Regulation Notes - Old

8/8/2019 Regulation Notes - Old

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CD 1

Gross Income - Includes all income from whatever source unless it is specifically excludedIf excluded it is not taxed

Exclusions - income that is not included in gross income

not taxable and never will be taxablemust be specified by law

Deductions - amount subtracted form income to arrive at AGIAbove the line - Subtracted to get to AGIBelow the line - Subtracted to get to Taxable Income

Total Income'- Deductions to arrive at AGI (Above the line Deductions)= AGI

- Itemized or Standard Deductio (Below the line Deductionss)- Exemptions

= Taxable Income

Credits - subtracted from computed tax to arrive at taxes payable

Exclusions -

Support of Minor Children - money you received from parent while going to school

Property Settlement from a divorce - Not taxableHowever if you receive cash and it meets certain requirements it can be taxa

Allimony

Life Insurance Proceeds - if paid by reason of death , generally excludable

Received in Installments

100,000 Wife Bene20 yrs 20 yr expected life

5000 a year ** Amounts Received

Actually pay 6200

6200 - 5000 = Interest Income

Dividends - not taxable up to point of premiums paid

Employee Benefits

Group Term Life Insurance - Premiums paid on up to 50,000 policy are non tIf more than 50,000 policy, the premiums paid on the excess part i


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Ex. Using # 5 of questions

80,000-50,000=30,000

8$ for every 1,0000

= 30*8 = 240 taxable income to W-2

Only not taxable if your employer is NOT THE BENEFICIARY

Accident and health benefits provided by employer are excludable if for:

Premenant injury or loss of bodily functionReimbursement for medical car eof employee,spouse or depende

Can not take itemized deduction for reimbursed med e

MSA - must be covered under high deductable health insurance plan

Employer contributions to MSA are excluded to arive at AGIEmployee contributions are deductable for AGI

Can only contribute 65% of annual deductable amount if single, 7

Earnings on MSA are not taxabledistributions excluded from Gross Income if used to pay for medic

** If not all of the earnings are used up at the end of the year IT IS

HAS - Can carry over what is left at the end of the year

Employee Fringe Benefits

Qualified Moving Expenses - can exclude any amount received fr moving expenses which would be deductable if directly

Cost of moving and lodging moving to new place, also

Meals are not qualified expenses if reimbursed by emp

Workmans Compensation - Non taxable

Damages of Physical Injury and Sickness are non taxablePunative Damages - ARE TAXABLE


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Gifts or Inheritance - Non Taxable

Stock Dividends -C/S Holder -----> C/S = Non Taxable

C/S Holder -----> P/S - Non Taxable

P/S Holder ------> P/S or C/S - TAXABLE

Taxable Amount = # Shares * FMV at Date of Dist. = T= Basis in Stock as well

Interest - Dividends recived for Instate Muni Bonds is not taxable if proceeds are used

Private Activity Bonds are taxbaleExcept : Qualified bonds issued for benefit of schools, hopitals

Interest on US obligations is TAXABLE

Treasury Bonds or Notes

Savings Bonds for Higher EducaitonAccrued interest on Series EE US savings bonds is excluded from gross incoto fund higher education expens for taxpayer, spouse or dependents

Must be issued after 12/31/89 to individual 24 or older Purchaser must be sole owner (or joint owner with spouse and mMust be used to pay higher eduation expensesIf redemtion proceeds exceed qualified higher education expense

See pg 361

Scholarships & Fellowships

Degree Candidate can exclude amount used for tuition and course related feRoom and Board is included in income

Amount received for teaching or research or other services are NOT EXCLU

Non Degree students cant exclude ANYTHING

Discharge of Indebtedness

Is taxable income unless due to bankruptcy

Lease ImprovementsRent a building and make improvements and lease is over

If the lesee leave the improvements and it goes against rent then

Items to Be Included in Gross IncomeProperty received as ocmpensations is included at FMV on date of receipt

Gross income Derived from business or profession - Sch C


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Distributions from S Corp or Partnership - Sch E Supplemental Income

Sch E Partnership IncomeRents & Royalties

Dividends - Sch BInterest - Sch

CD 1 Pt 2

If elect to amortize the bond premium on taxable bonds aquired after 1987 and bond premium amo

10,800 Paid5% Bond 10,000 Face Value

800 Premium Method used to amortize bond premium is c10 year life

80 per year amortization It reduces interest and bond premium

500 per year interest Income after 1st year Basis = 10,800 - 80 = 10,720- 80 Amortization= 420 on sch B

Interest on Tax Refund IS TAXABLE

Alimony - Is included in recipients Gross Income and is a deduction from AGI by the payor To Be alimony must:

Be pursuant to a decree of divorceBe made in cashTerminate upon death of recipient or payor Not be made ot member of same household at time of payment

Cant file joint return with person receiving paymentsMust be characterized as ALIMONY in the decree and nothing else

Alimony RecaptureLook at Examples on Pg 365

2005 2006 200750000 20000 0

IN 2007 you will recapture amounts from 2006 and 2005

You start with 2006 and you will subtract 15,000 from first preceding year 20,000

-15,000= 5000 to recapture from 2006

Then you figure the 2005 amount to recaptureYou first subtract the 15,000 from the 2005 paymentand then you take the difference between the 2006 payment thatwhich is 15,000 (20,000 -15,000 = 5,000 to recapture so you havand average that with the 2006 and 2007 payments

= 15,000 + no payment in 2007/ 2 = 7500


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You then add the amount from 2005 minus 15,000 and then subtr = 35,000 - 7,500 = 27,500

So your recapture for 2007 = 5,000 form 2006 and 27,500 from 2

LOOK AT # 26 in MC

Child Support - is not alimonyIt is not Gross Income to payee or deduction to payor If decree specifies Alimony & Child Support then th emoney first goes agains

If there is a contingency in the payments then the contingent amount is treatEx. 1000 a month untill the child reaches 21 then it is reduced by

Since the 400 is the contingent amount it is treated asfor the 1000 payments form day 1

Social Security Benefits

Not taxable if you make under 25,000 in provisional IncomeIf you make 60,000 or more then 85% of your Social Security is TAXABLE85% is the higest you will be taxed on

Stock OptionsIncentive Stock Option Plan - Offered ot everyone, not discrimenatory

No income is recognized when option is grantedIf employee holds stock aquired through exercise of option at leas

itself at least 1 year employees realized gain will be long term capital gainemployer receives no Deduction

If holding period requirements are NOT met then the employee haDate of exercise exceeds option date

Remainder of gain is short term or long termEmployer receives a dedeuction equal to amount repor

Prizes and Awards - Other IncomeTaxable Unless:

Was Selected without his/her part - didnt enter contestNot required to render future servicesDesignates the prize will be transferred to charitable entiry by payThe prize is excluded form Gross Income BUT cannot be taken as

Tax Benefit Rule - If you take a deduction this year and recover that item in subsequentState Refund - If you did not itemize in the year you are receiving the refund

income because you did not receive the benefit of withheld taxes

Tax Accounting Method

Cash or Accrual method is fine

Cash Method - recognizes income when first received or constructivly receivexpenses are deducted when paid


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Constructive Receipt - when item is unqualifiedly available without

If you have inventory you can not use the cash basis, must use acTAX SHELTERS CAN NEVER USE CASH BASIS

Cash basis can not be used in C CorpsPartnerships who have C Corp as partner can not be on cash basi

However, following can use Cash Method:Qualified Personal Service Corp if 95% of stock is ownEntity has average annual gross receipts of 5mil or les

sale to customersA SMALL business owner with 1mil or less of gross rec

and is EXCLUDED from requirements to acSmall business taxpayer having average gross receipt

1) principle business activity is not retailing,2) Pricipl Business activity is provision of se3) Regardless of principle business activity,

business that satisfies 1 or 2 abo

Accrual MethodIncome recognized when earning process has been completeExpenses deductable when all events have occurred that establis

SPECIAL RULESIf you receive any rent or royalties under EITHER method you tre

Prepaid items must be set up in accrual basis even if you are in c

Unearned income is treated on cahs basis

Installment MethodCannot be used in sale of ordinary business items or Stocks and

Determined by formula Gross Profit X Amount received in thTotal Contraxt Price

GP = Sales - CGS

Example 70,000 = 70%100,000

PART 7EXEMPTIONS

Deducted from AGI


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Allowed for taxpayer, spouse, and qualifying child ro relative

Qualifying ChildMust be child or descendentMust be US Citizen or resident US, Canada or mexicoMust be under 19 or under 24 if full time student (5 moMust have same principle abode for more than half theCannot furnish more than half of their support for themChild cannot file joint returnCannot be claimed as a dependent on more than one r

None is actual parent - Higest AGI parent g1 is actual parent - qualifying child for that pBoth are actual parent - parent whom child

If stayed equally with both then t

Qualifying RelativeMust NOT be qualifying childC - citizen or resident of US , Mexico or Canada

R - Relationship test - dont have to live with you if relaA - absense of joint return, unless soley for a refundI - Income Test - Gross Taxable income cannot be highS - support test must be met

# 157, 162 & 164YOUR WIFE IS NEVER A DEPENDENT SHE IS A CO TAX PAY

# 167 Multiple Support AgreementMust Furnish more than 10% of Support and meet:CRA

I everyone must sign the agreement who provided more

FILING STATUS

Married Persons can file joint return or separateMust have the same tax yearsSpouses can have different accounting methodsCan file a return with non resident alien if both spouses file an eleCannot be divorced at the end of the year

# 170

Qualifying widow(er) with dependent childcan use joint tax rates for two years following death of spouseSurviving spouse must be eligible to file a joint return in year the sMust have a dependent son, daughter, step daughter or step sonSurviving spouse must provide more than 50% of cost for maintini

Head of HouseholdMust be unmarried

#168,171 Furnish more than 50% of cost of the household which is a princip


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Quliafying childRelative (closer than cousin) whom taxpayer clains asParents need not live with head of household but you

COST OF MAINTAINING HOUSEHOLDRent, Mortgage Interest, Taxes on residnece, insurance, repairs, f

Excludes: clothing, education, medical expenses, vacations, life in

ALTERNATIVE MINIMUM TAX

Regular Taxable Income (1040)+ - Adjustments+ Tax preference Items=Alternative Minimum Taxable Income- AMT Exemption Deduction= AMT tax base

* 26 or 28%= Tentative Minimum Tax

Compare Tentative Minimum Tax to Regular Tax (1040)

If Tentative > Regular you owe AMT TaxIf Tentative < Regular you owe no additional tax

CD 1 CLASS 8Adjustments :Can be pluses or minuses to Regular T.I.Tax Preferences can only be '+'

Adjustments:Real property put into service from 1986 - 12/31/98, the differenceand straight -line 40 years

Excess of regular tax depr and depreciation using 150% db for re

Excess of stocks FMV over the amount paid upon exercise of inceIt is now income for AMT since not income for Reg IT

Medical expenses are calculated at 10% floor and not 7.5%

No deduction is allowed for home motgage interest if loan proceeCant use proceeds to pay off Credit Cards for AMT

No deduction for RE Taxes, PP Taxes, state and local taxes, or m

No deduction for AMT for personal exemptions or standard deducAMT has its own exemtion deduction

Have to use percentage of completion not completed contract for l


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Installment method cant be used for sales of dealer property

Preference Items (added to income)Tax Exempt interest on PAB's

Property before 1987 for difference on accelerated depreciation o

Minimum Tax Credit:Amount of AMT paid (net of exlusion preferences) is allowed as a

Can only be used against regular tax, not AMT Tax in f Carries forward indefinetly

OTHER TAXESSelf-Employment Tax

Combined self-employment tax is 15.3%, of which medicare portiYou do not put items on Sch C if they can go somewhere else on

Ex. Charitable ContribuitonsNo taxes for net earnings less than 400$ for self employment inco

Deduction for 1/2 of SE Tax is deductable to reach AGI

CREDITS Only Worry about Child & Dependent Care Credit

Child & Dependent Care CreditEligibility

Incure expenses so you can be gainfully employedMust be day care, not schoolMarried must file joint return, if divorced parent havingQualifying child mst have same principle abode for mo

Qualifying child must be under 13Or can be Dependent or spouse who is phy

Qualifyinf ExpensesPayments to relative you can claim an exepmtion for o

NON REFUNDABLE CREDIT

Foreign Income Tax CreditForm 1116Can take it as a deduction or credit and make the election each yCredit is only a portion of the expense

NON REFUNDABLE CREDIT

Earned Income CreditREFUNDABLE CREDIT

Credit for Adoption ExpensesNON REFUNDABLEUp to 11,390Qualified Adoption Expenses for each eligible child under 18 at ti

Joint return to claim creditCredit pased out fo AGI limits


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Taken in year adoption becomes final

Credit may be carried forward up to 5 years

Look kat # 202

Child Tax CreditMust be qulifying child under 17 before close of tax year AGI Phaseout

Has a refundable and non refundable amount

1000 per child

Education Credit

Hope Credit

First 2 years of postsecondary educationNon Refundable CreditAvailabl eon a per student basiscovers tuition for taxpayer, spouse, and dependentsDoes not cover room and boardMust be enrolled on half time basis atleastCan only deduct if you claim student as a dependentAGI PhaseoutCan only take Hope Credit or Lifetime Learning Credit

Lifetime Learning CreditNon Refundable

20% Credit of up to 10,000 qualified tuition and relatedMust be a graduate or undergraduate course at eligibleCant be a trade schoolPhase out for AGICan only claim if they are your dependent on your tax r Credit is computed for expenses paid by tax payer for

ESTIMATED TAX PAYMENTSIf wages withholdings do not cover taxes for the year you must pay quarterlyApril 15th, June 15th, Sept 15th, Jan 15thNo penalty if

Estimates = 90% of current years tax100% of prior years tax paid

If you are a High Income Individual you must pay in 110% of prior years liabiliHihg income individual is someon who had 150,000 or 75,000 for

Generaly no penalty if:Less than 1000 dueNo liability in prior yeatIRS waives penalty for failure to pay if it was a result of casualty o

Filing Requirements


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Due on April 15thOne tim extension for 6 months is file form 4868 and pay any estimated taxe

LOST MY FUCKING NOTES>>> READ THE BOOK FOR THE REST!!!!!


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ble

in excess of Pro Rata part of face amount is taxable as interest

xabaleis taxable and shown on the W-2


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ntsp

% if Family (joint return)

al care

TAXABLE

m employer as payment for (or reimbursment)paid by individual

including gas.

loyer


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axable Income

to finance Gov Operations

r charitable orgnizations

me to extent the proceeds are used

st file a joint return to qualify)

only pro rata amount of interest can be excluded:

es,books, supplies and equipment.

ABLE

he FMV of improvements is taxable to Lessor


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rt is an offset aginst interest earned on the bond

alled Constant Yield to Maturity Method

after 1st year

ou have not recaptured yetrecaptured 5,000 of the 20,000)


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act the average of the 2 years

05 = 32,500

t Child Support

d as child support for the payments00

child support

t 2 years form option date and holds stock

s ordinary income to extent the FMV at

ted as ordinary income by employee

or charitable contribution

year you must include it in Incomeor you do not have to include it inn Sch A

d (property or cash)


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restriction

crual

is

ed by specified stockholders including employeesfor any three prior years and does not have inventories for

eipts for and prior 3 year period can use cash methodount for inventoriesof 1mil to 10mil and meets any one of 3 requirments

wholesalling, manufacturing, mining,rvices or custom manufacturingif taxpayer may use cash method with respect to any separateve

h liability and amount can be determined

t as income in the year received

sh basis - favors Government no immediate deduction

ecurities

e year = Amount to be reported that year


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nths)year

selves

eturnts

arentesided with the most gets deductione parent with highest AGI gets

ed to you but have to live with you the entire year if not related

er than exepmtion amount

R!!!

than 10%

tion form

pouse diedliving in the hosue the entire year ng house

le place of abode for more than half of the year for


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dependent (must live with for entire year)ust maintian parents household and be able to claim them as a dependent

ood eatin in house

surance, transportation, rental value of home, value of taxpayers services

between regular tax depreciation

l property placed in service after 1986

ntive stock options

s didnt go to buy, build, or improve house

isc itemized 2% floor deductions

tions

long term contra ctracts


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er straight-line

credit against regular tax in future yearsuture years

n is 2.9%the return

me. No Self Employment tax for less than 400$

child longest must claime than half the year as tax payer

sically or mentally incapable of self care

child under 19 do not qualify

ar for which type to take

e of adoption


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expensesinstitution

eturnLL students, not a per student basis

estimates

ity or you will be subject to penaltyseparate filing in AGI prior year

r disaster


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by April 15th


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TRANSACTIONS IN PROPERTY

A sale is one that generally gives rise to a gain or losscan be ordinary or capital gain/loss

If a transaction is nontaxable then the gain/loss is generally deffered untill a later transa

Basis of Property is usually cash paid or FMV of other property plus expenses connectetitle fees, instalation of utilitiy servces, legal fees, recording fees, surveys, traand any amounts buyer agrees to pay that the seller owes

ex. Back taxes. Since you dont own the property at the time youand must put towards basis of property

If aquired by GIFT

Selling Price above Donors Basis and FMV at Date of Gift - Use donors basi

Donors Basis

Selling price inside - no gain or loss recognized

FMV date of Gift

Selling Price below the Donors Basis and FMV at date of Gift - use te lesser

If aquired from Decedent

basis is properties FMV on date of death or the alternate valuation date (6 onif it is before the 6 month limit)

If te alternate valuation period is elected then you must value the property at

UNLESS you receive the property within the 6 month window at which time y

If it is distributed to you AFTER the alternate valuation date then you have to

It cannot be valued at any date past the 6 months no matter what

If STOCK received as a DIVIDEND

the basis of stock received as a dividend depends if it was included in incom

If you are a C/S holder and you receive C/S or P/S dividend ten it is a non ta

If you are a P/S holder and receive C/S or P/S then it is a TAXABLE recipt athis is your basis


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25/72

If boot is receivedany realized gain is recognized to te extent of the lesser of the rea

NO loss is recognized due to recipt of boot

Ex. Land with basis of 10k exchanged for investment real estate

Realized Gain = 9k +2k + 1500 = 12,500 - Original Basis (10

Boot Received = 2k + 1500 = 3,500

Recognized gain = lesser of Boot Received or Realized gain = 2,5

If Liabilities assumed by either party or both

Boot Receievd = if liability was assumed by other party

Boot Paid (given) - if taxpayer assumed a liability

IF LIABILITES ASSUMED ON BOTH SIDES THEN THEY ARE O

Ex. I assumed liability of 10k and gave liability of 15k

Net boot given = 5k

****** SEE EXAMPLE IN BOOK ON PG 491!!!!!!

The Basis of like-kind exchange property =

Basis of Like Kind property given+Gain Recognized+Basis of boot given- Loss Recognized- FMV bot received

= Basis of New Property

Involuntary Conversions

Occurs when money or property is received for property that has been destro

If payment is received and gain realized, can elect to not recognize gain if coof similar use

Gain is recognized only to extent amount realized exceeds cost of

Basis of replacement property is cost of replacement decreased b

Ex. Recd 24,000 New Prop = 21,000 Did not reiOld Basis = 20,000


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Realized Gain of 4,000Recognized gain = lesser of Rea

=3,000

1,000 is not recognized

New Basis =

Amount of New Prop 21,000Amt not Recognized - 1000 DEFEREDNew Basis = 20,000

ASSUME he reinvested 25,000

Amount not reinvested = 0 now

So now recognized gain would be ZERO

So New basis would be now 25,000- 4000= 21,000

Sale or Exchange of Principal Residence

Single = Can exclude 250,000 from realized gain

Married = Can exclude 500,000 from realized gain

Must have lived in residence for 2 out of last 5 years

Owned and Occupied

For married only one needs to own it but both must meet occupied test

CAN NEVER DEDUCT A LOSS FROM SALE OF RESIDENCE

WASH SALE

Occurs when stock are sold at a loss and within 30 days of when you purchin the SAME company

The loss is disallowed and the loss is added to the basis of the new stock

Does not apply to gains, must recognize gain

The new stock takes on the holding period of the old stock

Doesnt pertain to dealers in stock who do this on a regular basis


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Loss is disallowed on the sale or exchange of property to a related taxpayer

Transfere's basis is cost; holding period begins when transfere aquires prope

On later resale , gain recognized by transferee is reduced by disallowed loss

Related tax payers include:Members of family (spouse, brothers, sisters, ancestors, lineal deTransaction between a corporation and a more than 50% sharehoTransaction between a partnership and a more tan 50% partner

Ex. Sell some stock to my sister Sister Sells

Seling Price 14k Selling PriceBasis 18k BasisLoss -4k Gain

- Disallowed LossActual Gain =

**** You can only takethe gain amount, cant

Capital Gains and Losses

Result from sale or exchange of capital assets

Capital Assets include investment property and property held for personal us

EXCLUDESInventory

Depreciable or real property used in trade or businessThis is Sec 1231 property if held for more than 1 year

AR and Notes ReceivableCovenants Not to Compete

You Net the Short Term Loss against the LT Loss and if you have a Loss yoa year. If you have anything left you will have a carryforward to use in subse

CORPORATIONS GAIN/LOSS RULES FOR Cap Gains

Can only take Capital Losses against Capital GainsCannot offset ordinary income

If you have excess capital loss , it can be carried back 3 years anALL capital loss carrybacks and carryforwards are treated as SHO

Personal Casualty and Theft Gains & LossesUsualyy on give loss questions on test


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Goes on Sch A for losses

Causlaty Loss- Ins Proceeds- 100$- 10% of AGI= Casualty Loss Deduction on Sch A

Gains & Losses on Business Property

All gains are ordinary on business property held for one year or less

Section 1231Must be held for more than one year

Sec 1231 gains/losses include those from

sale or exchange of property used in trade or business

Two steps for combining 1231 Gains and Losses

1. Net all casualty and theft gains/lossesif the losses exceed the gains treat all casuand do not net with 1231 items

if the gains exceed the losses , the net gain

2. Net all other Sec 1231 gains/lossesInclude Casualty and theft net gainInclude gains and losses from the sale or ex

or business

If losses exceed gains, trat all gains and losses as ordinaryIf gains esceed losses, treat Sec 1231 net gain as long-term capit

Section 1245Amount that is recaptured as ordinary income due to selling of eq

Does not apply to real residential rental property and non residentistraight line depreciation is allowable

Upon disposition of property subject to Sec 1245 , and recognizedincome to extent of all depreciation deductions

In gain situations, the amount to be recaputred is the lesser of theIf any gain exists after the depreciation recaputre it is t

If there is a loss then the entire loss goes to Sec 1231 items

Section 1250


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Applies to all real property( buildings & structural componenets)

If held for 12 months or less, gain on disposition is recto the extent of ALL depreciation (including S/L)

If held for MORE than 12 months gain is recaputred asOTHER than S/L is used.

If placed in service after 1986 then S/L wasbe Sec 1231 gain

IF A CORPORATIONThis is Sec 291

You must take 20% of depreciation and recup to the extent that ordinary income wouldif you were using Sec 1245

Ex. You sell a property for 220,000

Purchased for 200,00030,000 of depreciation S/LOwned more than 12 months

Ordinary Treatment under Sec 1250:

S.P. 220000Basis 170,000Recapture 0Gain 50,000


30/72

tion

d with purchase:nsfer taxes, owners title insurance

ay you are unable to take as a deduction

to figure out gain

f the Donor Basis or the FMV at date of Gift to figure out loss

ths after DOD or when you receive the property

the FMV at the alternate date

ou will value the property on the date of distribution

use the FMV at 6 months after the DOD to value

when received

able receipt at time of dividend

d valued at the # of shares received * FMV on date of receipt


31/72

d received based on their FMV at date of

position of all stock and find %

Basis of P/S dividend

iginal 100 shares

period, so in the example above you would

debtse seller is relieved of obligation

d buyer assumes mortgage

kind

stment relatednd vice versa

IFYFY


32/72

lized gain or the FMV of boot received

ith FV of 9k an auto FMV 2k and 1,500 cash

k) = 2,500 Realized Gain

00

FFSET TO DETERMINE NET AMOUNT OF BOOT RECEVIVED/PAID

yed damaged, stolen, or condemned(even if threat of condemnation)

nverted property is replaced with property

replacement

y any gain not recognized

vest 3,000


33/72

lized gain or amount not reinvested

GAIN since reduces basis of new property

New PropAmount not Recognized= New Basis

se the SAME amount of shares you sold


34/72

rty

(unless a wash sale where no loss is allowed)

cendents)lder

20k14k6k-4k2k

the disallowed loss up togo negative

e

can only deduct up to 3000uent years

forward 5 yearsRT TERM capital losses


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which is NOT inventory

lty/theft losses/gains as ordinary

is combined with other sec 1231 items

chnge of property ussed in trade

al gain

ipment

ial real property since

gain will be ordinary

gain or the depreciation already takenken to Sec 1231 items


36/72

ptured as ordinary income

ordinary income if deprectiation

used and ALL gain will

putre ithave been recaputred

If a Corp and Sec 291 applies

S.P. 220000Basis 170000Gain 50,000

Recapture 6000 (20% * 30,000)

SO Ordinary Income would = 6000Sec 1231 Gain = 44,000


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PARTNERSHIP FORMATION

No Gain or Loss is recognized by a partner when there is a contribution of property tothe partnership in exchange for an interest in the partnership

UNLESS

Partner must recognize gain when property contributed is subject to a liabilitypartners individual liability exceeds the partners partnership basis

Ex. Partner aquires 20% interest in a partnership by contrib property wbut with an adjusted basis of 4000 and a mortgage of 6000. The pathe 6000 mortgage

Adjusted basis 4000Liability Assumedto other Part -4800 (80% * 6000) have to use what t

Gain 800

Your basis in the partnership is 0 since you received more than youYOU CANNOT HAVE A NEGATIVE BASIS

4000 is the basis of the property to the partnership

FMV has nothing to do with calculating gain/loss if it does not deal

Partner must recognize compensation income when an interest in a partnershiin exchange for SERVICES RENDERED

Ex. X received 10% interest in ABC in exchange for services rendeABC had net assets of 30,000 and a FMV of 50,000.

X must recognize 5,000 as compensation income. 5000 = ( 10% *

Since it is a taxable event we use the FMV to figure out income

5000 is also his beginning basis in the partnership

Property Contributed to partnership has same basis as it had in the contributing partners

Basis for the partners partnership interest is increased by the adjusted basis o

No gain or loss is generally recognized by the partnership upon contribution

Partnerships holding period for contrib property includes the period of time property wasIt odenst matter what type of property is contributed

If partner contributes a Capital Asset or Sec 1231 property then his holding period in theof the contributed property

If not capital asset or Sec 1231 then hodling period begins on date you contrib


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Partnership may elect to deduct up to $5,000 of organization costs for year in which partnMust reduce 5000 amount dollar for dollar for all expenses over 50,000Remianing expenses must be deducted over 180 months (15 years)

Similar rules apply to start up expensesPartnership Syndication fees (expenses of selling partnership interests)

PARTNERSHIP INCOME & LOSS

Since partnership is a pass through partnership reporting of income and deductions requi

STEP 2Pg 54-56 of handout

Investment interest expense Is not deductable to arrive at ordinary income, itRemember, can only deduct investment int expense up to the inves

Section 179 is not deductable to get to Ordinary Income

Net Sec 1231 gains or losses go on Sch K

Net Earnings from Self Employment =Sch K Line 1 Ordinary IncomeSch K Line 4 Guaranteed Payments- Sch K line 12 Sec 179 Expenses

=Sch K line 14 A Net Earnings from Self Employment

Frequently encountered ordinary income and deductions include

Sales - COGSBusiness Expenses - wages, rents, bad debts, and repairsGuaranteed Payments to partnersDepreciationAmortizationSec 1245

STEP 1All items having special tax characteristics must be segregated and taken intocaharcteristics are preserved

These special items are listed separately on Sch K of partnership returnCapital Gains/LossesSec 1231 gains/lossesCharitable ContribForeign TaxesSec 179 expense deductionInterest,dividend, and royalty incomeInvestment interest expenseNet income/loss form rental real estate activityNet income/loss from other rental activity


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LECTURE 2

Rules for Partnership losses

You can only take loss on your Sch E up to the basis you hold in the company

If you have unused losses you can carry forward and deduct when partner obt

Beg basis+ Share of Income- Withdrawls of Assets- Non Deductable losses- Ordinary Loss

Ex. Partner had 200 in capital gains and 3000 in ordinary loss

His basis is 2400

Basis 2400 His new bShare of Income 200 and must cOrd Loss -3000

The deductability of losses is also limited to the At-Risk Basis of the partner At-Risk is gernerally the same as the partners regular basis with exare included in at-risk only if partner is personally liable for such am

Nonrecourse Liabilities ar egenerally excluded from at-

Distributable Shares of Income & Garunteed Payments

Reported by [artners for their taxable year during which the end of partnershipAll items including garunteed payments are deemed to pass through on last d

Garunteed Payments - payments to partner determined without regard to incoDeductable by partnership and reported as income on partners ret

Ex. 20 % Interest50,000 Income for fiscal year 5/31/08Got garunteed payments of 1000 from 6/1/07 - 12/31/07

and 1500 from 1/1/08- 12/31/08

Amount to report in 08 individual tax return

20% * 50,000 100007 * 1000 70005 * 1500 7500

= 24500


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Partners Fringe Benefits (health ins premiums, life insurance, etc.)

Partners are not considered employees for purposes of employee f for partners will be deductable as garunteed payments to partnersto get their gross income

PARTNERS BASIS IN PARTNERSHIP

Partners original basis is determind by the manner aquired partnership interesContribution of Property - Adj BasisCompensation of Services - FMV at date of aquired * % sharePurchases - Amount spent to aquireGift - Basis depends on if you can sell the interest at a loss or a gaiReceived from decedent - FMV at Date of Death or Dist

Partners Basis increasesAdj Basis of any subsequent capital contributions

Partners Distributive share of Ordinary IncomeCapital GainsTax Exempt Income

Partner Basis decreasesAmount of money distributedAmount of adj basis of distributed capitalPartners Distributive share of

Nondeductable itemsOrdinary Loss

Change in Liabilities affect partners basis

If there is an increase in liabilities it increases each partners basis

If there is a decrease in liabilities it decreases each partners shareto the partner

Partners basis for the partnership is ADJUSTED IN FOLLOWING ORDERShare of Liabilities personally responsible for Increase for all incomeDecrease for distributionsDecreased by deductions & losses

TRANSACTIONS WITH CONTROLLED PARTNERSHIPS

No losses are deductable for sales or exchanges of property between a partnor between partnerships where a partner owns more than 50% own

A gain later realized on a subsequent sale by the transferee will not be recogn


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Ex. Partnership X is owned equally by A, B & C who are brothers.Since C directly owns 1/3 and indirectly thoruhg his brothers the re

Later when C sells the property to a non related party for a 6000 galower the amount C recoginzes as a gain to 1000

GAINS ARE NEVER DISALLOWED

A gain recognized on a sale of property between a partner of 50% or more anthe way the transferee is intending to use the property

Ex. Partner sells a lamp at a 5000 gain to his partnership he ownsIf the partnership intends to hold the property as an inv

If they intend to resell the land and hold it in inventory tthe partners return

TAXABLE YEAR OF PARTNERSHIP

Partnership must adopt the taxable year used by one or more of its partners obut only if the taxable year has been the same for lessor of 3 taxable years or

Ex. Partnership 50% owned by X Corp. X Corp fiscal year end is Ju

The partnership tax year closes when a partner liquidates or dies

Ex. B sold his interest on Feb 28th, his interest ends then so he onl

Partnerships use of Cash Method

Cash method cant generally be used if you have inventories, are a tax shelter,

If you have no inventories and have less than 5 mill in sales for any 3 preceedi

If you are a small partnership with avg sales of 1 mil or less you can use the c

Termination or Continuation of Partnership

As soon as 50% or more of the partnership interest is sold in one year the part

Ex. Sell 55% of ownership on 3/4/08. Partnership ceases to exist o

Partnership will terminate when it no longer has atleast 2 partners

Sale of Partnership Interest

Sale is usually a capital gain/loss


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Gain is excess of amoutn realized over basisInclude in the selling price the liabilities assumed by buyer because selling par

Ex. Sold interest for 50,000Basis = 10k with Liabilities =10,000

S.P 50,00010,000

=60,000Basis -20,000Gain = 40,000

If you are on the cash basis you use the adjusted basisIf you are on the accrual basis you use Market Value to figure out basis

To figure out the amount of ordinary income you must recognize when you selyou must take your share of the unrealized A/R and appreciated inventory if y

Ex. There are 420,000 in unrealized A/Ryou have 1/3 interestYou must recognize 140,000 worth of gain as Ordinary Income

Look at example on 528 at botom of page

Pro Rata Distributions from Partnerships

Can only have gain if money exceeds basis in company (non liquidating and liCan only have a loss if the money received is less than basis (ONLY liquidatin

If you receive money and property you first subtract the money from the basisOnce you do this then the basis of the property you receive will be the lessor othe Partnerships Basis in the property or the amount of basis you have left in t

You cannot recognize a gain on distribution of propertyonly on distribution of Money if it exceeds your basis

Ex. You have basis of 9000You get Money of 5000 and Property with basis in Co of 3000

First you subtract the money from your basis

9000-5000

New Basis =4000

Now figure out if the property's basis when held by Co is less thanif it is then you use that as the basis for the property distribution an

4000-3000=1000


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If the basis was 5000 you would use your basis of 4000 as the basiyou would not recognize a gain

4000-40000

For total liquidation

If you receive property you can not recognize a lossYou can only recognize a loss when you receive cash, unrealized

You realize a gain if the cash received is greater than partners basi

If you receive cash and propertyyour basis in the property is whatever you need to bring your basis

Liquidating Distribution60,000 Basis in Co

10,000 Distribution20,000 Property Basis to Co

60,000-10,000=50,000 basis left

Property now has a basis of 50,000 instead of 20,000


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nd the resulting decrease in

rth 10,000rtnership assumes

e other partners have assumed to figure out

gave

with a taxable event (giving property)

p capital is received

red. On date he was admited ot partnership

MV of 50,000)

hands

f property contributed

eld by partner

artnership includes the holding oeriod

ute the property


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ership begins business

are not deductible or amortizable

res a two-step approach

oes on Sch Ktment income

account seperately by each partner so that any special tax


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ains additional basis in partnership

sis is 2600 which he can take 2600 of the loss againstarryforward the 400 of ordinary loss to future years

ception that liabilitiesounts

risk basis since partner is not personally liable

fiscal year occursy of partnerships tax year

me of the partnershiprn


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ringe benefits and any premiums paidnd included on their Sch K in garunteed payments

t

**** GARUNTEED PAYMENTS DO NOT EFFECT PARTNERS BASISIt only effects the ordinary income

n

y their share

and is considered to be a dist of money

rship and a 50% (directly or indirectly) or more partner ership of thw two

ized to the extent of the disallowed loss


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sells property at a 5000 loss to C.aining 2/3 this loss is disallowed

in the disallowed loss of 5000 will

a partnership will be recognized

ore than 50% inestment or capital asset the gain is a Capital Gain

hen the gain will be recognized as ordinary income on

ning an agregate of 50%how long partnership has existed

ne 30th. Partnership will use June 30th as YE

y has activity up to that date in profits and losses

or partnership with C Corp as a partner

ing years you can use the cash method

sh method even if you have inventories

nership terminates on that date of the sale.

3/4/08


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tner is releieved of them

l your interest Sec 751 Gainu are on the cash basis.

quidating distributions)g distribution)

f he partnership

hat remaining basis you havesubtract from your basis


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s in the property so

/R and inventory

s

in the company to Zero

o it will bring your basis to ZERO


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Transfers to a Controlled Corporation

Sec. 351

No gain or loss is recognized if property is transferred to a corp soley in exchange for stockand imedietly after the exchange those persons transferring property control the corp

Property includes everything but servicesControl means ownership of atleast 80% of voting power and 80% of each class of nonvoti

Shareholder recognizes gain if liabilities assumed by corp exceed basis of property transfer

Shareholders basis for Stock =

Adjusted basis of property transferred+ Gain recognized- Boot received ( assumption of liability always treated as boot in det

= Shareholders Basis

Corporations Basis =

Transferors Adjusted Basis+ Gain Recognized to transferor = Corp Basis

Sec 1244 - Small Business Corp Stock (SBC)

Sec 1244 permits shareholders to deduct an ORDINARY loss on sale or worthlessness of s

To take must:Be original holder of stock (an individual or partnership, not a Corp)Stock can be common or perfered, voting or non, and must have beeOrdinary loss up to 50,000 or 100,000 if filing a joint return

any excess is treated as capital lossMust be a domestic corporation

To be a SBC (small business corp) you must have less than 1,000,000 in SE

Variations from Individual Taxation

Filing and Payment of Tax

Must file form 1120 every year even if no income

Return must be filed on 15th day of third month following year end

Estimated payments must be made for any Corp expected to pay more than $50


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Quarterly Payments Due 15th day of 4th, 6th, 9th, and 12th month

No penalty for underpayment if you payments = prior years 100% taxor 100% of current year liability

If you are a Large Corp (1million or more of taxable income) You MUST pay 100% of CURRENT years tax liability to not pay a

Corporations are subject to

Regular Tax Rates - 15% - 35%

0- 50k 15%50,001 - 75k 25%75,001 - 10Mil 34%Over 10 Mil 35%

AMT

S Corp doesnt compute AMT

Reg T.I. (1120)+ Tax Preferences+ - Adjustments= Pre ACE Alt Min T.I.+ - ACE Adjustments= A.M.T.I.- Exemption (40,000)=Tax Base

Tax Base * 20% = Tentative Minimum Tax

Compare Tentative Minimum Tax to Regular Tax

If Tent Min Tax is > than Reg TaxPay AMT

Preference Items - always +Tax Exempt interest on PAB bondsExcess of Accelerated over straight line depr on real prop

in service before 1987

Adjustments - + or -Depr diff between Real Estate placed in service after 1986

Regular Depr over Straight Line 40 yearsDepr diff between personal property placed in service afte

200db vs. 150db diff is added backConstruction contracts MUST be done on % of Completio

ACE - Adjusted Current Earnigns

Adjustments:


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AddTax Exempt icome on municipal bondsTax Exempt life insurance death benefits70% dividends-received deductionCapitalize orginizational expendetures

Minimum Tax CreditYou get a credit for any AMT tax you pay and can use it in future yea

Can be carried forward Indef but not carried back at all

Small Corp Exemption

You do not have to pay AMT tax your first year as a CorpYou are exempt your second year if your gross receipts from year onYou are exempt your thirs year if avg gross receipts of first 2 years isYou are exempt all other years if prior 3 years gross receipt average i

Gross income have a few differences

Corp does not recognize gain/loss on issuance of its own stock (including treasu

No gain/loss on issuance of debt

Deductions have some major differences as opposed to individual tax payers

Organizational expenditures paid after Oct 22 2004 can deduct up to 5000

in year corp starts unless over 50,000 and must limit the 5000 deduction for eve

You must make the election by the due date of the return (including extensions)If you do not amortize the first year then you cannot take the expense and mustof the costs

Expenses in connection of issuing or selling stocks is neither deductable or amo

Charitable Contributions are limited to 10% of Taxable Income before Chart Cont Deductio

Sales- COGS=G.P.+ Rent, Royalties, Gross Div, Net CGs= Total Income- Deductions (Except Contributions, Div Exclusion, NOL Carryback)- NOL Carryforward

Remainder is deducted ratably over 180 month period beginning with month t


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= Taxable income before Contrib & Div Recvd Deduction- Contributions (10% of T.I.)

The remainder is carried forward for 5 years

Dividends Deductions

100% of dividends received from affiliated (80% owned or more) corporations isa consolidated return is not filed

80% deduction is allowed for qualified dividends from domestic corporations you

70% dedutction is allowed for qualified dividends if you own less than 20%

***before DRD if the full DRD does not create a loss

Ex. Sales = 20000 Sales 20,000Exp = 22000 Exp 22,000Div =10,000 Loss = -2000Own 20% of Stock Div 10,000so 80% DRD T.I. Before DRD =8000

DRD -6400T.I. =1600

LossesDissalowed if sold to more thasn 50% owner

Capital Losses are only able to be offset against capital gains

Not ordinary incomeThere is no special tax rate for LT CG'sCan carry back 3 years and forward 5 yearsAll carrybacks and carryforwards are treated as Short Term

Casualty Losses

No 100$ floor like individuals or 10% AGI deduction

If it is completely destroyed the loss is the properties adjusted basis

If it is a partial loss then it is treated just like individualsAdjusted Basis or FMV difference before and after, lesser

Always subtract the insurance proceeds

NOLDividends recevied Deduction is allowed without limitationNo deduction is allowed for NOL carryback or forward from other yeaNOL carried back 2 years and forward 20 years

Anytime you have a loss from operations you can only take the Divi


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Can elect to only carryforward 20 years, if you do you must ALWAYS

R&DCan expense in current year Amortize over 60 months or determinable life

Life Incurance Premiums - If the Corp is beneficiary then they cannot take the dIf they are not the benificiary they can take the deduction

Reconciling Book & Taxable Income

Sch M-1 provides reconciliation of Book to Tax income before NOL & DRDPerm Diff Temp Differences

Sch M-2 shows changes in corps Unappropriated RE's per books

Beginning+ Net Income+ Other increases-Dividends to shareholders- other decreases= Ending

Consolidated Returns (Affiliated & Controlled Corps)

Own atleast 80% of voting power of stock and 80% of value of stock

May elect to file consolidated return, if do then must file like this forever

If you consolidate the intercompany dividends are eliminated in consolidation pr If dont consolidate thats why they have the 100% DRD for Affiliated

Possible advantages

Deferral of gain on intercompany transactionsOffsetting operating/capital losses of one corp against profits/capital

the other

Dividends & Distributions

Dividends (Ordinary corporate distributions)

Dividends are subject to a 3 step treatment

Dividend - to be included in gross income to extent of Current EarninReturn of Stock Basis - non taxable and reduces shareholders basisGain - to extent dist exceeds shareholders stock basis


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Amount of distribution is cash plus FMV of property receievd reduced by any lia

Shareholders basis in propoerty is JUST the FMV and is not reduced by the liabi

Distributing Corp Recognizes a gain on distribution if FMV is greater than basis.They do not recognize a loss if FMV is less than basis if it is a non liquidating dis

If distribute cash then there is no gain/loss to corp

Earnings and Profits

Curretn Earnings & Profits are similar to Book IncomeCurrent Earnigns & Profits are increased by the gain on distribution between FM

Accum Earnings & Profits - sum of prior years CEP reduced by distributions and

HANDOUT PG 67!!!!This explains what happens when there are different AEP and CEP #'s!!!!!

Stock Redemptions

If the company buys back your stock they will give you proertyor money.

To figure out the gain or loss you use the money receieved or the FMV of the pr

Treated entirely as a capital gain to the shareholder the Corp can have a an Ordinary or Capital gain depending on the property give

Complete liquidations

Property received has a basis equal to FMV

Corp recognizes gain/loss on liquidationthis can be ordinary or capital depending on the property given

Liquidation of subsidiary

No gain or loss to Sub or Parent in a total liquidation of a subsidiary


57/72

Since there is no taxable event you pick up the cost basis of the propertywhen you receive it, not its FMV

Personal Holding Company and Accumulated Earnings Tax

PHC's are subject to penalty tax on undistributed PHC income to discourage acincome in corps lower tax bracket

A PHC is any Corp that meets the following two requirments

Anytime in the last half of tax year, five or fewer indv. Owned more thvalue of outstandig stock directly or indirectly

Corp receives atleast 60% of gross income as 'personal holding com- Dividends, interest, rents, royalties, other passive incom

PHC is taxed at ordinary rates for ordinary income plus a 15% tax on undistributPHC income

PHC Tax isSelf assesing (Sch PH and attached to 1120)

There is a 6 year statute of limitations if no Sch PH is filedIt can be avoided by paying out dividends to reduce PHC income to z

To figure out PHC Tax

T.I.+ Dividends - received Deduction+ NOL- Federal & Foreign Taxes

- Charitable Contributions in excess of 10% limit-Net Capital Loss- Net LTCG over Net STCG=Adjusted Taxable Income- Dividends Paid during year - Dividends paid 2 1/2 months after close of the year - Consent Dividends= Undistributed PHC Income* 15%= PHC Tax

Consent Dividends - treat as though pad on last day of corps year Since these were not actually distributed they reduce the stockholder and reduce the Undistributed PHC income at the end of the year

AET for Regular Corps

You can still have an Accumulated Earnings Tax if you are a regular corp and h


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need in the course of business

It is seen as a ta avoidance and will have an additional tax

May be imposed witout regard to # of shareholders

There is an Accumulated Earnings credit allowed ( ONE TIME CREDIT, once usGreater of 250,000 (150,000 if personal service corp)or Reasonable Needs of the Business (expansion, working capital, re

Balance remaining is taxed at 15% and can be avoided if you pay out didvidend

To calculate:

T.I.+ Dividends - received Deduction+ NOL- Federal & Foreign Taxes- Charitable Contributions in excess of 10% limit

-Net Capital Loss- Net LTCG over Net STCG=Adjusted Taxable Income- Divideds paid out last 9 1/2 months of the year and 2 1/2 month- Consent Dividends- Accumulated Earnings Credit= Accumulated Taxable Income* 15%

=Accumulated Earnings Tax

S Corporations

S Corp generally pys no corp income tax and functions as a pass through to shareholders

To be eligible to be an S Corp

Must be Domestic Corp

An S Corp may own any % of stock of a C Corp and 100% of stock of QualifiedS Corp cannot file a consolidated return with an affiliated C Corp

Shareholders can be individuals, eststes and trusts and other S Corps but not

Only one class of stock can be issued and outstandingVoting and Nonvoting common stock are treated as one class of stoc


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No nonresident alien shareholders

Number of Shareholders is limited to 100Wife and Husband count as one shareholder

Election must be filed anytime in preceeding taxable year or on or before 15th day of 3rd mThis election is valid for all succeding years untill terminatedAll of the stockholders have to agree to the election

S Corps are generally on a Calander year basis (12/31)

Termination of S Corp status may be caused by shareholders owning more than 50% cons

Failing to satisfy any of the requirements to be an S Corp the termination of S Corp is the d

Once Terminated S Corp election you must wait 5 non S Corp years to reelect the S Corp d

If an S Corp distributes appreciatd property to its Shareholders the S Corp will recognize aeither capital or ordinary depending on the holding period and type

S Corp does not generate any earnings and losses

You do not deduct foreign income taxes (go on Sch K and K-1)

You do not deduct investment interest expense (Sch K)

Sec 179 is not deducted or ordinary income (Sch K)

Any ordinay income from S Corp is not SE income

LOOK AT PG 57- 60 of handout

Contributions are not deducted for ordinary income

Items which must pass through seperatley :

Net LTCG/LNet STCG/LNet 1231 Gain/LossTax Exempt IntCharitable Contr Foreign Income TaxesInvestment interest ExpenseDiv, Int, royalty incomeNet inc/loss rentalNet inc/Loss real estate


60/72

Shareholders can deduct losses up to their basis in stock AND any debt that is owed to theAny excess loss can be carried forward indef untill can be offset against basis to

Stock Basis is Computed by:

Beg Basis+ Income (taxable or not)- Distributions or withdrawls of assets- Non deductable expenis or losses- Share of ordinary losses

= Ending basis

Treatment of Distributions

4 Step Process for StockholdersReduce AAAIf any E&P from C Corp conversion take from thereReduce BasisCapital Gain for Remaining

When you reduce the AAA account it also reduces the shareholders

Ex. You had 15k in your stock basis at the beginning of the year andYou make 20k during the year so it increases your basis by 20k andIf you make distributions it decreases the 20k from basis and AAA

READ EXAMPLE ON PG 579 at the bottom!!!!!

S Corp Stockholder Accum Adjustment Account - ordinary income t

FMV 100,000Basis 60,000 Beg Bal 50,000Gain 40,000 Ord Inc 20000

End 70,000

Distrib 100,000

Dist of AAA 70,000 Non taxableDiv Inc 5,000 TaxableBasis Red 3,000 Non TaxableCapital Gain 22,000 CG

Health and Accident insurance premiums and other fringe benefits pad by S Corp on behalby Corp and included in employees W-2


61/72

Corporate Reoginizations

Non taxable to Corp or Shareholder

7 Different types of reorginizations

Type A - statutory merhers or consolidationsType B - the use of solely owned voting stock of aquiring corp to aquire atleast 8

of target corpType E - recapitalization to change the capital structure of a single corp ( bondhType F - change in identity, form, or place of organizationTyoe G - transfer of assets by insolvent corp or pursuant to bankruptcy, result th

become owners of corp


62/72

g stock

red

rmining stock basis)

tock

n issued for money or property

0 in tax


63/72


64/72

rs against REGULAR tax

e are less than 5 millless than 7.5 mil

is less than 7.5 mill

ry stock)

ry dollar over 50000

capitalize all

rtizable

, Div Exclusion Ded, NOL Carryback

e corp beings business


65/72


66/72

take your NOL forward and not back

duction since the proceeds will not be taxable when received

cessDividends

ains of

s & Profits and Accum Earnings & Profitsfor stock


67/72

ilities assumed

ilities assumed

t.

V and Basis

net operating losses of prior years

operty received

n


68/72

uulating of investment

an 50% of

any income'

ed

ero

s basis

ld more assets than you


69/72

ed it is GONE)

tirement of debt, etc)

s to zero out the income

s after year end

Subchapter S subsidiary (QSSS)

Corps or Partnerships

k


70/72


71/72

m by the corpobsorb it

tock basis

no AAAour AAA by 20k (you add ordinary income that flows through to your 1040 to

your basis)

axed to shareholder but not yet distributed

E&P from when C Corp 5,000Basis in Stock 3000

of 2% or more shareholder-employee are deductable


72/72

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