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Business Taxation
University of Kansas School of Law
Dickinson, Martin B.

Professor: Martin B. Dickinson

Business Tax

Spring 2011

Introduction

General Business Provisions

1A . Domestic Production Income

· § 199(a)-(c)

o Deduction for qualified domestic production activities. Generally ignore for the purposes of the test.

· § 199(d)(2)-(5)

o Deduction for qualified domestic production activities. Generally ignore for the purposes of the test.

2. Like Kind Exchanges: In General

· § 1031(a)(1)-(2)

o Exchange of property held for productive use or investment

§ Nonrecognition of loss from exchanges solely in kind

· § 1031(b)-(d)

§ Gains/losses from exchanges not solely in kind

3. Like Kind Exchanges: Deferred Exchanges

· § 1031(a)(3)

o Requirement that property be identified & exchange completed within 180 days.

§ Not like-kind if not done in proper window of time.

Corporations

3A. Preview

4. The Corporation as a Taxpayer

· § 7701(a)(1) & (14)

o (1) Person – an individual, trust, estate, partnership, association, company, or corporation.

o (14) Taxpayer – a person

· § 63(a)

o Taxable income – gross income, minus deductions.

· § 63(b)

o Non-itemized deductions – Standard deductions and personal exemptions only.

· § 11

o Tax Imposed

§ On Corporations, plus rate structures

· § 1(h)(1)

o Tax on capital gains, if there is a net gain for the year.

· § 1211(a)

o Limitation on losses only to the extent of gains (Individuals not corporations get extra $3K)

· § 170(b)(2)

o Charitable Contributions

§ For corporations, total deductions cannot exceed 10% of the taxable income.

· § 448(a), (b),(c)(1),(d)(2)

o Limitation on method of cash accounting

§ (a) can’t use cash receipts in cases of C corps, p’ship with C-corp partner, or tax shelter.

§ (b) Farms C-corps can use cash accounting, as can personal service corps, and entities with gross receipts under $5M

§ (c)(1) $5M gross receipts test – average annual gross receipts of the prior 3 years must be below $5M

§ (d)(2) Definition of Qualified Personal Service Corporation

· § 6012(a)(2)

§ Every corporation required to make a tax return.

· § 6072(b)

§ File return 15th of March if on calendar year, or 15th day of 3d month following close of fiscal year.

5. Taxation of Dividends

· § 1(h)(1)

o Tax on capital gains, if there is a net gain for the year.

· § 1(h)(3)

o Adjusted net capital gain is net capital gain, reduced by unrecaptured 1250 gain, and 28-percent rate gain, plus qualified dividend income.

· § 1(h)(11)(A) & (B)

o Dividends are taxed as net capital gain.

· § 1222(11)

o Net capital gain is the excess of LTCG over STCL for the year.

· § 246(c)(1) & (3)

o Exclusion of certain dividends

§ No deduction under 243, 244, or 245 for stock held less than 45 days in the 91 days around the dividend date

§ Determination based on day of disposition not day of acquisition; 1223 ¶3 will not apply

6. Consolidated Returns

· § 1501

o Affiliated group of corporations can make one tax return

· § 1502

o Secretary can make regulations to determine tax liability of affiliated group of corporations.

· § 1503(a)

o Consolidated returns will be governed by regulations set forth by sec’y in 1502

· § 1504(a)(1) & (2)

o (a)(1) Affiliated group means common parent owns amount specified in (2)

o (2) 80% test — 80% of voting and 80% of value

· § 1504(b)

o Includable corporations means any corporation except

§ 1) Corps exempt from taxation under § 501

§ 2) Insurance companies subject to taxation under § 801

§ 3) Foreign Corporations

§ 4) Corporations with a § 936 election

§ 5) Corporations organized under China Trade Act

§ 6) Regulated investment companies subject to tax under subchapter M of Chapter 1

§ 7) A DISC

§ 8) An S-Corporation

7. Entity Classification

· § 7701(a)(3)

o Corporations include associations, joint stock companies, and insurance companies.

8. Organizing the Corporation: Ge

ons (for whom loss would not be recognized)

o (c) constructive ownership of stock, esp. for imputing ownership to shareholders of corporation that holds the stock; constructive imputation to members of a family the stock held by a family member

11. Organizing the Corporation: Liabilities

· § 357(a)-(c)

o (a) corporation can assume liabilities of stockholders attached to properties in exchange for stock.

o (b) so long as the liability transfer is not for tax avoidance or non-bona fide business purposes

o (c) liabilities assumed in excess of basis will be treated as gain from sale of capital asset

· § 357(d)(1)

o a recourse liability will be treated as having been assumed regardless of whether the transferor is relieved of the liability

o nonrecourse liability is treated as assumed, except as provided in ¶2

· § 358(d)

o Liabilities transferred to another party will be treated as money received by the taxpayer on the exchange.

12. Organizational Expenditures

· § 248

o Election to deduct organizational expenses, deduct lesser of

§ Whole of operational expenses

§ $5K reduced by the amount which organizational expenditures exceed $50K

¨ Amortize the rest over 180 months.

13. Organizing the corporation: debt vs. equities

· § 385

o (a) Sec’y authorized to prescribe regulations

o (b) Factual situations where debtor-creditor situation may exist between corp and shareholder

o (c) Classification by issuer binding on issuer, but not on sec’y

15. Organizing the corporation: Losses

· § 165(g)(1)-(2)

o Worthless Securities

§ (1) Securities which become worthless will be treated as capital losses

§ (2) Securities are — shares of stock, stock options, bond, debentures, notes, or certificates of indebtedness.