FTax IRGTB ch19 p001-018

5 5 19 29 19 1 19 2 chapter 19 corporations formation

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Unformatted text preview: 9 19-1 19-2 Chapter 19 Corporations: Formation and Operation 5- 55- To meet the control requirements, the transferor must own at least 448 shares (80% 560 shares) after the transfer. This could only be accomplished if R, S, and T also transferred property at the same time that E transferred the land. However, Reg. 1.351-1(a)(1)(ii) prevents tax avoidance by providing that transfer of relatively little property by current shareholders will be ignored in determining who the transferors are. Therefore, R, S, and T must transfer significant property along with E for the transaction to qualify under 351. The regulation does not define significant property, but Rev. Proc. 76-22 provides that, for ruling purposes, a transfer of at least 10 percent of the value of the currently owned stock and securities will be considered significant. Since the current net worth of the corporation is $300,000, R, S, and T will be required to transfer at least $30,000. R should transfer $12,000 (40% $30,000), and S and T should each transfer $9,000 (30% $30,000). E has indicated a willingness to accept securities in exchange for the land. Section 351 does not apply to the transfer of securities. Therefore, the receipt of securities would be treated as a taxable sale. The transaction should include the transfer of $30,000 by R, S, and T. 19 Corporations: Formation and Operation Test Bank True or False 1. It is possible for a trust managed by a trustee to be treated as a corporation for income tax purposes. 2. If the taxpayer creates a legal corporation under state law, the government cannot disregard the entity and tax the taxpayer on the income. 3. Generally, corporate taxable income is more closely related to accounting income than individual taxable income is related to accounting income. 4. Corporations should try to reclassify initial expenditures as expenses other than organization costs because organization costs do not give rise to any tax benefit. 5. A corporation is not allowed a dividends-received deduction in computing its net operating loss for any given year. 6. A corporation's annual charitable contribution deduction is limited to 10 percent of its taxable income without reduction for charitable contributions, the dividends-received deduction, net operating loss carrybacks, and capital loss carrybacks. 7. Capital losses are more advantageous to corporations than individuals because there is a three-year carryback for corporations but no carryback for individuals. 8. Corporations compute gains and losses on the sale of depreciable property in the same way as individuals. 9. An accrual basis corporation must use the cash method in claiming deductions for amounts paid to its sole shareholder, who is an individual on the cash method. 10. 11. 12. 13. Generally, corporations pay a lower marginal tax rate than individuals pay. Corporations are required to pay an alternative minimum tax at the same rate as individuals. A corporation with alternative minimum taxable income of $20,000 will be subject to an alternative minimum tax of $4,000. Form 1120 for a calendar ye...
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This note was uploaded on 02/05/2012 for the course ACCT 112 taught by Professor Smith during the Spring '11 term at Adrian College.

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