Chapter 17 Corporations

Intro, Operating Rules, Related Corps

Business Forms (Tax Returns OH)

Sole Prop P’ship Trusts & Estates S Corps C Corps

Sole Proprietorship

Schedule C, Form 1040

Tax 1 Chapters 3,6,8

especially

Partnerships, LLC’s

Form 1065 Schedule K-1

– Part share of inc/loss & sep md/exp

Chapter 21 Tax 2

Trusts & Estates

Form 1041

Chapter 28

Tax 3

S Corps

Distinguish S Corps– Chapter 22– generally not pay tax– similar to p’ship

Regular Corps - C Corps

Tax paying entities Form 1120 double tax Tax Rate Schedule Dividends

Reasonable Comp to Sh’s

deductible

amount & quality of work

unreas = constructive div

Choosing Corp Form - Tax Factors

Corp rates v. individual rates

character of div income v. flow through income

C Corp losses remain with corp

Choosing Corp Form - Non Tax Factors

Limited v. unlimited liability (sole prop, GP)

Raising capital through stock free transferability continuity of life centralized management

Limited Liability Companies(LLC’s)

1988 IRS ruling: p’ship for tax purps and limited liability Pre 97: IRC 7701(a)(3) characteristics

– majority: continuity of life, centralized management, limited liability, free transferability

LLC’s & other entitiesPost 96

Check the box regs elect p’ship or corp

status default Form 8832 Morongo tribe gambling

income = corporation dividend (not taxable to NR of CA)

Corporate Tax Calculation

Formula (OH), Tax Returns (OH) Similarities to individuals: GI Exclusions (Corps fewer) 1031, 1033 (not 121) related parties, wash sales

Corporate Tax Calculation(Continued)

1245, 1250 recapture, plus 291 Business deductions

– bad debts & interest: no nonbus Credits

Corp Tax - Dissimilaritiesto Indivs

Rates all deducs = bus; AGI not used no itemized & standard no personal & dependent exemptions casualty losses: no $100, no 10% AGI

Corp Tax - Certain Specific Provisions

Accounting periods & methods period usually choice - calendar or fiscal PSC & S Corp restricted PSC - cal yr unless exceps (chap 16) S Corps (chap 22)

Method

Cash usually not avail to Corp exceptions:

– S Corps, farming & timber, qualified PSC’s, Ave Ann GR 5m (3 prior yrs average)

inventory: accrual req’d for inventory related party & accrued deduction

Capital Gains & Losses

Capital Asset Definition L/T v. S/T Netting LTCG Rates

– individuals: number of rates– Corporations: reg. Tax rate

Losses– individuals: 3000, CF indefinitely– corporations: CB 3, CF 5, STCL

Depreciation Recapture

1245 - same 1250 - same plus 291 291 - 20% (1245 OI -

1250 OI)

Charitable Contributions

To qualified charitable org. year paid or, accrual basis - preceding year

– authorized by board

– paid by 15th day of 3d m of year

Charitable Contributions(Type of Property)

LTCG property

– limited to basis if tangible personal property put to unrelated use

OI property

– inventory STCG, recapture

– limited to basis usually

Charitable Contributions(Type of Property)

OI property - exception to basis rule (Corps)

add 50% of appreciation (limit: 2 x basis)

– inventory, related purp, and care of ill / needy / infants

– scientific property to colleges and certain scientific research orgs

Charitable Contributions(% Limit)

Limit = 10% TI TI w/o charitable contribution

w/o NOL CB (per 170(b)(2) v. 246 (b)(1)

w/o CL CB

w/o DRD CF 5 yrs, newest 1st

NOL’s

CB2, CF20 no C/L v. indivs no non bus

deduc. V. indivs include DRD

DRD (Corps only) alleviate triple tax: corp payor, corp payee, shareholder

Own

20%

20, 80%

80%

Deduc - %TI (domestic corp)

70%

80%

100%

DRD - TI

TI w/o NOL (CB or CO per 246(b)(1) v. 170(b)(2))w/o DRDw/o CL CB

% limit may not apply if no NOL– lesser of % x divs or % x TI– unless TI minus (% x divs) = NOL, then

use % x divs

ORG Expenses (Corps only)

IRC 248 + New 04 Law Org & Start up Election to Amortize over 60 mos. Original return and extensions include legal, accounting, temp director’s

fees, org meetings, state incorp fees not expenses of selling stk or transferring

assets incurred before and year begin business

Corp Tax Rates & Calc

0 - 50,000 15%50 - 75,000 25%75 - 100,000 34%100 - 335,000 39%335,000 - 10m 34%10 - 15m 35%15 - 18,333,333 38%18,333,333 - 35%

PSC’s

Flat: highest individual rate substantially ee owned health, law, engineering, architecture,

accounting, actuarial science, performing arts, consulting

AMT

Similar to individuals

rate & exemptions different

ACE

Related Corps

Limit multiple corps (IRC 1561) special rules - inc tax sur tax exemption,

AEC (250 or/5 ok), AMT exemption (40k), 179

controlled group e.g., 1 surtax exemption (rates lower 35%)

equal allocation unless all members consent to unequal

Controlled Groups

P/S & B/S P/S = one or more chains of corps connec’d

thru a common parent

- voting or value

- 80% of total voting power of all classes

- 80% total value of all shares of all corps, except P, by 1 or more corps

B/S = 2 or more corps owned by 5 or fewer persons (indivs, ests, trusts)

and shareholder group meets– 80% total ownership– 50% common ownership

% of all classes in total or % of each class in each corp

to determine common ownership, count only identical ownership

Combined Group

Each corp member of either P/S or B/S

at least one P of P/S P also member of

B/S

Filing Requirements

TI or not - req’d to file until cease to do bus and no assets 1120 (or 1120A, 1120S 15th day of 3’d month Form 7004 - automatic ext. - 6 mos

Estimates

Unless $500 tax 100% TY, 100%

LY (lesser) Months due – 4, 6,

9, 12 penalty, exceptions

Reconciliation: BI to TI (M-1)

Schedule M-1 (OH) start net income per

books to TIb4NOL, DRD

M-3 if >10m in assets

Additions (M-1)

Fed inc tax net CL income rept’d for tax & not for books eg.,

prepaid income expenses deduc’d for bks & not for tax, eg.,

charitable 10%

Subtractions

Inc. rept’d on books & not for tax eg., tax exempt

exps deduc’d tax & not for books eg., charitable c/o

Reconciliation beg & end R/E (M-2)

schedule M-2 (OH) per books inc (from

M-1)

Planning - Corp v. Non Corp

Double tax & avoiding – debt/equity– unreas salary & rent

accum inc inside corp if 100,000 character of items losses locked up in corp liquidation - tax to corp & sh’s EE’s & benefits - group term life insur,

health insur, meals & lodging

Planning - Operating the Corp

Charitable contributions - authorized b4 yr end

Cap G&L– match L to G– watch c/o L (CB3, CF5)

NOL - elect to forego CB– consider postponed refund– consider higher future profits– consider higher future tax rates

DRD– time to create NOL will give bigger DRD

ORG exps

– adopt fiscal year to be sure exps incurred b4 yr end

SH - EE paym of Corp exps

– det corp policy on remb b4 beginning of each yr

Corporate ProvisionsEGTTRA `01 Change in tax rates Also for accumulated earnings tax and

personal holding company tax Rate for AET and PHC tax

– Highest tax rate for indiv t/p Effective: after `00

ORG & START-UP EXPS (04 LAW) Expense 500 org, 5000 start-up Rest still amortized (corps 60 mos) Syndication costs capitalized & not

deducted Lose 5000 dollar for dollars over 50,000

in category