the GREATER of: square4 Adjusted net book value of shareholder + any gain recognized by shareholder square4 Debt assumed by corporation square4 EXCEPTION: if the NBV is less than the FMV of the asset, the corporation used the FMV as the basis to avoid built in losses Shareholder tax consequences: • No gain/loss recognized when contributing property (not services) for common stock if both conditions are met: square4 If shareholder has 80% control square4 Boot not received: no cash, no cancellation of debt (debt = liabilities exceed NBV on transfer) NBV Assets – Liabilities = Excess Liability = Boot • Basis of common stock to shareholder square4 Basis of common stock received from corporation will be: o Cash amount contributed o Property – adjusted basis at NBV • Adjusted basis of property is reduced by any cancellation of debt Event Income Basis Taxable = FMV = FMV Non-taxable = NONE = NBV Detailed alternate computation of basis to shareholder Adjusted basis of transferred property Plus: FMV of services rendered Plus: Gain recognized by shareholder Minus: Cash received Minus: Liabilities assumed by the corporation Minus: FMV of non-money boot received = Basis of common stock • Add: taxable boot – debt exceeds asset’s adjusted basis – to bring stock basis to zero o Corporation = subtract 100% of all liabilities assumed o Partnership = subtract percentage of liability (depending on the partnership percentage of the partner bringing in the liability) o Services at FMV = Taxable square4 See examples on page R3-4, R3-5 OPERATIONS Book Income vs. Taxable Income (Schedule M-1) barb2right See chart on page R3-6 I – Income from continuing operations before taxes D – Discontinued operations, net of tax E – Extraordinary gain <loss>, net of tax A – Accounting adjustment and changes, net of tax (to retained earnings) • M-1 Reconciles the permanent and temporary differences between Net Income and Taxable Income Becker – 2009 Edition Chapter 3 Page 2 of 13 Gross Income: • Cash received in advance of accrual GAAP income is taxes barb2right Temporary differences square4 Interest income received in advance square4 Rental income received in advances (incl. Non-refundable deposits) square4 Royalty income received in advance • Some GAAP income items are not includible as taxable income barb2right Permanent differences square4 Interest income from municipal or state obligations/bonds square4 Proceeds from life insurance on officers’ lives (“key person” policy) where the corporation is beneficiary...
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This note was uploaded on 05/11/2010 for the course CPA 2010 taught by Professor ?? during the Spring '10 term at Becker College.

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Regulation Ch 3 - Becker – 2009 Edition Chapter 3 Page 1...

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