What is a C corporation?
A separate legal entity taxed under Subchapter C of the IRC. It can own assets, incur liabilities, and pays tax at the corporate level, with profits potentially taxed again when distributed as dividends (double taxation).
Individual shareholders do not have direct ownership over the corporation’s assets, providing legal liability protection except in exceptional circumstances.
Which businesses are automatically treated as corporations?
- Entities formed under federal or state law as corporations
- Joint-stock companies or associations
- Insurance companies and certain banks
- Businesses owned by state or local government
- Publicly-traded partnerships designated by the IRC
- Certain foreign businesses
- Businesses electing to be taxed as C corporations using Form 8832
What is double taxation in the context of C corporations?
C corporations face double taxation where the corporation pays taxes on its profits, and shareholders pay taxes on dividends received.
What are the basic characteristics of a C corporation?
- Perpetual life and limited liability
- Double taxation
- Requirement for shareholder meetings
- Organization requiring a corporate charter and board of directors
- Unlimited shareholders
- Ability to issue multiple classes of stock
- Tax-free fringe benefits for shareholder-employees
What is the filing requirement for a domestic C corporation?
It must file Form 1120, U.S. Corporation Income Tax Return, regardless of taxable income or activity.
What is the due date for a calendar-year C corporation to file Form 1120?
April 15 of the following year
For fiscal-year C corporations, Form 1120 is due the 15th day of the 4th month after the end of the year (except June 30 year-ends, which are due the 15th day of the 3rd month).
An automatic 6-month extension is available by filing Form 7004.
What penalties apply for late filing of a C corporation’s tax return?
5% of any unpaid tax for each month the return is late, up to 25% of the unpaid tax.
If filed more than 60 days late, the penalty is the lesser of $525 or 100% of the tax due.
When must a C corporation make estimated tax payments?
If they expect their tax due to be $500 or more during the taxable year.
What is required for a corporation to qualify for the prior-year safe harbor for estimated tax payments?
Each estimated tax installment must be at least 25% of the income tax on the prior-year return.
The safe harbor does not apply if the prior year was a short year, no return was filed, or the corporation had $1 million or more in modified taxable income in any of the last three years.
What is the purpose of Form 1139, Corporation Application for Tentative Refund, and when is it used?
It is used by corporations to claim a quick refund of overpaid taxes. It’s typically filed to apply carrybacks of net operating losses, unused credits, or other adjustments, and must be filed within 12 months after the close of the year in which the loss or credit arose.
What is the purpose of Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax?
It lets a corporation claim a quick refund when its estimated tax payments exceed the actual tax liability by at least 10% and more than $500.
Form 4466 must be filed before the corporation’s tax return, and it can be used if the overpayment is at least 10% of the anticipated tax liability and at least $500.
What tax rate do C corporations pay on their profits?
21% flat tax on all profits
What is the Corporate Alternative Minimum Tax (CAMT)?
A 15% minimum tax on the adjusted financial statement income of very large corporations.
The CAMT generally applies to corporations with average annual financial statement income exceeding $1 billion.
Why might a C corporation’s earnings be taxed twice?
- Once at the corporate level
- Once at the shareholder level through dividend distributions
A corporation does not receive a tax deduction for dividend distributions, and income does not retain its character when distributed to shareholders.
What is the accumulated earnings tax?
A 20% penalty tax on corporations that retain earnings beyond reasonable business needs instead of distributing them to shareholders, aimed at preventing the avoidance of shareholder-level tax.
This tax is assessed only after an audit, and corporations have the opportunity to justify their accumulated earnings to the IRS.
When is a corporation required to file Schedule M-3?
When its assets exceed $10 million.
Schedule M-3 is used to reconcile book-to-tax differences for large corporations.
What is a Section 351 transfer?
It allows shareholders to contribute property to a corporation without incurring immediate tax, provided they receive stock in return and the transferors collectively control at least 80% of the corporation immediately after the exchange.
When must a corporation file Schedule L (Balance Sheets per Books) with Form 1120?
Required when a corporation’s gross receipts or total assets exceed $250,000.
What accounting method must tax shelters use?
The accrual method, regardless of size.
What is the basis of property contributed to a corporation’s capital by a non-shareholder?
Zero
When stock is exchanged for services, what must the recipient recognize?
Ordinary taxable income equal to the fair market value of the stock received.
True or False:
Section 351 nonrecognition treatment applies if the corporation is an investment company.
False
What percentage of voting power and shares must transferors own to be considered ‘in control’ after a section 351 exchange?
- At least 80% of the total combined voting power of all classes of stock entitled to vote.
- At least 80% of the outstanding shares of each class of nonvoting stock.
What happens if a shareholder receives ‘boot’ in a section 351 exchange?
The shareholder must recognize gain, limited to the lesser of the boot received (cash or FMV of property) or the total realized gain on the exchange. No loss can be recognized.
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Essential Tax Law Figures for Businesses34
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Unit 1: Business Entities and Requirements72
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Unit 2: Accounting Periods and Methods65
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Unit 3: Business Income46
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Unit 4: Business Expenses64
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Unit 5: Employee Compensation and Fringe Benefits78
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Unit 6: Other Business Deductions and Credits72
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Unit 7: Basis of Business Assets31
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Unit 8: Depreciation and Amortization58
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Unit 9: Disposition of Business Assets58
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Unit 10: Partnerships in General43
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Unit 11: Partnership Distributions and Liquidations26
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Unit 12: C Corporations in General46
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Unit 13: Corporate Transactions29
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Unit 14: Corporate Distributions and Liquidations30
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Unit 15: S Corporations48
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Unit 16: Farming Business35
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Unit 17: Tax-Exempt Organizations39
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Unit 18: Retirement Plans for Businesses93
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Unit 19: Trusts and Estates47
