Business Taxation & Entity Structures Flashcards

Under the corporate alternative minimum tax (CAMT) enacted by the Inflation Reduction Act of 2022, which corporations are subject to the 15% minimum tax?

Answer: Corporations with average adjusted financial statement income over $1 billion

The CAMT imposes a 15% minimum tax on applicable corporations whose average annual adjusted financial statement income (book income) exceeds $1 billion.

When computing a partner's self-employment tax, which income from the partnership is generally included?

Answer: Guaranteed payments and distributive share of ordinary income for general partners

General partners must pay self-employment tax on their distributive share of ordinary partnership income plus any guaranteed payments received for services.

A corporation's net operating loss (NOL) generated after December 31, 2017 can be carried back how many years?

Answer: 0 years (no carryback allowed)

Under the TCJA, post-2017 NOLs can no longer be carried back (except for certain farming losses) but can be carried forward indefinitely, subject to the 80% taxable income limitation.

What is the primary purpose of the accumulated earnings tax (AET) under IRC Sections 531-537?

Answer: To penalize corporations that accumulate earnings beyond reasonable business needs to avoid shareholder-level tax

The AET is a 20% penalty tax on undistributed corporate earnings accumulated beyond the reasonable needs of the business, designed to prevent shareholders from avoiding dividend taxation.

In a liquidating distribution, how does a corporate shareholder treat the gain or loss received from a subsidiary under IRC Section 332?

Answer: The liquidation is generally tax-free to the parent corporation receiving the distribution

Under IRC Section 332, a parent corporation that owns at least 80% of a subsidiary generally recognizes no gain or loss on the complete liquidation of that subsidiary.

Which of the following correctly describes a 'pass-through deduction' limitation under IRC Section 199A for specified service trades or businesses (SSTBs)?

Answer: The SSTB deduction phases out for taxpayers with taxable income above a threshold (~$383,900 MFJ for 2024)

The Section 199A deduction for owners of SSTBs (law, health, consulting, etc.) phases out completely for taxpayers with taxable income above the upper threshold, which is approximately $383,900 for married filing jointly in 2024.

For the purposes of the at-risk rules, which type of debt can increase a partner's at-risk amount?

Answer: Qualified nonrecourse financing for real property from a qualified lender

Qualified nonrecourse financing from a commercial lender secured by real property is an exception that increases a taxpayer's at-risk amount under IRC Section 465.