1 A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.
2 All distributions that are not dividends are a return of capital and decrease the shareholder's basis.
3 All cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.
4 A distribution in excess of E & P is treated as capital gain by shareholders.
5 The terms "earnings and profits" and "retained earnings" are identical in meaning.
6 Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.
7 In a property distribution, the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.
8 Business reasons, and not tax incentives, constitute the primary motivation for most corporations to form a conglomerate and file tax and financial accounting reports on a consolidated basis.
9 A consolidated Federal income tax return may be the product of a merger of the affiliates, or another corporate combination.
10 The consolidated return rules are designed to allow a tax-neutral means by which to elect to file on a consolidated basis.
11 Most of the Federal consolidated income tax return rules are found in detailed sections of the tax Regulations.
12 When the parent acquires 51% of a subsidiary U.S. corporation, the subsidiary can join the consolidated financial statements and the consolidated tax return of the parent.
13 A consolidated Federal income tax group must meet the eligibility requirements of the Regulations on the first day of the first year for which the election to consolidate is effective, and then on the last day of every succeeding tax year.
14 The right to file on a consolidated basis is available to a group of corporations when they constitute a "parent-subsidiary affiliated group."
15 A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.
16 A limited partnership (LP) offers all partners protection from claims by the LP's creditors.
17 The taxable income of a partnership flows through to the partners, who report the income on their tax returns.
18 Jack and Jill formed the equal JJ Partnership during the current year, with Jack contributing $100,000 in cash and Jill contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000). Jill recognizes a $40,000 gain on the contribution and her basis in her partnership interest is $100,000.
19 Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.
20 The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election
B.) One paragraph of writing is required at a minimum for each question. Two paragraphs is the maximum.
1.How does the Tax Code define a dividend?
2.How does the Tax Code define earnings and profits?
3. Explain how a corporate distribution to a shareholder is impacted in the following cases:
The distributing corporation has sufficient current and accumulated earnings and profits to cover the distribution amount.
The distributing corporation has sufficient current and accumulated earnings and profits to cover one-half of the distribution amount.
The distributing corporation has no current and accumulated earnings and profits to cover any of the distribution amount and the distribution amount exceeds the shareholders stock basis.Organize an outline that lists the advantages and disadvantages of making a consolidated return election. Include at least five advantages and five disadvantages of making the election.
4. List the advantages and disadvantages of making a consolidated return election. Include at least five advantages and five disadvantages of making the election.
5. What Code Section discusses partnership formation under the Internal Revenue Code?
6. How does this Section differ from a corporate formation under Section 351?
7. What does it mean when we say that a partnership is a pass-through entity? Is it better for an entity to be a pass-through entity? Why or why not?
8. What is a partnership agreement and what information does it normally include?
C.) One paragraph of writing is required at a minimum for each question. Two paragraphs is the maximum.
You are a CPA in private practice and a client comes into your office and asks you the following:
1. I want to take my company public but I am organized as a sole proprietorship. I want to use an S Corporation to take my company public. Is this possible?
2. I understand as an S Corporation that I can sidestep certain employment taxes. Can you explain this to me?
3. I understand that the S Corporation is a flow-through entity. Is this the case? How does the taxation of an S Corporation work?
D. Please fully answer the following:
1. Explain in your own words the meaning of the Edwards-Gingrich Loophole?
2. What entity level taxes if any are found in the S Corporation? How do they work?
3. What tax forms does an S Corp file and when are they due?
4. What is the definition of an S Corporation and what are the eligibility requirements of one?
5. What happens if there is an inadvertent termination of S Corp status? Can there be a new election made? If so-when and how?
6. What is a AAA Account and what is the significance of it?
E. Please brief the following case:
Watson v. Commissioner, 668 F.3d 1008 (8th Cir., 2012)
Your memo to the files should incorporate the following sections:
LAW & ANALYSIS
***APA STYLE REFERNCE FOR PARTS C,D,E***