Income Tax II Exam 1

What are types of entities?

Sole proprietorships, partnerships, C Corporations, S Corporations, and LLCs

What are the two types of partnerships?

General and Limited

How is a sole proprietorship formed?

How are partnerships formed?

How are C corporations formed?

How are S corporations formed?

How are LLCs formed?

How are sole proprietorships taxed?

How are partnerships taxed?

How are c corporations taxed?

How are s corporations taxed?

How are LLCs taxed?

Who is taxed in sole proprietorship, entity or owners?

Who is taxed in partnerships, entity or owners?

Who is taxed in C Corporations, entity or owners?

Who is taxed in S Corporations, entity or owners?

Who is taxed in LLCs, entity or owners?

When is tax return filed for sole proprietorships?

W

When is tax return filed for partnerships?

When is tax returne filed for C corps?

When is tax return filed for s corps?

When is tax return filed for LLCs?

what is the owner of sole proprietorships called?

What is the owner of partnerships called?

What is owner of C corps called?

What is owner of S corps called?

What is owner of LLC called?

If there are organizational documents that must be filed to form the sole proprietorships, what are those documents called for it?

If there are organizational documents that must be filed to form the partnerships, what are those documents called for it?

If there are organizational documents that must be filed to form the c corps, what are those documents called for it?

If there are organizational documents that must be filed to form the s corps, what are those documents called for it?

If there are organizational documents that must be filed to form the LLC, what are those documents called for it?

What is required for organization for sole proprietorships (in addition to filing documents)?

What is required for organization for partnerships (in addition to filing documents)?

What is required for organization for c corps (in addition to filing documents)?

What is required for organization for s corps (in addition to filing documents)?

What is required for organization for LLCs (in addition to filing documents)?

What must general partnership have?

At least two general partners

What must limited partnership have?

At least one general and one limited partner

What must corporation have?

A minimum of 1 shareholder, but can have limitless depending on the formation of documents

What must sole proprietor have?

One owner, never more

What must LLC have?

Can have as few as 1 member or as many as desired

What must S corps have?

100 shareholder limit, cannot have corporations, partnerships, or trusts as shareholders

What is evidence of ownership for corporation?

Stock

What is evidence of ownership for LLC?

Membership

What is evidence of partnership?

Partnership interest

What is evidence of ownership for C corps and S corps?

Stocks

What is evidence of all partnerships?

Partnership interest

What is evidence of ownership of an LLC?

Membership interest

All business organization law is state law. How do you know what the law is in your particular state?

Research the Secretary of State's website and the state's statutes.

What is the difference in treatment for level of stock ownership?

What is true for tax purposes?

Corporations receiving dividends include the dividends in gross income

What is true for financial reporting purposes?

accounting for the dividend (and investment in the corporation) depends on the level of ownership in the distributing corporation.

What are the general rules for investments?

(i) If the receiving corporation owns less than 20 percent of the stock of the distributing corporation, the receiving corporation usually includes the dividend in income and there is no book-tax difference (that is, corporations owning less than 20 percent of another corporation apply the “cost” or “mark-to-market” method (ASC 320) to their equity investment).

(ii)If the receiving corporation owns at least 20 percent but not more than 50 percent of the distributing corporation’s stock, the receiving corporation usually includes a proportion of the distributing corporation’s earnings in its income and does not include the dividend in its income (under the equity method of accounting). The book-tax difference is the difference between the dividend and the pro- rata share of the investee’s earnings.

(iii)If the receiving corporation owns more than 50 percent of the distributing corporation’s stock, the receiving corporation and the distributing corporation consolidate their financial reporting and the dividend is eliminated (book-tax difference beyond scope of the text).

What is the goodwill acquired in an asset as opposed to a stock acquisition?

When a corporation acquires the assets of another business in a taxable transaction and it allocates part of the purchase price to goodwill, what is true?

the corporation is allowed to amortize this purchased goodwill on a straight-line basis over 15 years (180 months) for tax purposes

For book purposes, corporations acquiring the assets of another business also typically what?

allocate part of the purchase price to goodwill.

Corporations recover the cost of goodwill for book purposes only when what?

The extent the goodwill is impaired (private corporations can elect to amortize goodwill over 10 years for book purposes).

To determine the temporary book-tax difference associated with purchased goodwill what will corporations need to compare?

The amount of goodwill they amortize for tax purposes with the goodwill impairment expense for book purposes.

If the tax amortization exceeds the book impairment expense, corporations report what?

Favorable book-tax differences for goodwill.

If the book impairment expense exceeds the goodwill tax amortization, corporations what?

Report unfavorable book-tax differences for goodwill.

What is the carryover rule?

What is the carry back rule?

What are corporations not allowed to do?

deduct net capital losses in a given year.