Preface 11 results (showing 5 best matches)
- Principles of Corporate Income Taxation
- Unless otherwise stated, all “§” signs used in this text refer to section numbers of the Internal Revenue Code of 1986, as amended. Any reference in this text to the “Internal Revenue Code,” or simply to the “Code,” refers to the Internal Revenue Code of 1986, as amended. Citations in the text to “Bittker & Eustice” refer to Boris I. Bittker and James S. Eustice,
- Corporate taxation is a complex subject, and not every detail or exception can be covered in a corporate tax course. We have endeavored to provide as much depth and coverage as are consistent with the “concise” nature of the book series. Since the book is designed for students, we have restricted its scope to topics that are covered in most corporate tax courses. For example, we have omitted coverage of consolidated returns and the limitations on certain tax benefits for multiple corporations. If a student needs information about an area omitted from this text or needs more detailed discussion of an area, we recommend that the student consult our Hornbook. Indeed, readers will note that the Concise Hornbook itself occasionally cross-references to our Hornbook in certain instances where we think the reader might be interested in more extensive treatment of a particular topic.
- Finally, we want to alert the reader to two significant points of legislative uncertainty that exist as we complete our work and that permeate much of the discussion in the book. The first of these points of uncertainty relates to the tax rates that will apply to capital gain and dividend income after the end of 2010. Obviously, the tax treatment of dividends and capital gain affects the significance of many of the corporate tax provisions that we discuss. In addition, to a lesser degree, the uncertainty as to the status of the federal estate tax during 2010 and of the related provisions determining the tax basis of property passing through a decedent’s estate also affects some of the issues discussed in the book. As we complete the book, both questions remain uncertain. We have, of course, mentioned these uncertainties at numerous appropriate points in the book. However, both questions (and particularly the tax treatment of dividends and capital gains) are so central to the subject of
- A significant source of tax law is the Internal Revenue Code. Regulations, administrative decisions, and judicial decisions also are primary sources of tax law. The book discusses all of those sources and how they contribute to creating a body of corporate income tax principles. In addition, the book contains numerous examples to illustrate how the tax law is applied and how the various provisions interact. Those examples will help the student’s understanding of the subject.
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Chapter Three. Distributions in Redemption of Stock 219 results (showing 5 best matches)
- There is also the question of whether attribution can be judicially expanded to cover friendly relations not listed in § 318. For a discussion of that issue, see Kahn, Kahn, Perris, Lehman, Corporate Income Taxation (6th ed.) at 55–56 (hereinafter cited as Corporate Income Taxation Hornbook).
- For a discussion of the law prior to the adoption of § 302(c)(2)(C), see Corporate Income Taxation Hornbook at 69–71.
- For a detailed description of the partial liquidation law prior to the enactment of § 302(b)(4), see Corporate Income Taxation Hornbook at 73–75.
- The time period is usually four years after the death of the taxpayer, but, in some cases, can be extended beyond that period. § 303(b)(1). For a detailed discussion of the time period allowed, see Corporate Income Taxation Hornbook at 92–93.
- H.R. Rep. No. 861, 98th Cong., 2d Sess. 838 (1984). For a discussion of the rationale of this approach, see Corporate Income Taxation Hornbook at 81–85.
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Chapter One. Introduction 36 results (showing 5 best matches)
- A corporation is not allowed a deduction for distributions it makes to a shareholder on account of the shareholder’s stock. The taxation of the corporation on its income together with the denial of a deduction for the distributions it makes to shareholders who are taxed on that distribution results in the double taxation of corporate income. Currently, the tax law provides some relief from that double taxation by applying preferential lower tax rates to the income that noncorporate shareholders recognize from certain dividend income, but that provision may not survive for many more years.
- The history of that litigation is instructive. There were periods during which the government sought to impose association characterization (and thus corporate taxation) on organizations in order to impose double taxation on the organization’s earnings. There also were periods during which corporate characterization provided tax benefits to an organization (for example, allowed more liberal deferred compensation arrangements for employees who also were shareholders); and that led to a reversal of litigating roles in which the taxpayers sought association characterization and the government resisted.
- The Code includes a number of provisions that exclude or defer the recognition of realized gain. The provisions deferring the recognition of gain are referred to as “nonrecognition provisions.” Many of the nonrecognition provisions apply to transactions involving corporations or corporate stock. Much of corporate tax practice consists of structuring transactions so as to comply with the requirements of one or more of these nonrecognition provisions without sacrificing the business objectives of the parties. The nonrecognition provisions are central elements of the corporate tax system. Consequently, a sizeable portion of the corporate tax course and this book is focused on those provisions.
- In addition to the regular corporate tax rates and the surtaxes on income within specified ranges, there are several other surtaxes that can apply to corporations and increase their tax liability. Two of those are the Personal Holding Company surtax and the Accumulated Earnings surtax. Since many corporate tax courses will omit the subject of those surtaxes, they are not discussed in this book.
- For tax purposes, corporations can be divided into subcategories. There are foreign corporations and domestic corporations. A domestic corporation is one “created or organized in the United States or under the law of the United States or of any State.” This book deals only with domestic corporations. Most of the rules applicable to domestic corporations also apply to those foreign corporations that are subject to United States taxation, but additional rules apply to the foreign entities.
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Chapter Eight. Corporate Divisions 248 results (showing 5 best matches)
- § 312(h)(1). If the corporate division was made pursuant to a D reorganization, the allocation is prescribed by Treas. Reg. § 1.312–10(a). If the corporate separation was not made pursuant to a D reorganization, the allocation is prescribed by Treas. Reg. § 1.312–10(b). See Corporate Income Taxation Hornbook at 431–32.
- For greater elaboration on this point, please see pp. 386–387 of the Corporate Income Taxation Hornbook.
- See the discussion of that issue at Corporate Income Taxation Hornbook at 388–89.
- For further elaboration, see the examples at pp. 422–23 of the Corporate Income Taxation Hornbook.
- For a detailed discussion of the factors and operating rules, see Corporate Income Taxation Hornbook 427–31.
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Chapter Eleven. S Corporations 168 results (showing 5 best matches)
- In the absence of a remedial provision, a C corporation that has appreciated assets could avoid the imposition of a corporate tax on that appreciation by making an election to become an S corporation. Once the election became effective, the corporation’s recognized gain would be passed through to its shareholders and therefore would be taxed only once at individual rates. Without the S election, the gain would have been taxed twice—once at the corporate level and again at the individual shareholder’s level when the proceeds are distributed to the shareholders. To prevent the use of the Subchapter S election as a device for escaping corporate taxation of appreciation that arose prior to the effective date of the election, Congress imposed a corporate tax on the “net recognized built-in gains” of an S corporation when it is recognized within a specified period. This tax is set forth in § 1374.
- The purpose of Subchapter S is to prevent the double taxation of corporate income for certain qualified and electing corporations. In general, the shareholders will increase their basis in their corporate stock for income that passes through to them, and they will reduce their basis in the corporation’s stock for losses or deductions that pass through to them. Since the corporation’s income is taxed to its shareholders at the end of the corporation’s taxable year, even when not distributed to the shareholders, an S corporation’s actual distribution to a shareholder generally does not cause the shareholder to recognize income. Instead, the shareholder reduces his basis in his corporate stock. If the distribution exceeds the shareholder’s basis, the excess is treated as a gain from the sale of the stock.
- § 1362(d)(3). In the absence of such a restriction, a closely held C corporation could easily avoid the double-tax Subchapter C regime by selling its business assets and, instead of liquidating and thereby triggering a tax to its shareholders, becoming a corporate investment vehicle for its shareholders and electing S corporation status to avoid corporate tax on the investment income.
- A “net negative adjustment” is the excess of reductions in the AAA for a taxable year (other than reductions for corporate distributions) over increases in the AAA for such year. If there is a “net negative adjustment” to the corporation’s AAA for a taxable year, the amount of AAA at the end of the year that is to be applied to distributions made during that year is determined without making any adjustment for the “net negative adjustment.” In other words, the “negative adjustment” for a taxable year is not taken into account when determining the AAA to be applied to corporate distributions made during that year.
- 11.14 Taxation of the S Corporation
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Chapter Ten. Acquisition or Retention of Tax Attributes 155 results (showing 5 best matches)
- )(5), (6). Those provisions are an extensive topic in themselves and a detailed analysis of them is outside the intended scope of this chapter. See the discussion of this topic at Corporate Income Taxation Hornbook at pp. 618–620.
- For a detailed discussion of § 383, see Corporate Income Taxation Hornbook at pp. 627–30.
- To a substantial degree, judicial doctrines relating to the survival of tax attributes have been supplanted by the various Code provisions that have been enacted to address that issue. There is, however, one remaining non-statutory doctrine that relates almost exclusively to the retention of tax attributes and can serve to destroy such attributes despite strict adherence to both § 382 and § 269. That is the doctrine of de facto dissolution, and we will close this review of the tax principles that govern the survival of corporate tax attributes with a brief discussion of that judicial doctrine.
- Treas. Reg. § 1.269–3(a). In this regard, a substantial body of law has developed concerning the implications of the requirement that the tax benefit in question must be one that the taxpayer would not “otherwise enjoy” in the absence of the transaction that triggered the applicability of § 269. In appropriate factual circumstances, this requirement serves as a significant limitation on the Service’s ability to successfully assert § 269. See Cromwell v. Commissioner, 43 T.C. 313 (1964), acq. 1965–2 C.B. 4, and Corporate Income Taxation Hornbook at pp. 641–43.
- For the purpose of determining the § 382 limitation for a loss corporation, the value of an old loss corporation immediately before the ownership change will be reduced if a redemption of the corporation’s stock (or other corporate contraction) occurs in connection with the ownership change regardless of whether the redemption or other corporate contraction occurs before or after the ownership change took place. The value of the old loss corporation will reflect the redemption or other corporate contraction; for example, in the case of a redemption, the value of the corporation is determined by valuing only the shares of stock that were not redeemed.
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Chapter Nine. Reorganizations 336 results (showing 5 best matches)
- The study of reorganizations lies at the heart of the study of corporate taxation. Yet it is plagued by a linguistic problem: the
- There are, of course, a number of additional, collateral questions that arise in double dummy transactions. For a more detailed discussion of the structure and how it was developed, the reader may wish to review our Corporate Income Taxation Hornbook.
- For a more detailed discussion of the G reorganization and its requirements, see Corporate Income Taxation Hornbook at pp. 528–30.
- For a detailed discussion of this issue, see Corporate Income Taxation Hornbook 548–52.
- See Corporate Income Taxation Hornbook at pp. 552–60.
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Chapter Seven. Organization of a Corporation 213 results (showing 5 best matches)
- § 111. For a fuller discussion of the interplay of § 351 with the tax benefit rule, see Corporate Income Taxation Hornbook at 322–24.
- The anticipatory assignment of income principle is a judicially created doctrine providing that a person who earns the right to income cannot escape taxation by assigning the right to that income to a third party. It is clear that § 351 does not preclude the application of the assignment of income doctrine, but unfortunately the boundaries of the doctrine itself are somewhat less clear.
- There is a possible argument that, in light of recent changes in the application of the doctrine of the “continuity of proprietary interest” in the reorganization area, one could question whether a transferor’s prompt disposition of the transferee corporation’s stock should have any effect on the qualification of the exchange for nonrecognition under § 351. For a detailed discussion of that argument, see Corporate Income Taxation Hornbook at 281–84.
- 7.12 The Receipt of Boot, Part II (Corporate Assumption of Transferor Liability and Netting of Obligations)
- Finally, § 1223 provides the answers to the last two client questions regarding holding period. Under § 1223(1), when calculating the holding period of the corporate stock received in a § 351(a) exchange, a shareholder may include the holding period of the exchanged asset as long as the exchanged asset was either (1) a capital asset as defined in § 1221 or (2) § 1231 property. That is, if the shareholder exchanges an ordinary asset, such as inventory, the shareholder will not be able to tack that asset’s holding period and the holding period for the corporate stock received in the exchange will begin on the day following the date of the § 351 exchange. For the transferee corporation, the answer to the holding period question is simpler. Under § 1223(2), when determining the corporation’s holding period of the exchanged asset, the transferee corporation ...transferor shareholder held the asset (no matter what type of asset it is). That is, the corporation always tacks the...
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Chapter Five. Taxable Purchase and Sale of a Corporate Business 84 results (showing 5 best matches)
- Corporate businesses are typically bought and sold in one of two ways: Either the corporation sells its assets (after which it may or may not be liquidated); or the shareholders sell their shares (after which the purchaser may or may not liquidate the acquired corporation). This chapter discusses the general patterns of taxation applied to these two methods of buying and selling corporate businesses when the transaction does not qualify as a reorganization.
- For a more detailed discussion of these topics, see Corporate Income Taxation Hornbook at Chapter Four, Part B.
- For a more detailed discussion of § 336(e), see Corporate Income Taxation Hornbook at 183–86.
- T has one business asset which has a fair market value of $600,000. T’s adjusted basis in the asset is $350,000. A’s basis in his T stock is $200,000. P purchases T’s asset using $600,000 cash. T will recognize $250,000 gain on that transaction. T liquidates and transfers the $600,000 to A. A will recognize a gain on $400,000 on the complete liquidation of T. Note that there are two instances of taxation—one at the corporate level when the assets are sold and one at the shareholder level when T liquidates. P will take T’s former business asset with a fair market value basis of $600,000.
- T has one business asset, which has a fair market value of $600,000. T’s adjusted basis in the asset is $350,000. The single individual owner of T, A, has a basis in his T stock of $200,000. A sells his T stock to P for $600,000 cash. A recognizes a gain of $400,000 on the sale. No gain is recognized by T and thus, unlike the asset sale, there is only one level of taxation (the shareholder level). P has a fair market value basis of $600,000 in the T stock. However, T still has a $350,000 basis in the business asset.
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Chapter Two. Distributions to Shareholders: § 301 Distributions 155 results (showing 5 best matches)
- In addition to extraordinary dividends arising from a § 301 distribution, § 1059 can also apply to a corporate shareholder’s receipt of a corporate distribution pursuant to a partial liquidation or a non-pro rata stock redemption, or of certain boot in a corporate reorganization, but only to the extent that such distributions are treated as a dividend to the corporate shareholder. In such cases, the amount that constitutes a dividend is treated as an extraordinary dividend to which § 1059 applies regardless of how long the shareholder had held the redeemed stock.
- Except to the extent exempted by regulation, § 301(e) makes the provisions of § 312(k) and (n), other than § 312(n)(7), inapplicable when determining whether a section 301 distribution to a 20 percent corporate shareholder constitutes a dividend or a return of capital. A 20 percent corporate shareholder is a corporation that owns (after applying certain stock attribution rules) stock in the distributing corporation representing either: (1) at least 20 percent of the voting power of the distributing corporation’s outstanding stock, (2) at least 20 percent of the total value of the distributing corporation’s outstanding stock (exclusive of nonvoting stock that is limited and preferred as to dividends). for purposes of determining how much of the amount received by a 20 percent corporate shareholder is a dividend and how much is a return of capital. This provision has no effect on the of the distributing corporation for purposes of determining the characterization of § 301...
- corporation to a corporate shareholder, the corporate shareholder is granted a deduction, sometimes referred to as a “dividend-received deduction,” in an amount equal to some specified percentage of the dividend. Ordinarily, the deduction will be equal to 70 percent of the amount of the dividend. This is sometimes referred to as the “70 percent dividend-received deduction.” The net result of this deduction is that only 30 percent of the dividend paid to the corporate shareholder is taxed. Since the maximum nominal rate of tax payable by a corporation currently is 35 percent (note that the current provision for a capital gains rate on dividends does not apply to corporations), the maximum marginal nominal rate that can be applied to a corporate shareholder’s receipt of a dividend that qualifies for the 70 percent dividend-received deduction is 10.5 percent (i.e., a tax of 35 percent on 30 percent of the dividend received).
- In certain circumstances, a corporate shareholder’s receipt of an “extraordinary dividend” on a share of stock that the corporate shareholder had held for two years or less at the time that the dividend was declared can cause a reduction of the shareholder’s basis in that share of stock or can cause the shareholder to recognize additional income. The reduction of the shareholder’s basis in that share of stock is made at the beginning of the “ex-dividend date” for the extraordinary dividend. The “ex-dividend date” is the first day after the extraordinary dividend was declared that a purchaser of the share of stock on which the extraordinary dividend was declared would purchase that stock ex-dividend (i.e., the dividend would be paid to the seller and not to the purchaser). The amount of the reduction of the corporate shareholder’s basis in the share of stock equals the amount of the extraordinary dividend on that share that effectively is taken out of the corporate shareholder’s...
- In common parlance and for general corporate law purposes, most distributions from a corporation are referred to as a “dividend.” However, for federal tax purposes, the word “dividend” is a term of art that is specifically defined in the Code. The tax definition of a dividend is separate and independent of the characterization of a corporate distribution to shareholders for state corporate law purposes. Unless indicated otherwise, as used hereafter, the term “dividend” will refer to a dividend for federal tax purposes. A distribution made on a share of stock, which may or may not be a dividend, is referred to in this book as a “§ 301 distribution.” It is important not to assume that every distribution made by a corporation on its stock is a dividend, and so it is useful to refer to such distributions by some name other than “dividend” in order to keep in focus that additional determinations must be made to see if it qualifies as a dividend.
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Chapter Four. Complete Liquidation of a Corporation 103 results (showing 5 best matches)
- A third exception is that a corporation does not recognize gain or loss on making a liquidating distribution (or of any other type of distribution) of “qualified property” pursuant to a corporate division to which § 355(a)(1) provides nonrecognition. Corporate divisions are discussed in Chapter Eight.
- H.R. Rep. 99–841, pt. 2 at II–200 (1986) (Conf. Rep.). See also Staff of Joint Comm. on Taxation, 100th Cong., General Explanation of the Tax Reform Act of 1986 (Joint Comm. Print 1987) (subsequently referred to as the “Blue Book for the Tax Reform Act of 1986”).
- 4.05.3 Taxation of the Liquidating Subsidiary
- ¶ 4.05.3 Taxation of the Liquidating Subsidiary
- Naturally, the Commissioner has not been willing to permit taxpayers to reduce their taxation in this manner. At times, he has contended that the transaction should be taxed as being, “in substance,” a dividend distribution subject to the rules of §§ 301 and 302. At other times, he has contended that the transaction should be taxed as being, “in substance,” a “reorganization” that involves a distribution of “boot” to the shareholders, subject to the special rules of § 368 and § 356. We examine the often complex rules associated with reorganizations in Chapter Nine.
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Chapter Six. Distribution of Stock and Section 306 Stock 102 results (showing 5 best matches)
- Stock (other than common stock) received in a corporate reorganization or division.
- The Court reasoned that the stock dividend in that case did not provide the taxpayer with anything more than she already possessed; her percentage interest in the corporation was the same after the proportional stock dividend as it was before. The effect of the stock dividend was merely to crystallize the corporation’s accumulated earnings by converting retained earnings into capital stock. As a consequence of the decision in , Congress excluded stock dividends from taxation in the Revenue Act of 1921.
- The basis of stock received by a corporate or individual shareholder as a dividend subject to § 301 will equal the fair market value of the stock at the date of distribution.
- Nonvoting preferred stock would be used because its subsequent disposition would not affect the control of the corporation, its terms could be set so as to prevent its participating in corporate income above its preference rights, and the terms could be designed to satisfy the requirements of a potential purchaser of the stock.
- A Technical Revision of the Federal Income Tax Treatment of Corporate Distributions to Shareholders
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Table of Contents 104 results (showing 5 best matches)
Index 133 results (showing 5 best matches)
Title Page 4 results
Advisory Board 10 results (showing 5 best matches)
- Professor of Law, University of San Diego Professor of Law Emeritus, University of Michigan
- Professor of Law, Chancellor and Dean Emeritus, University of California, Hastings College of the Law
- Professor of Law, Pepperdine University Professor of Law Emeritus, University of California, Los Angeles
- Professor of Law and Dean Emeritus, University of California, Berkeley
- Professor of Law, Michael E. Moritz College of Law,
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Copyright Page 2 results
- Thomson Reuters created this publication to provide you with accurate and authoritative information concerning the subject matter covered. However, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. Thomson Reuters does not render legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- Printed in the United States of America
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- Publication Date: June 14th, 2010
- ISBN: 9780314184962
- Subject: Taxation
- Series: Concise Hornbook Series
- Type: Hornbook Treatises
- Description: This book begins by examining the tax treatment of a withdrawal of property from an existing corporation, rather than tracing the chronological life of a newly incorporated entity. The intent is to emphasize such topics as dividends, earnings and profits, and stock redemptions, which are the fundamental building blocks on which the more complex provisions of corporate taxation rest. The authors explain the technical operation of various Internal Revenue Code provisions and provide numerous examples illustrating how the provisions are applied and they must be read in concert with each other.