Assignment 8 controllership

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ACC624-Module-8-TaxRules-Corporations.pdf

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Corporations, Partnerships, Estates & Trusts

Tax: Operating Rules

Corporations: Introduction and Operating Rules

The Big Picture (slide 1 of 2)

• Samantha Johnson owns Skylark Bakery. – Currently, the bakery is operated as a sole proprietorship

and generates an annual operating profit of $100,000. • In addition, the bakery earns annual dividends of

$5,000 from investing excess working capital – These stock investments typically are held for a minimum

of three to four months. • As a result of income from other business ventures

and investments, Samantha is in the 33% marginal tax rate bracket irrespective of the bakery.

The Big Picture (slide 2 of 2)

• In the past, Samantha has withdrawn $50,000 annually from the bakery – She regards this as reasonable payment for her services.

• Samantha has asked you about the tax consequences of conducting the business as a regular (C) corporation. – Based on the given information, what would be the annual

income tax savings (or cost) of operating the bakery as a corporation?

• For purposes of this analysis, use the 2015 tax rates and ignore any employment tax or state tax considerations.

• Read the chapter and formulate your response.

Various Business Forms

• Business operations can be conducted in a number of different forms including – Sole proprietorships – Partnerships – Trusts and estates – S corporations (also called Subchapter S corps) – Regular corporations (also called C corps) – Limited liability companies

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Presentation Notes

TAX TREATMENT OF VARIOUS BUSINESS FORMS 1. Business forms include sole proprietorships, partnerships (covered in Chapters 10 and 11), trusts and estates (covered in Chapter 20), S corporations (covered in Chapter 12), regular corporations, and limited liability companies.

Sole Proprietorship

• Not a separate taxable entity • Income reported on owner’s Sch. C

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Sole Proprietorship 2. A sole proprietorship is not a taxable entity separate from its owner. Net income or loss from the proprietorship is computed on Schedule C and reported as part of the proprietor’s income on Form 1040. Thus, the proprietor pays tax on the profits of the proprietorship. 3. The proprietor reports all of the net profit from the business, regardless of the amount actually withdrawn during the year. 4. Income and expenses retain their character when reported by the proprietor. Example: Sweet operates a candy store as a sole proprietorship. He earned a profit of $75,000 during the year and withdrew $40,000 from the proprietorship. Sweet must report the $75,000 as net income from the proprietorship on his personal tax return.

The Big Picture – Example 1 Sole Proprietorships

• Return to the facts of The Big Picture on p. 2-1. • Samantha, the sole proprietor of Skylark Bakery,

reports the $100,000 operating profit from the business on Schedule C of her individual tax return. – Even though she withdrew only $50,000, Samantha reports

all of the $100,000 operating profit from the business on Form 1040, where she computes taxable income for the year.

• She also reports dividend income of $5,000 on Schedule B of Form 1040.

Partnership (slide 1 of 2)

• Separate entity, but does not pay tax – Files information return (Form 1065)

• Most income and expense items are aggregated in computing the ordinary business income (loss) of the partnership – Certain income and expense items are reported

separately to the partners – e.g., Interest and dividend income, long term

capital gain, charitable contributions and investment expenses

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Presentation Notes

Partnerships 5. Partnerships are tax reporting, but not taxpaying, entities. A partnership reports its income on Form 1065. 6. Each partner receives a Schedule K1 that reports the partner’s share of ordinary business income (loss) along with each separately reported pass-through item. Schedule K1 items are reported on each partner’s tax return. (Example 2)

Partnership (slide 2 of 2)

• Partnership ordinary business income (loss) and separately reported items are allocated to partners according to their profit and loss sharing ratios – Each partner receives a Schedule K–1

• Reports partner’s share of partnership ordinary business income (loss) and separately stated items

– Each partner reports these items on his or her own tax return

S Corporation • Separate entity, only pays special taxes (e.g., built-in

gains) – Files information return Form 1120S

• Similar to partnership taxation – Ordinary business income (loss) flows through to the

shareholders to be reported on their separate returns – Certain items flow through to the shareholders and retain

their separate character when reported on the shareholders’ returns.

• The S corporation ordinary business income (loss) and the separately reported items are allocated to the shareholders according to their stock ownership interests

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Corporations 7. There are two types of corporations for tax purposes: corporations governed by Subchapter C (C corporations) and corporations governed by Subchapter S (S corporations). 8. S corporations have the following characteristics: a. Generally do not pay Federal income taxes. b. Similar to partnerships in that operating income (loss) flows through to the shareholders. Like partnerships, all income and expense items are not aggregated when computing ordinary business income (loss). Certain items retain their separate character. c. Income and expense items “pass through” to shareholders, who report their share of the partnership items on their own returns. Items are allocated to shareholders according to their stock ownership interests.

C Corporation • C corporations are subject to an entity-level Federal

income tax which results in what is known as a double taxation effect. – C corporation reports its income and expenses and

computes tax on the taxable income reported on its Form 1120

• Uses tax rate schedule applicable to corporations – When corporation distributes its income, the corporation’s

shareholders report dividend income on their own tax returns

• Thus, income that has already been taxed at the corporate level is also taxed at the shareholder level

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Presentation Notes

Regular C corporations are subject to entity-level taxation. Other characteristics include: C corporation reports its income and expenses on Form 1120. b. Dividends paid are not deductible by the corporation. Example: A C corporation has revenues of $80,000, has operating expenses of $60,000, and paid dividends of $10,000. Net income for the year is $20,000, since the dividends are not deductible by the corporation. c. When a corporation distributes its income, the shareholders report dividend income on their own returns. Since the corporation pays tax on corporate income, this entity-level tax, along with the tax paid by shareholders on the distribution of that income as a dividend, results in income earned by a C corporation being subject to “double taxation.” (Examples 3 and 4)

C Corporation • C corporations are subject to an entity-level Federal

income tax which results in what is known as a double taxation effect. – C corporation reports its income and expenses and

computes tax on the taxable income reported on its Form 1120

• Uses tax rate schedule applicable to corporations – When corporation distributes its income, the corporation’s

shareholders report dividend income on their own tax returns

• Thus, income that has already been taxed at the corporate level is also taxed at the shareholder level

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Presentation Notes

10. Taxation of dividends. a. Closely held corporations may attempt to avoid the double taxation by disguising a dividend distribution as some other purported transaction. (1) One common way is to pay excessive compensation to shareholder-employees. (2) The IRS scrutinizes compensation and other economic transactions (e.g., salaries, interest, or rents) between closely held corporations and their shareholders for reasonableness. b. Dividend eligibility for the capital gains rates alleviates some of the double taxation effect. The current tax rate applicable to qualified dividend income (and long-term capital gains) is 15% or, for taxpayers in the 39.6% marginal tax bracket, 20% (0% for taxpayers in the 10% or 15% marginal tax brackets). A 3.8% Medicare surtax applies to net investment income in excess of modified adjusted gross income of $200,000 ($250,000 if married filing jointly), thus increasing the double taxation of dividend income for high-income taxpayers.

Dividends • Double taxation stems, in part, from the fact that

dividend distributions are not deductible by the corporation

• To alleviate some of the double taxation effect, Congress reduced the tax rate applicable to dividend income of individuals for years after 2002 – Generally, dividends are taxed at same marginal rate

applicable to a net capital gain • Thus, individuals otherwise subject to the 10% or 15% marginal tax

rate pay 0% tax on qualified dividends received • Individuals subject to the 25, 28, 33, or 35 percent marginal tax

rates pay a 15% tax on qualified dividends • Individuals subject to the 39.6% marginal tax rate pay a 20% tax on

qualified dividends

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Presentation Notes

ADDITIONAL LECTURE RESOURCE According to the Tax Policy blog, the official blog of the Tax Foundation (“U.S. Corporate Revenue Is Low Because High Taxes Have Shrunk the Corporate Sector,” September 18, 2014, William McBide): “Pass-through businesses are subject to just one layer of tax, the individual income tax, while C corporations face double taxation due to the corporate tax and shareholder taxes on dividends and capital gains. The U.S. corporate tax rate is the highest in the developed world, at 39% including state corporate taxes. Pass-through businesses have grown dramatically such that more than 90% of U.S. businesses are pass-through entities, mainly S corporations, partnerships, and sole proprietorships. While the number of pass-through businesses has been growing, the number of C corporations has been shrinking over the last 27 years. The Tax Reform Act of 1986 reduced the corporate tax rate, but reduced the individual tax rate further, and raised taxes on corporations in other ways. That marked the peak of U.S. C corporations, at 2.6 million in 1986. As of 2011 (most recent data), there are now 1 million fewer corporations, at 1.6 million. In contrast, S corporations grew from about 800,000 in 1986 to 4.2 million in 2011, and partnerships grew from 1.7 million to 3.3 million.”

Medicare Surtax

• Beginning in 2013, § 1411 imposes a 3.8% Medicare surtax on a taxpayer’s net investment income in excess of modified adjusted gross income of $200,000 ($250,000 if married filing jointly) – Thus, for high-income taxpayers, the double taxation of

dividend income is increased by this surtax

Corporate Income Tax Rates

Nontax Issues in Selecting Entity Form (slide 1 of 3)

• Liability – Sole proprietors and some partners have unlimited

liability for claims against the entity • Capital-raising

– Corporations and partnerships to a lesser extent can raise large amounts of capital for entity ventures

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11. Nontax considerations. Nontax considerations may override tax considerations. Factors to consider include: Limited liability for corporate shareholders. Unlimited liability for sole proprietors and general partners in partnerships. Ability to raise large amounts of capital using the corporate form. Free transferability of ownership interests in corporations. Continuity of life for the corporate form of business. Centralized management of a corporation. Limited partnerships may also have centralized management, which is essential for the smooth operation of a widely held business.

Nontax Issues in Selecting Entity Form (slide 2 of 3)

• Transferability – Corporate stock is easily sold, but partners must

approve partnership interest transfer • Continuity of life

– Corporations exist indefinitely

Nontax Issues in Selecting Entity Form (slide 3 of 3)

• Centralized management – Corporate actions are governed by a board of

directors – Partnership operations may be conducted by each

partner without approval by other partners

Limited Liability Companies (LLC)

• LLCs have proliferated since 1988 when IRS ruled it would treat qualifying LLCs as partnerships – Major nontax advantage

• Allows owners to avoid unlimited liability – Major tax advantage

• Allows qualifying business to be treated as a partnership for tax purposes, thereby avoiding double taxation associated with C corporations

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Presentation Notes

Limited Liability Companies 12. A limited liability company (LLC) offers a very important nontax advantage (limited liability) plus the tax advantage of being treated as a partnership (or proprietorship, in the case of a single-member LLC) and avoiding the double taxation problem associated with C corporations. All 50 states and the District of Columbia recognize LLCs. States vary in the corporate characteristics allowed to LLCs. LLC owners are called members.

Entity Classification Prior to 1997 (slide 1 of 2)

• Sometimes difficult to determine if entity will be taxed as a corporation – If entity has a majority of corporate characteristics,

it is taxed as a corporation – Most entities have the following characteristics:

• Associates • Objective to carry on business and share profits

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Presentation Notes

13. Entity classification. The IRS eased the entity classification problem by issuing check-the-box Regulations. a. Regulations enable taxpayers to choose the tax status of a business entity without regard to its corporate or noncorporate characteristics. b. Under these Regulations, an unincorporated entity with more than one owner is by default classified as a partnership. c. An unincorporated entity with only one owner is, by default, classified as a disregarded entity (DRE) and treated as a sole proprietor. d. If an entity wants to use its default status, it simply files the appropriate tax return. e. Under the default rules, if no election is made, multi-owner entities are treated as partnerships and single-owner entities are sole proprietorships. New entities using a default classification should not file Form 8332.

Entity Classification Prior to 1997 (slide 2 of 2)

• If entity has a majority of the following relevant corporate characteristics it is treated as a corporation: – Continuity of life – Centralized management – Limited liability to owners – Free transferability of ownership interests

Entity Classification After 1996 (slide 1 of 2)

• Check-the-box Regulations – Allows taxpayer to choose tax status of entity

without regard to corporate or noncorporate characteristics

– Entities with > 1 owner can elect to be classified as partnership or corporation

– Entities with only 1 owner can elect to be classified as sole proprietorship or as corporation

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f. If the entity wants to use a status other than the default status, or if it wants to change its status, Form 8832 (Entity Classification Election) is used to “check the box.” (Reg. §§ 301.7701-1 through -4 and -7) (1) An LLC can therefore be taxed as a C corporation or an S corporation. (2) Since LLCs are not treated as being incorporated under state law, they default to partnership or DRE status. g. The “check-the-box” election is not available to entities incorporated under state law or that are required to be treated as corporations under Federal law (i.e., publicly traded partnerships).

Entity Classification After 1996 (slide 2 of 2)

• Check-the-box Regulations (cont’d) – If no election is made, multi-owner entities treated

as partnerships, single person businesses treated as sole proprietorships

– Election is not available to: • Entities incorporated under state law, or • Entities required to be corporations under federal law

(e.g., certain publicly traded partnerships)

Comparison of Corporate and Individual Tax Treatment (slide 1 of 3)

• Similarities – Gross Income of a corporation and individual are

very similar • Includes compensation for services, income from trade

or business, gains from property, interest, dividends, etc. • Corp taxpayers are allowed fewer exclusions • Nontaxable exchange treatment is similar

– Business deductions of a corporation and individual also are very similar

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Presentation Notes

AN INTRODUCTION TO THE INCOME TAXATION OF CORPORATIONS An Overview of Corporate versus Individual Income Tax Treatment 14. There are similarities and differences between the taxation of corporations and individuals. See Exhibit 2.2—Tax Formulas. 15. Similarities: Gross income is computed in much the same manner for corporations and individuals. (1) Both are entitled to exclusions from income. Corporate taxpayers are allowed fewer exclusions. b. Tax rules applying to property transactions of corporations and noncorporate taxpayers are similar. (1) The definition of capital assets (§ 1221) does not differ across taxpayers. (2) Deferral on like-kind exchanges and involuntary conversion are also available to both types of taxpayers.

Comparison of Corporate and Individual Tax Treatment (slide 2 of 3)

• Dissimilarities – Different tax rates apply – All deductions of corp are business deductions

• Corp does not calculate AGI • Corp does not deduct standard deduction, itemized

deductions, or personal and dependency exemptions • Corp does not reduce casualty and theft loss by $100

statutory floor and 10% of AGI

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Presentation Notes

(3) The exclusion permitted by § 121 (the sale of a personal residence) does not apply to corporations. This last point seems simple enough, but consider the following example: Example. Ed is employed as general manager of Green Brewing Corporation. In this capacity, Ed is in charge of quality control, a feature highly touted by Green in advertising to its customers. To maintain constant quality control, Ed is required to live in a residence owned by Green and located adjacent to its brewery. If Green sold this residence for a gain, it may not use § 121 to exclude such gain. Had the residence been owned by Ed (and not Green Brewing Corporation), § 121 would be available to Ed. Disallowance of losses on sales of property to related parties and on wash sales of securities applies to both individuals and corporations. Business deductions for corporations parallel those available to individuals. (1) No distinction between business and nonbusiness interest or business and nonbusiness bad debts for corporations. Credits that are personal in nature (child care, earned income) are naturally not available to corporations.

Comparison of Corporate and Individual Tax Treatment (slide 3 of 3)

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16. Dissimilarities: a. Different tax rates apply to corporations and individuals. b. All allowable corporate deductions are treated as business deductions. (1) AGI has no relevance to corporations. (2) Corporations have no itemized deductions, no standard deduction, and no personal and dependency exemptions.

Specific Provisions Compared • In comparing the income taxation of individuals and

corporations the following areas warrant special discussion: – Accounting periods and methods – Capital gains and losses – Recapture of depreciation – Passive losses – Charitable contributions – Domestic production activities deduction – Net operating losses – Special deductions available only to corporations

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Specific Provisions Compared 17. See Concept Summary 2.1 for a comparison of the income taxation of individuals and corporations.

Accounting Periods and Methods (slide 1 of 2)

• Accounting periods – Most C corporations can use calendar year or fiscal

year ending on last day of a calendar month (or 52- 53 week year)

– S corps and Personal Service Corporations (PSC) are limited in available year ends

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Presentation Notes

Accounting Periods and Methods 18. Accounting periods. C corporations generally may choose a calendar year or a fiscal year for reporting purposes. Corporations can have different tax years from their shareholders. A PSC must generally use a calendar year. [§ 441(i)] However, it may elect a fiscal year if: It can show a business purpose (i.e., a natural business year); or (2) The PSC year results in a deferral of not more than three months’ income. An election under § 444 is required, and the PSC will be subject to the deduction limitations of § 280H. Under the latter provision, a PSC’s deduction for shareholder-employee salaries will be limited if payment of those salaries is disproportionately postponed beyond December 31. (Examples 8 and 9) (3) A PSC has as its principal activity the performance of personal services, and such services are substantially performed by shareholder-employees. The performance of services must be in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. [§ 448(d)(2)(A) and Reg. § 1.441-3(d)(1)]

Accounting Periods and Methods (slide 2 of 2)

• Accounting methods – Cash method can’t be used by C corp. unless:

• In farming or timber business • Qualified PSC • “Ave. Annual Gross receipts” ≤ $5,000,000

– As a matter of administrative convenience, the IRS will permit

• Entities with ave. annual gross receipts of $1 million or less for the most recent 3 year period to use the cash method (even if buying and selling inventory)

• Certain entities with ave. annual gross receipts greater than $1 million but not more than $10 million for the most recent 3 year period to use the cash method

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ADDITIONAL LECTURE RESOURCE PSC Substantially All Activity Test. As to the function requirement, Temp. Reg. § 1.448- 1T(e)(4) provides that the “substantially all” test is met if 95% or more of the time spent by employees of the corporation is devoted to performing services in qualifying fields. A case addressing the function requirement is Grutman-Mazler Engineering, Inc., 95 TCM 1551, T.C.Memo. 2008-140. Similarly, Temp. Reg. § 1.448-1T(e)(5) establishes a 95% or more threshold for satisfying the stock ownership requirement. For a case addressing the ownership requirement, see Robertson Strong & Apgar Architects, PC, T.C. Summary Opinion 2007-48. What Year-End Do Corporations Use? McDonald’s Corporation and Ford Motor Corporation, along with the majority of corporations, have a calendar year-end. Best Buy and Macy’s, both retailers, have January year-ends, closing out their books after the rush of the busy holiday season. Vail Resorts, Inc., which operates ski resorts in Colorado, Minnesota, and Utah, has a July 31 year-end, the slowest time of the year for its business.

The Big Picture – Example 10 Accrual Method Of Accounting And Cash Basis Related Parties (slide 1 of 2)

• Return to the facts of The Big Picture on p. 2-1. • Assume that Samantha incorporates her

business as Skylark Bakery, Inc., a calendar year, accrual method C corporation. – Samantha, a cash method taxpayer, owns 100% of

the corporation’s stock at the end of 2015.

The Big Picture – Example 10 Accrual Method Of Accounting And Cash Basis Related Parties (slide 2 of 2)

• On December 31, 2015, Skylark Bakery has accrued a $10,000 bonus to Samantha. – Samantha receives the bonus in 2016 and reports it

on her 2016 tax return. • Skylark Bakery cannot claim a deduction for

the $10,000 until 2016.

Capital Gains and Losses (slide 1 of 2)

• Individuals – Net capital gains subject to the following

preferential tax treatment • Net short-term gains subject to regular tax rates • Net long-term gains max tax rate 20%

– Net capital losses deductible up to $3,000 with remainder carried to future years

• Carryovers do not lose their identity but remain either long term or short term

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Presentation Notes

Capital Gains and Losses 19. Differences exist in corporate and individual taxpayers’ treatment of capital gains and losses. a. Net capital gains of corporations are not eligible for lower rates, as are net capital gains of individuals. b. Corporate capital losses may only offset capital gains, while individuals may deduct up to $3,000 of losses in excess of capital gains. c. Excess corporate capital losses are carried back three and forward five years to offset capital gains, while capital losses of individuals are carried forward indefinitely. When corporations carry over capital losses, they are treated as short-term. For individuals, capital losses retain their original status as long- or short=term. [§§ 1211(a) and 1212(a)] (Examples 11 and 12)

Capital Gains and Losses (slide 2 of 2)

• Corporations – No special tax rates apply to capital gains

• Entire gain is included in income subject to normal corporate tax rates

– Corp cannot take a deduction for net capital losses • Capital losses can be used only to offset capital gains • Unused capital losses are carried back 3 years and

carried forward for 5 years – All carried over losses are treated as short-term

Depreciation Recapture • In general, the recapture rules under §§ 1245 and

1250 are equally applicable to both individual and corporate taxpayers – However, corporations may have more depreciation

recapture (ordinary income) on the disposition of § 1250 property than individuals

• Under § 291, a corporation has additional ordinary income equal to 20% percent of the excess of – Depreciation recapture that would arise if property was

§ 1245 property over depreciation recapture computed under § 1250 (without regard to § 291)

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Presentation Notes

Recapture of Depreciation 20. § 291 requires additional § 1250 depreciation recapture by corporations. The corporation will have additional ordinary income equal to 20% of the excess of the amount of depreciation recapture that would arise if the property was § 1245 property over the amount of depreciation recapture computed under § 1250. b. The result is a recharacterization of what would otherwise be § 1231 gain as ordinary income. (Example 13)

Passive Losses

• Passive loss rules apply to: – Individuals and personal service corps

• Cannot offset passive losses against active or portfolio income

– S corps and partnerships • Passive income and loss flows through to owners and

rules applied at owner level – Closely held C corps

• May offset passive losses against active income, but not portfolio income

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Presentation Notes

Passive Losses 21. Passive loss limitations apply to closely held C corporations and personal service corporations (PSCs). For S corporations and partnerships, the passive loss rules are applied at the owner level. A corporation is closely held if, at any time during the last half of the taxable year, more than 50% of the value of the corporation’s outstanding stock is owned, directly or indirectly, by or for not more than five individuals. (1) Closely held C corporations can offset passive losses against net active income, but not portfolio income. PSCs generally cannot deduct passive losses against either active income or portfolio income. (Example 14)

Charitable Contributions (slide 1 of 5)

• Both corporate and noncorporate taxpayers may deduct charitable contributions in year paid – Exception for accrual basis corporations allows

deduction in year preceding payment if: • Authorized by the board of directors by the end of that

year, and • Paid within 2 ½ months of year end

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Presentation Notes

Charitable Contributions 22. Corporations are subject to limitations on their charitable contributions. For accrual basis corporations, there is an exception to the rule that deductions for charitable contributions are allowed only for the year in which payment is made. Corporations may deduct charitable contributions in the year preceding payment if the contribution is authorized by the board of directors by the end of that year and is paid on or before the fifteenth day of the third month of the next year. (Example 15) Example: ABC Corporation uses the accrual method of accounting and the calendar year as its tax year. The board of directors authorizes a cash contribution on November 3, 20X14, that the corporation pays on March 10, 20X15. The corporation can deduct the contribution in 20X14. If the contribution is not paid until April 1, 20X15, the corporation cannot deduct the contribution until 20X15.

Charitable Contributions (slide 2 of 5)

• Amount deductible for property contributions depends on type of property contributed

• Long-term capital gain property deduction = fair market value of property – Exception: Corp may only deduct basis if tangible

personal property contributed and not used by charity in its exempt function

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Presentation Notes

The general rule that measures the amount of the deduction as fair market value on the date of the donation for long-term capital gain property and adjusted basis (or fair market value, if lower) for ordinary income property (appreciated property that, if sold, would not result in long-term capital gain) applies to corporations as well as individuals. However, there are exceptions to the general rule. (1) If a corporation contributes tangible personal property and the charitable organization puts it to an unrelated use, the deduction is limited to the basis of the property. (Examples 18 and 19)

Charitable Contributions (slide 3 of 5)

• Long-term capital gain property deduction = fair market value of property (cont’d) – Exception: Deduction for property contribution to

certain private nonoperating foundations is limited to basis in property

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(2) Contributions of capital gain property to certain private nonoperating foundations are limited to the basis of the property donated.

Charitable Contributions (slide 4 of 5)

• Ordinary income property deduction = basis in property – Exception: Basis plus 50 % of appreciation can be

deducted if inventory or research property is contributed which is used by charity as required by Code

• Deduction is limited to twice the property’s basis

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Presentation Notes

(3) Contributions of inventory to charities for use in their exempt purpose and solely for the care of the ill, needy, or infants, or where the property is used for research purposes under specified conditions are subject to special rules. The deduction is measured by the adjusted basis of the property plus half of the appreciation on the property. However, the deduction cannot exceed twice the basis of the property. Example: Rose Instruments, Inc., a scientific equipment manufacturer, donates inventory (basis of $30,000, fair market value of $70,000) to a qualified nonprofit university that will use the equipment in its scientific research endeavors. The amount of the charitable contribution is $50,000 [$30,000 basis + 0.5($70,000 fair market value – $30,000 basis)], which is less than the ceiling of $60,000 (2 × $30,000 basis). ADDITIONAL LECTURE RESOURCE Charitable Contributions of Inventory. The Regulations provide guidance on determining whether inventory is related to a qualified organization’s exempt purpose or function. The Regulations also elaborate on the requirement that the corporate donor receive a written statement from the qualified organization regarding the use and disposition of donated inventory [§ 170(e)(3)(A)(iii)], as well as the determination of inventory basis (Reg. § 1.170A-4A). In some cases, the disposition of inventory by a donee within three years of the date of contribution will result in recapture (gross income) to the corporation, equal to the excess of the corporation’s charitable deduction for the inventory over its basis in such property [§ 170(e)(7)]. For a recent ruling where the enhanced inventory deduction was disallowed due to inadequate substantiation, see NSAR 2011380IF (August 15, 2011).

Charitable Contributions (slide 5 of 5)

• Corporate charitable contribution deduction is limited to 10% of taxable income before: – Charitable contribution deduction, – NOL or capital loss carryback, – Dividends received deduction, and – Domestic production activities deduction

• Contributions in excess of 10% limit can be carried forward for 5 years

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Presentation Notes

The annual deduction for corporations is limited to 10% of taxable income computed without regard to the charitable contribution deduction, net operating loss or capital loss carrybacks, dividends received deduction, and domestic production activities deduction. (1) Any contribution in excess of the 10% limitation is carried forward for five years. (2) Any carryforward must be added to subsequent contributions and is subject to the 10% limit. The current year’s contributions must be deducted first, with carryover amounts from previous years deducted in order of time. (Examples 21 and 22)

Domestic Production Activities Deduction

• The American Jobs Creation Act of 2004 created a new deduction based on the income from manufacturing activities – The domestic production activities deduction is

based on the following formula: • 9% × Lesser of

– Qualified production activities income – Taxable (or adjusted gross) income

• The deduction cannot exceed 50% of an employer’s W–2 wages related to qualified production activities income

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Presentation Notes

Domestic Production Activities Deduction 23. The domestic production activities deduction (DPAD) is based on the income from manufacturing activities (see Chapter 3 for a detailed discussion). a. DPAD is the lower of the following: 9% of qualified production activities income. 9% of taxable income (modified adjusted gross income for individuals). 50% of W2 wages related to the qualified production activities income. ADDITIONAL LECTURE RESOURCE What business activities are eligible for the DPAD? Many taxpayers think that they must be in a manufacturing business in order to be eligible for the DPAD. Not true! According to IRC § 980D, some of the industries that qualify include any qualified film produced by a taxpayer in the United States; electricity, natural gas, or potable water produced in the United States; construction performed in the United States; and engineering or architectural services performed in the United States for construction projects located in the United States (§199(c)(4). Unfortunately, the sale of food and beverages prepared by the taxpayer at a retail establishment does not apply.

Net Operating Loss • Net operating losses of corporations and individuals

may be: – Carried back two years – Unused portion carried forward 20 years

• Unlike individuals, a corporation does not: – Adjust its tax loss for capital losses, since a corporation

cannot deduct net capital losses – Make adjustments for any nonbusiness deductions

• A corporation is allowed to include the dividends received deduction (discussed below) in computing its NOL

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Presentation Notes

Net Operating Losses 24. Individual and corporate taxpayers may have net operating losses (NOLs) that can be carried back two years and forward 20 years to offset taxable income. a. Corporations do not adjust their tax losses for capital losses because they are not permitted a deduction for net capital losses. b. Corporations do not make adjustments for nonbusiness deductions or for personal exemptions as individuals do. c. Corporations include their dividends received deduction in computing the NOL. (Example 24) d. Like individuals, corporations may elect to forgo the carryback period.

Dividends Received Deduction (slide 1 of 3)

– If corporation owns stock in another corporation and receives dividends, a portion of dividends may be deducted from income:

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Presentation Notes

Deductions Available Only to Corporations 25. The dividends received deduction (DRD) is for dividend distributions received from other domestic corporations. Dividends from foreign corporations generally do not qualify—see § 245(a). a. The purpose of DRD is to mitigate (or eliminate) the triple taxation of corporate-source income.

Dividends Received Deduction (slide 2 of 3)

• The dividends received deduction is limited to a percentage of the taxable income of a corporation – For this purpose, taxable income is computed without

regard to • The NOL deduction • The domestic production activities deduction • The dividends received deduction, and • Any capital loss carryback to the current tax year

– The percentage of taxable income limitation corresponds to the deduction percentage

– However, the taxable income limitation does not apply if the corporation has an NOL for the current taxable year

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Presentation Notes

b. The DRD is limited to a percentage of its taxable income. (1) Computed without regard to the NOL deduction, DPAD, DRD, and any capital loss carryback to the current tax year. (2) The percentage of taxable income limitation corresponds to the deduction percentage. Example: The taxable income percentage limitation for Silver Corporation is 70% for Bronze Corporation dividends and 80% for Copper Corporation dividends. c. The taxable income limitation does not apply if the DRD would create or increase a net operating loss for the current taxable year or in the case of the 100% DRD available to members of an affiliated group. d. In working with this myriad of rules, the following steps are useful: Multiply the dividends received by the deduction percentage. Multiply the taxable income by the deduction percentage. DRD is limited to the lesser of step 1 or step 2, unless deducting the amount derived in step 1 results in an NOL. If so, the amount derived in step 1 should be used. This is referred to as the NOL rule. (Example 25)

Dividends Received Deduction (slide 2 of 3)

• The dividends received deduction is limited to a percentage of the taxable income of a corporation – For this purpose, taxable income is computed without

regard to • The NOL deduction • The domestic production activities deduction • The dividends received deduction, and • Any capital loss carryback to the current tax year

– The percentage of taxable income limitation corresponds to the deduction percentage

– However, the taxable income limitation does not apply if the corporation has an NOL for the current taxable year

Presenter

Presentation Notes

e. Dividends on stock held for 45 days or less during the 91-day period surrounding the ex dividend date (90 days during the 181-day period surrounding the ex dividend date if preferred stock) will not qualify for the DRD. (Example 26) [§ 246(c)] f. The DRD is reduced to the extent of portfolio indebtedness (any indebtedness directly attributable to investment in stock). (1) The amount of the reduction is limited to the allocable amount of the corporation’s interest deduction on the portfolio indebtedness. For determining whether indebtedness is “directly attributable” to stock investment, see, e.g., OBH, Inc. v. U.S., 2005-2 USTC ¶50,627, 96 AFTR2d 6801, 397 F Supp.2d 1148 (D.Ct. Neb., 2005) and Rev. Rul. 88-66, 1988-2 C.B. 35. (2) The reduction in the DRD cannot exceed the amount of the interest deduction allocable to the dividend.

Dividends Received Deduction (slide 3 of 3)

The following steps are useful in calculating the dividends received deduction

1. Multiply dividends received by deduction percentage

2. Multiply taxable income by deduction percentage

3. Subtract 1. from taxable income -If entity has income before DRD, but DRD creates NOL,

amount in 1. is DRD (the NOL rule) -If DRD does not create NOL, deduction is limited to lesser

of 1. or 2.

Presenter

Presentation Notes

ETHICS & EQUITY Pushing the Envelope on Year-End Planning. Lark Corporation anticipates $141,000 of 2015 taxable income before considering the dividends received deduction. Its potential dividends received deduction of $140,000 ($200,000 dividend × 70%) would be limited to $98,000 (70% of $140,000 taxable income). Incurring an additional $1,001 of expenses would result in the dividends received deduction producing a loss, and avoiding the limitation, reducing their taxable income by an additional $42,000. Accelerating $1,001 of deductible expenses to 2015 would be good, and ethical, tax planning as long as those expenses meet the requirements for deductibility under Lark’s accounting method and do not constitute a sham. This may be fairly easy to do if Lark is a cash basis taxpayer (e.g., by simply paying additional accounts payable). It may be more of a challenge if it is an accrual basis taxpayer given the late date. However, it is probably still possible to accelerate an expense and still meet the all-events and economic performance tests (e.g., by accelerating maintenance and/or repairs or by purchasing supplies or a depreciable asset or making a charitable contribution). Accelerating or deferring the timing of real economic events for tax purposes is a common tax-planning technique.

DRD Examples

Organizational Expenditures (slide 1 of 2)

• A corporation may elect to amortize organizational expenses over a 180-month period beginning with the month in which the corporation begins business

• A special exception allows the corporation to immediately expense the first $5,000 of these costs

• Phased out on a dollar-for-dollar basis when these expenses exceed $50,000

Presenter

Presentation Notes

26. Organizational expenditures deduction. Organizational expenditures include legal services incident to organization, necessary accounting services, expenses of temporary directors and organizational meetings, and fees paid to the state for incorporation. (1) Costs connected with the issuing and selling of stock and other securities, or with transferring assets to a corporation, are not organizational costs. They reduce the amount of capital raised and are not deductible. b. No deduction is available for organizational expenses unless the taxpayer makes an election under § 248. Under § 248, the taxpayer may, starting in the month in which the business begins: (1) Immediately deduct the first $5,000 of organizational costs, reduced dollar for dollar for the amount these expenses exceed $50,000 and (2) Amortize the remainder of such expenses over a 180-month period. (Example 27) c. Example: Fox Corporation had $51,000 of organizational expenditures in the current year. Fox can elect to expense $4,000 [$5,000 – ($51,000 – $50,000)] of this amount and amortize the $47,000 balance ($51,000 – $4,000) over 180 months.

Organizational Expenditures (slide 2 of 2)

• Organizational expenditures include the following: – Legal services incident to organization – Necessary accounting services – Expenses of temporary directors and of organizational

meetings of directors and shareholders – Fees paid to the state of incorporation

• Expenditures connected with issuing or selling shares of stock or other securities or with the transfer of assets to a corporation do not qualify – Such expenditures reduce the amount of capital raised and

are not deductible at all

Presenter

Presentation Notes

In order for a corporation to qualify for this election, expenditures must be incurred before the end of the taxable year in which the corporation begins business. A corporation is deemed to make an election under �§ 248 to deduct organizational expenditures. (1) No separate statement or specific identification of the deducted amount as organizational expenditures is required. (2) Generally, a corporation begins business when it starts the business operation for which it was organized. [Reg. § 1248-1(d)] e. A corporation may choose to forgo the deemed election by clearly electing on a timely filed return to capitalize organizational expenditures for the taxable year in which the business begins. In this case, the organizational expenditures are not deductible until the corporation ceases to do business and liquidates.

Organizational Expenditures Example

• Wren Corp. incurs $53,000 of organizational costs – Wren can expense $2,000 of this amount [$5,000 - ($53,000 - $50,000)] – The $51,000 balance is amortized over 180

months

Start-up Expenditures (slide 1 of 2)

• Start-up expenditures include: – Various investigation expenses involved in

entering a new business • e.g., Travel, market surveys, financial audits, legal fees

– Also includes operating expenses, such as rent and payroll, that are incurred by a corporation before it actually begins to produce any gross income

Presenter

Presentation Notes

Startup expenses (§ 195) (investigation and operating expenses incurred before the business begins producing income) are different from organizational costs. However, the amortization, immediate expensing, and deemed election rules described in a and b above for organizational expenditures also apply to startup costs.

Start-up Expenditures (slide 2 of 2)

• At the election of the taxpayer, such expenditures can be treated in the same manner as organizational expenditures – Up to $5,000 can be immediately expensed

(subject to the dollar cap and excess-of-$50,000 phaseout)

– Any remaining amounts are amortized over a period of 180 months

Presenter

Presentation Notes

ADDITIONAL LECTURE RESOURCE Determination of When Corporation Begins Business. According to Reg. 1.248-1(d): “The deduction allowed under Section 248 must be spread over a period beginning with the month in which the corporation begins business. The determination of the date the corporation begins business presents a question of fact which must be determined in each case in light of all the circumstances of the particular case.” The words “begins business,” however, do not have the same meaning as “in existence.” Ordinarily, a corporation begins business when it starts the business operations for which it was organized; a corporation comes into existence on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business. If the activities of the corporation have advanced to the extent necessary to establish the nature of its business operations, however, it will be deemed to have begun business. For example, the acquisition of operating assets that are necessary to the type of business contemplated may constitute the beginning of business.

Corporate Tax Formula

Gross income Less: Deductions (except charitable, Div. Rec’d, NOL carryback, STCL carryback) Taxable income for charitable limitation Less: Charitable contributions (< = 10% of above) Taxable income for div. rec’d deduction Less: Dividends received deduction Taxable income before carrybacks Less: NOL carryback and STCL carryback TAXABLE INCOME

Presenter

Presentation Notes

DETERMINING THE CORPORATE INCOME TAX LIABILITY Corporate Income Tax Rates 27. Corporations compute their Federal income tax liability using the rate structure contained in § 11(b) (the rate schedule is illustrated in Exhibit 2.1 of the text). Corporate tax rates are not indexed for inflation. (Example 28) a. An additional surtax of 5% is imposed on taxable income over $100,000, but such tax is not to exceed $11,750. (1) Consequently, the tax savings from the lower rates [i.e., 15% (on the first $50,000) and 25% (on the next $25,000)] is completely phased out once taxable income reaches $335,000. (Example 31) (2) PSCs are taxed at a flat 35% rate. [§ 11(b)(2)] b. At $10 million, the corporate rate goes to 35% and at $15 million, an additional 3% surtax applies (which brings the total rate to 38% for that bracket). At $18,333,333, the surtax is no longer imposed.

Corporate Tax Formula

The Big Picture – Example 28 Corporate Income Tax Liability (slide 1 of 2)

• Return to the facts of The Big Picture on p. 2-1. • Assume that Samantha incorporates her business as

Skylark Bakery, Inc., a calendar year C corporation. – The corporation pays Samantha a salary of $50,000 for the

year. • For 2015, Skylark Bakery has taxable income of

$51,500. – [$100,000 operating profit + $5,000 dividends - $50,000

salary expense – $3,500 dividends received deduction ($5,000 X 70%)].

The Big Picture – Example 28 Corporate Income Tax Liability (slide 2 of 2)

• Its income tax liability is $7,875, determined as follows:

Tax on $50,000 at 15% $7,500 Tax on $1,500 at 25% 375 Tax liability $7,875

Alternative Minimum Tax • Corporations are subject to an alternative

minimum tax (AMT) that is similar to the AMT applicable to individuals – Many of the adjustments and tax preference items

are the same for individuals and corporations – The AMT rate and exemption amount for

corporations are different from those applicable to individuals

Presenter

Presentation Notes

Alternative Minimum Tax 28. Corporations (other than “small corporations”) are subject to an alternative minimum tax (AMT) that is similar to the AMT of individuals. Most adjustments and preferences are the same as for individuals, but the rates and exemption amounts are different. See Chapter 3 for a detailed discussion of the AMT.

Tax Liability of Related Corporations

• Subject to special rules for computing income tax, the accumulated earnings credit, and the AMT exemption – e.g., Limits controlled group’s taxable income in

tax brackets below 35% to amount corporations in group would have if they were one corporation

• Controlled group includes: – Parent-subsidiary groups – Brother-sister groups – Combined groups

Presenter

Presentation Notes

Tax Liability of Related Corporations 29. A controlled group of corporations is entitled to one $250,000 accumulated earnings tax credit and one $40,000 exemption for the AMT and is limited to taxable income in each of the first two brackets as though the group was one corporation. [§ 1561(a)] (Examples 32 and 33) Controlled groups are parent-subsidiary corporations, brother-sister groups, combined groups, and certain insurance companies. If these restrictions did not exist, the shareholders of a corporation could gain significant tax advantages by splitting a single corporation into multiple corporations. (Examples 30 and 31)

Corporate Filing Requirements (slide 1 of 2)

• Must file Form 1120 on or before the 15th day of 3rd month following close of tax year even if it has no taxable income – Automatic 6 month extensions are available by

filing Form 7004

Presenter

Presentation Notes

PROCEDURAL MATTERS Filing Requirements for Corporations 30. Corporations must file a tax return (Form 1120 or Form 1120S) on or before the fifteenth day of the third month following the close of the tax year. Corporations receive an automatic extension of six months by filing Form 7004 by the due date of the return. Return is due even if the corporation has no taxable income. Corporations that were not in existence throughout the entire annual accounting period are required to file a return for the portion of the year they were in existence. A corporation is relieved of filing a tax return only when it ceases to do business and retains no assets. [§ 6012(a)(2) and Reg. § 1.6012-2(a)]

Corporate Filing Requirements (slide 2 of 2)

• Must make estimated tax payments equal to lesser of: – 100% of corporation’s tax for the current year, or – 100% of tax for preceding year

• No estimated tax payments required if tax liability expected to be less than $500

Presenter

Presentation Notes

Estimated Tax Payments 31. Corporations must make estimated tax liability payments unless the liability is less than $500. Required annual payment (including any AMT liability) is equal to the lesser of: (1) 100% of the current year’s tax. (2) 100% of the prior year’s tax (prior year exception). Estimated payments can be made in four installments due on or before the fifteenth day of the fourth month, the sixth month, the ninth month, and the twelfth month of the corporate taxable year. (§ 6655) (1) Therefore, for a calendar year corporation, estimated payments are due April 15, June 15, September 15, and December 15. (2) A corporation failing to pay its required estimated payments will be subjected to a nondeductible penalty on the amount by which the installments are less than the tax due. There are exceptions to this underpayment penalty. The penalty is imposed on each installment. A corporation must pay one-fourth of its required annual payment by the due date of each installment. c. A corporation having taxable income of at least $1 million in any of the prior three years (a “large” corporation) can use the prior year exception only for its first installment payment. Any shortfall of this payment must be remedied in the second installment payment. (Example 32) Example: Blue Corporation has a $1 million tax liability for the current year and an $800,000 tax liability last year. Using the prior year exception, Blue Corporation’s first installment payment is $200,000 ($800,000 ÷ 4). Second installment payment is $300,000 [($1 million tax ÷ 4) + ($250,000 required quarterly payment using the current year tax – $200,000 paid as first installment)]. Third and fourth installment payments are $250,000 each.

Schedule M-1

• Corporations must reconcile financial accounting income with taxable income on Sch M-1, Form 1120 – Common reconciling items include:

• Federal income tax per books • Net capital losses • Income reported for tax but not book income (e.g.,

prepaid income) and vice versa • Expenses deducted for book income but not tax (e.g.,

excess charitable contributions) and vice versa

Presenter

Presentation Notes

Schedule M1—Reconciliation of Income (Loss) per Books with Income per Return 32. Schedule M1 of Form 1120 reconciles the net income per financial accounting (i.e., per books) with taxable income per the tax return. That is, Schedule M1 reports the book to tax differences for the year. a. Schedule M1 is required for corporations with total assets less than $10 million. b. The starting point in the reconciliation process is net income (loss) per books. The following are entered as additions:  Federal income tax per books.  The excess of capital losses over capital gains.  Income that is reported in the current year for tax purposes but is not reported in computing net income per books (e.g., prepaid income).  Various expenses that are deducted in computing net income per books but are not allowed in computing taxable income (e.g., charitable contributions in excess of the 10% ceiling applicable to corporations).

Schedule M-2

• Corporations must reconcile retained earnings at beginning of year with retained earnings at end of year using Sch M-2, Form 1120 – Schedule L (balance sheet), Schedules M–1 and

M–2 of Form 1120 are not required for corporations with less than $250,000 of gross receipts and less than $250,000 in assets

Presenter

Presentation Notes

Schedule M2—Analysis of Unappropriated Retained Earnings per Books 33. Schedule M2 reconciles unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at year-end. a. Corporations with less than $250,000 of gross receipts and less than $250,000 in assets do not have to complete Schedule L (balance sheet) and Schedules M–1 and M–2.

Schedule M-3

• Corporate taxpayers with total assets of $10 million or more are now required to report much greater detail regarding differences in financial accounting income (loss) and taxable income (loss) – Reported on Schedule M–3

• Schedule M–3 should – Create greater transparency between corporate financial

statements and tax returns – Help the IRS identify corporations that engage in

aggressive tax practices

Presenter

Presentation Notes

Schedule M3—Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More 34. Corporations with at least $10 million in total assets on their financial statements must report much greater detail relative to financial and taxable income (loss) differences on Schedule M3. This form is a response to the financial scandals. Any corporation required to file a Schedule M3 does not file a Schedule M1. b. Objectives of Schedule M3 are the following: (1) Create greater transparency between financial statements and tax returns. (2) Identify corporations engaging in aggressive tax practices by highlighting transactions that create book/tax differences. Schedule M3 has three parts. c. Part I is financial information and the net income (loss) reconciliation. (1) Financial net income (loss) sources come from the SEC Form 10-K, financial statements, or the corporation’s books and records. (Example 35) (2) Any income statement restatements or adjustments for the current or past five years should be included.

Schedule M-3

• Schedule M–3 should – Create greater transparency between corporate financial

statements and tax returns – Help the IRS identify corporations that engage in

aggressive tax practices

Presenter

Presentation Notes

d. Part II reconciles net income (loss) of includible corporations with taxable income on the return. Corporations included in the financial reporting group may differ from the tax reporting group. (Example 36) e. Part III reconciles expense and deduction items. (1) Lists 36 expense and deduction items to reconcile. (2) Differences between financial and tax amounts must be classified as being temporary or permanent.

Consolidated Returns

• Corporations that are members of a parent- subsidiary affiliated group may be able to file a consolidated income tax return for a taxable year

Presenter

Presentation Notes

Consolidated Returns 35. Corporations that are members of a parent-subsidiary affiliated group may be able to file a consolidated income tax return for a taxable year. See Chapter 8.

Refocus On The Big Picture (slide 1 of 5)

• Conducting Skylark Bakery as a corporation would save Samantha $9,375 in income taxes annually, computed as follows:

Bakery Operated as Sole Proprietorship Operating profit of $100,000: Tax on $100,000 @ 33% $33,000 Dividends of $5,000: Tax on $5,000 @ 15% 750 Withdrawals of $50,000: No tax –0– Total income tax when operated as sole proprietorship $33,750

Refocus On The Big Picture (slide 2 of 5)

Tax - Bakery Operated as Regular Corporation Corporate taxable income $51,500

Tax on $50,000 @ 15% $ 7,500 Tax on $1,500 @ 25% 375 Total corporate income tax $ 7,875 Samantha’s salary of $50,000: Tax on $50,000 @ 33% 16,500 Total income tax when operated as C corporation $ 24,375

Refocus On The Big Picture (slide 3 of 5)

• Computation of corporate taxable income: Operating profit $100,000 Dividends 5,000 Less: Salary to Samantha (50,000) Dividends rec’d deduction (70%) (3,500) Taxable income $ 51,500

Refocus On The Big Picture (slide 4 of 5)

• The example illustrates the tax savings available when a high-income individual takes advantage of the lower marginal tax rates of C corporations.

• However, other issues also should be considered, such as – Employment tax considerations, and – Taxation of dividend distributions (income and Medicare

surtax) • Further, other potential entity options, such as the

LLC and S corporation, also should be evaluated.

Refocus On The Big Picture (slide 5 of 5)

• What if the bakery becomes a corporation and generates a $10,000 short-term capital loss (STCL)? – Regular corporations can only deduct capital losses against

capital gains. • Thus, the $10,000 STCL would not be deductible currently by the

corporation • Instead, it would be carried forward for up to 5 years.

– If the bakery is operated as a sole proprietorship, Samantha would report the capital loss on her individual return.

• She could use the $10,000 STCL to offset any capital gains she may have, and deduct up to $3,000 of the loss against ordinary income.

If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact:

Dr. Donald R. Trippeer, CPA

[email protected] SUNY Oneonta

Tax: Operating Rules
The Big Picture (slide 1 of 2)
The Big Picture (slide 2 of 2)
Various Business Forms
Sole Proprietorship
The Big Picture – Example 1�Sole Proprietorships
Partnership (slide 1 of 2)
Partnership (slide 2 of 2)
S Corporation
C Corporation
C Corporation
Dividends
Medicare Surtax
Corporate Income Tax Rates
Nontax Issues in Selecting �Entity Form (slide 1 of 3)
Nontax Issues in Selecting �Entity Form (slide 2 of 3)
Nontax Issues in Selecting �Entity Form (slide 3 of 3)
Limited Liability Companies (LLC)
Entity Classification �Prior to 1997 (slide 1 of 2)
Entity Classification �Prior to 1997 (slide 2 of 2)
Entity Classification �After 1996 (slide 1 of 2)
Entity Classification �After 1996 (slide 2 of 2)
Comparison of Corporate and Individual�Tax Treatment (slide 1 of 3)
Comparison of Corporate and Individual Tax Treatment (slide 2 of 3)
Comparison of Corporate and Individual Tax Treatment (slide 3 of 3)
Specific Provisions Compared
Accounting Periods and Methods �(slide 1 of 2)
Accounting Periods and Methods �(slide 2 of 2)
The Big Picture – Example 10�Accrual Method Of Accounting And �Cash Basis Related Parties (slide 1 of 2)
The Big Picture – Example 10�Accrual Method Of Accounting And �Cash Basis Related Parties (slide 2 of 2)
Capital Gains and Losses (slide 1 of 2)
Capital Gains and Losses (slide 2 of 2)
Depreciation Recapture
Passive Losses
Charitable Contributions�(slide 1 of 5)
Charitable Contributions�(slide 2 of 5)
Charitable Contributions�(slide 3 of 5)
Charitable Contributions�(slide 4 of 5)
Charitable Contributions�(slide 5 of 5)
Domestic Production �Activities Deduction
Net Operating Loss
Dividends Received Deduction�(slide 1 of 3)
Dividends Received Deduction�(slide 2 of 3)
Dividends Received Deduction�(slide 2 of 3)
Dividends Received Deduction�(slide 3 of 3)
DRD Examples
Organizational Expenditures �(slide 1 of 2)
Organizational Expenditures �(slide 2 of 2)
Organizational Expenditures Example
Start-up Expenditures�(slide 1 of 2)
Start-up Expenditures�(slide 2 of 2)
Corporate Tax Formula
Corporate Tax Formula
The Big Picture – Example 28 �Corporate Income Tax Liability (slide 1 of 2)
The Big Picture – Example 28 �Corporate Income Tax Liability (slide 2 of 2)
Alternative Minimum Tax
Tax Liability of Related Corporations
Corporate Filing Requirements�(slide 1 of 2)
Corporate Filing Requirements�(slide 2 of 2)
Schedule M-1
Schedule M-2
Schedule M-3
Schedule M-3
Consolidated Returns
Refocus On The Big Picture (slide 1 of 5)
Refocus On The Big Picture (slide 2 of 5)
Refocus On The Big Picture (slide 3 of 5)
Refocus On The Big Picture (slide 4 of 5)
Refocus On The Big Picture (slide 5 of 5)
Slide Number 70