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Chapter 5

1) AMT- Alternative Minimum Taxa. Objective - to ensure that corporations with substantial economic income pay a

significant amount of tax espite the use of exclusions! euctions! an creits.

b. AMT rate "#$%) is lower than the top regular corporate rate "&'%) but tax basefor AMT is larger (f the tentative minimum tax oes not excee the

corporations regular tax! no AMT is ownec. *mall corporations are exempt from AMT

i. (nitial year + all corporations exemptii. # n year + exempt if first year gross receipts oes not excee ,' million

iii. & r year + exempt if average of year 1 # gross receipts oes not excee

,.' millioniv. *ubse/uent years + exempt if all prior &- year perios0 average gross

receipts o not excee ,.' million Once lost! corp. cannot regain this

exemption

#) AT- Accumulate arning Taxa. (f a corporation accumulates too much 2 without a vali business reason! it

can be subject to this tax.b. (t generally oes not apply to wiely hel corporations but is fre/uently a problem

for closely-hel or family corporations.c. 3orporations exempt inclue * corporations! taxexempt corporations an personal

holing companies.i. *o if 243 tax applies! this tax will not apply.

. *ec. '& efines reasonable business nees to inclue reasonably anticipate

nees of the business. *ome of these are inclue5i. xpansion or replacement of facilities

ii. Ac/uisition of a business enterpriseiii. 6ebt 7etirementiv. 8oans to suppliers an9or customers if necessary to maintain the businessv. :ecessary wor;ing capital "

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ii. 2urpose of the 243 tax is to compel the istribution of income by a

closely-hel investment corporation so that the income will be taxe to the

shareholersb. To be a 243! two tests must be met5

i. 1. ' or fewer taxpayers must own more than '$% of the value of the

corporations stoc; at any time uring the last half of the tax yearii. #. >$% or more of the corporations Ajuste Orinary ?ross (ncome

"AO?() is 243 income1. AO?( is gross income minus gains from capital an *ec. 1#&1

assets less certain expenses#. 243 income inclues iviens! interest! royalties! income from

estates an trusts! an annuities! certain personal service contracts

Chapter 7

Tax free reorgani=ations

*even types of reorgani=ations are efine in *ections &>@"a)"1)"A) through "?)

o Type A - merger or consoliation

The ac/uiring subsiiary corporation must obtain substantially all of the

target corporations assets.o Type < - stoc;-for-stoc;

The target corporation exchange their stoc; for the ac/uiring corporations

voting stoc;! an the target corporation remains in existence as the

ac/uiring corporations subsiiary.o Type 3 - assets-for-stoc;

o Type 6 - assets-for-stoc; securities

o Type + change in structure "recapitali=ation)

o Type + change in ientity! legal form! or state of incorporation

o Type ? + ban;ruptcy

Tax-free reorgani=ations must comply with several juicial octrines

o 3ontinuity of (nterest - re/uires owners of a combining company maintain a

certain e/uity interest in the combine entityo 3ontinuity of

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A) The ac/uire corporation in a Type 3 reorgani=ation may retain its corporation charter.

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Type < reorgani=ation occurs. :o basis ajustment occurs when Ac/uiring ac/uires the Target

stoc; in a Type < tax-free reorgani=ation. 2age 7ef.5 35- Objective5 B

B@) (entify which of the following statements is true.

A) A Type < reorgani=ation must be accomplishe in one transaction.