Tax 2 Summers Chpt 17

A corporation must make payments of estimated tax unless its tax liability can reasonably be expected to be less than $500.

true

Any corporation that files Schedule M-3 must also file Schedule M-1.

false

For calendar year corporations, the corporate tax return is due March 15 of each year.

false

Members of an affiliated group must file a consolidated return.

false

The tax attributes of income and expense items of a C corporation pass through the corporate entity to the shareholders.

false

An affiliated group exists when one corporation owns at least 80 percent of the voting power and stock value of another corporation.

true

Corporate taxpayers with total assets of $10 million or more are required to report much greater detail relative to differences between income (loss) reported for financial purposes and income (loss) reported for tax purposes.

true

Generally, an election is binding for subsequent years.

true

Losses of one group member can be used to shelter the income of other members.

true

No entity-level Federal income tax is typically assessed on S corporations, limited liability companies (LLCs), or partnerships.

true

One objective of Schedule M-3 is to create greater transparency between corporate financial statements and tax returns.

true

Affiliated group

A group of corporations constitutes a single taxable entity despite the existence of technically separate businesses (e.g., a parent and its subsidiary).

C corporation / Regular corporation

A separate taxable entity subject to the rules of Subchapter C of the Code. This business form may create a double taxation effect relative to its shareholders. The entity is subject to the regular corporate tax and a number of penalty taxes at the Federal level.

Income tax provision

A synonym for the book-tax expense of an entity for the financial reporting period. Following the "matching principle," all book-tax expense that relates to the net income for the reporting period is reported on that period's financial statements, including not only the current tax expense, but also any deferred tax expense and deferred tax benefit.

Schedule M-3

An expanded reconciliation of book net income with Federal taxable income . Required of C and S corporations and partnerships/LLCs, with total assets of $10 million or more.

Deferred tax asset

An item created on an enterprise's balance sheet by a temporary book-tax difference, such that a tax benefit is not recognized until a later date, although it already has been reported in the financial statements (e.g., the carryforward of a disallowed deduction).

Deferred tax liability

An item created on an enterprise's balance sheet by a temporary book-tax difference, such that a tax benefit is recognized earlier for tax purposes than it is in the financial accounting records (e.g., the use of an accelerated cost recovery deduction).

Passive loss

Apply to individual taxpayers, closely held C corporations, and personal service corporations and prevent taxpayers from incorporating to avoid certain loss limitations.

Dividends received deduction

Designed to mitigate multiple taxation of corporate income but is subject certain limitations.

Personal holding company (PHC) tax

Enacted to discourage the sheltering of certain kinds of passive income in corporations owned by individuals with high marginal tax rates.

Accumulated earnings tax

Imposes a 20 percent tax on the current year's corporate earnings that have been accumulated without a reasonable business need.

Schedule M-1

On the Form 1120, a reconciliation of book net income with Federal taxable income. Accounts for temporary and permanent differences in the two computations, such as depreciation differences, exempt income, and nondeductible items. On Forms 1120S and 1065, this reconciles book income with the owners' aggregate ordinary taxable income.

Personal service corporation (PSC)

Provides services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting and the services are substantially performed by shareholder-employees.

Current tax expense

The book-tax expense that relates to the current reporting period's net income and is actually payable (or creditable) to the appropriate governmental agencies for the current period.

Organizational expenditures

The first $5,000 may be immediately expensed, with any remaining costs amortized over a 180-month period. The $5,000 expensing amount is phased out on a dollar-for-dollar basis when these costs exceed $50,000.

Balance sheet approach

The process under ASC 740 (SFAS 109) by which an entity's deferred tax expense or deferred tax benefit is determined as a result of the reporting period's changes in the deferred tax asset and deferred tax liability accounts.

ASC 740

The rules for the financial reporting of the total income tax expense of an enterprise. Permanent differences affect the enterprise's effective tax rate. Temporary differences create a deferred tax asset or a deferred tax liability on the balance sheet.

Excess of capital losses over capital gains. added/deducted from the net income per books on Schedule M-1 to arrive at the income per the tax return.

added

Federal income tax per books. added/deducted from the net income per books on Schedule M-1 to arrive at the income per the tax return.

added

Generally, PSCs must adopt a calendar/fiscal year and are taxed the same as C corporations/S corporations. Both cash and accrual accounting methods are/only the accrual method is generally available qualified PSCs.

calendar, C corporations, Both cash and accrual accounting methods are

Interest income from tax-exempt bonds. added/deducted from the net income per books on Schedule M-1 to arrive at the income per the tax return.

deducted

Life insurance proceeds received as a result of the death of a key employee. added/deducted from the net income per books on Schedule M-1 to arrive at the income per the tax return.

deducted

A corporation does not have to file a Federal income tax return unless it has taxable income.

false

Schedule M-3 is required of corporations with more than $10 million of total assets.

true

The income of a C corporation is subject to double taxation.

true

The net income of a proprietorship is subject to the self-employment tax, as are some partnership allocations of income to partners.

true

Schedule M-2 reconciles unappropriated retained earnings/cash/appropriated retained earnings at the beginning of the year with unappropriated retained earnings/cash/appropriated retained earnings at year-end. Beginning balance plus net income/cash/dividend distributions per books, as entered on line 1 of Schedule M-1, less net income/cash/dividend distributions during the year equals ending unappropriated retained earnings/cash/appropriated retained earnings

unappropriated retained earnings, unappropriated retained earnings, net income, dividend distributions, unappropriated retained earnings