Sage-Tips

What is a section 382 limitation?

Section 382 generally limits the use of NOLs and credits following an ownership change. This occurs when one or more 5\% shareholders increase their ownership, in aggregate, by more than 50\% over the lowest percentage of stock owned by these shareholders at any time during the testing period, generally three years.

How much stock must one company own in control of another?

Sec. 368(c) defines control as the ownership of stock possessing at least 80\% of the total combined voting power of all classes of stock entitled to vote and at least 80\% of the total number of shares of all other classes of stock of the corporation. (Unlike, e.g., Sec.

What is the exemption for a complex trust?

Trusts are treated as separate taxable entities, so they must file tax returns and pay income tax on their income. Trusts can deduct their expenses and are permitted a small tax exemption: A simple trust can take a $300 exemption. A complex trust can take a $100 exemption.

How many years can a corporation carryforward a net operating loss?

At the federal level, businesses can carry forward their net operating losses indefinitely, but the deductions are limited to 80 percent of taxable income. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, businesses could carry losses forward for 20 years (without a deductibility limit).

Does section 382 apply to S corporations?

382 applies to S corporations, and some practitioners do not agree that it does apply.

How is 382 calculated?

The Section 382 limitation is determined by multiplying the value of the loss corporation’s equity before the ownership change by a specified rate that is determined each month by Treasury and the IRS. LossCo undergoes a change in ownership and has a NUBIG of $70 because of the built-in gain in its assets.

How is a spinoff taxed?

The taxable status of a spinoff is governed by Internal Revenue Code (IRC) Section 355. The majority of spinoffs are tax-free, meeting the Section 355 requirements for tax exemption because the parent company and its shareholders do not recognize taxable capital gains.

What is a section 355 spin off?

Section 355 of the Internal Revenue Code provides a powerful tool in corporate restructurings. A split-off occurs where the parent distributes stock of the controlled corporation to some of its shareholders in exchange for their stock in the distributing parent.

What makes a trust simple or complex?

A simple trust must distribute all its income currently. Generally, it cannot accumulate income, distribute out of corpus, or pay money for charitable purposes. If a trust distributes corpus during a year, as in the year it terminates, the trust becomes a complex trust for that year.

What’s the difference between a simple trust and a complex trust?

A simple trust must pass three tests. It must distribute all income to the beneficiaries; it cannot distribute principal; and it cannot make distributions to charities. A complex trust, by comparison, is one that does one or more of the things that a simple trust cannot do.

What is a section 965 Year?

What is section 965? Section 965 requires United States shareholders (as defined under section 951(b)) to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States.

CAN 2021 losses be carried back?

Under the CARES Act, NOLs arising in years beginning 2018 through 2020 may be carried back five years and the 80\% NOL deduction limit is temporarily lifted for NOL carryforwards to years beginning before January 1, 2021.

Why is my fair market value lower than my adjusted basis?

Note: The reason for the tax rules regarding property transferred with a lower fair market value than its adjusted basis is to limit the amount of loss that can be deducted when such property is disposed of.

What is the Amt statutory rate for a false C corporation?

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20\%. False C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

How do you value a stock basis for a corporation?

The corporation uses the lower fair market value for the property it receives. The result under option 1: Your stock basis would be $1,450 ($960 plus $490). The corporation’s basis for the property it receives would be $700 ($500 plus $200). You use the lower fair market value for the stock you receive.

What types of businesses pass profits and losses through to owners?

Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company. True The corporation has a greater potential for raising capital than does the partnership.