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Business Taxation
University of Kansas School of Law
Rubin, Rachel

Taxation of Business Enterprises — Fall 2007[Note: The Fall 2007 course was taught by an adjunct professor who did not cover most of partnerships.] “C” Corporations
1.       Definitions
a. “Person” — includes individuals, partnerships, associations, and corporations. § 7701(a)(1).
b. “Taxpayer” — person subject to any internal revenue tax. § 7701(a)(14).
c. “Taxable Income” [TI] — gross income minus deductions (either itemized or standard). § 63(a)-(b).
2.       Tax on “C” Corporations
a. Every corporation is subject to taxation under subtitle A [income tax]. § 6012(a)(2).
b. General Rate Structure. § 11(b)(1)(A)-(D).
                                      i.       15% of taxable income up to $50,000.
                                    ii.       25% of taxable income between $50,001 and $75,000.
                                   iii.       34% of taxable income between $75,001 and $10,000,000.
                                  iv.       35% of taxable income at or above $10,000,001.
c. Additional Tax on Certain Income. § 11(b)(1) 2nd ¶.
                                      i.       On taxable income above $100,000, the lesser of:
1.       5% of income above $100,000; or
2.       $11,750.
                                    ii.       On taxable income above $15,000,000, the lesser of:
1.       3% of income above $15,000,000; or
2.       $100,000.
d. No Graduated Rates for Personal Service Corporations — the amount of tax imposed on a personal service corp. is a flat 35% of taxable income. § 11(b)(2).
                                      i.       “Personal Service Corporation” — any corporation wherein “substantially all” activities involve performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; and wherein substantially all of the stock is held by employees performing such services, retired employees who performed such services, the estate of an individual who performed such services, etc. § 448(d)(2).
e. Capital Gains Tax — “C” corp. is eligible for the capital gains tax rate. § 1(h)(1).
f.   Corporation-Specific Limitations
                                      i.       10% Limit on Charitable Contribution Deductions — corp. cannot deduct more than 10% of TI in the form of a charitable contribution. § 170(b)(2)(A). [See § 170(b)(2)(C) for limits on calculating TI for this section.]                                     ii.       No Cash Method of Accounting — corp. cannot compute TI under the cash method. § 448(a)(1).
1.       Cash method accounting is allowed for (1) farmers, (2) personal service corporations [§ 448(d)(2)], and (3) corporations with gross receipts less than $5M. § 448(b)(1)-(3).
a.       $5M Gross Receipts Test — satisfied if average annual gross receipts for 3-TY period ending with the prior TY does not exceed $5M. § 448(c)(1). [See additional rules. § 448(c)(2)-(3).] g. Due Date of Return — must be filed on or before March 15th for calendar-year taxpayers, or on or before the 15th day of the third month following the close of the fiscal year for fiscal-year taxpayers. § 6072(b).
3.       Organizing the “C” Corporation
a. General Principles
                                      i.       No gain/loss recognized for any capital contribution. § 118(a).
                                   

ition of property is excess of amount realized over adjusted basis [determined in section 1011]. Loss is excess of adjusted basis over amount realized. § 1001(a).
1.       Amount Realized — sum of money received plus FMV of property received. § 1001(b).
                                    v.       For Corporation — basis of property is the cost of such property, exclusive of real property taxes. § 1012.
1.       No gain/loss recognized to a corp. on receipt of money or other property in exchange for stock of such corp. § 1032(a).
                                  vi.       Holding period of property tacks across section corporate asset exchange transactions. § 1223(1)-(2).
b. Loss Recognition
                                      i.       No deduction allowed for any loss from sale/exchange of property between related persons. § 267(a).
1.       “Related Persons”—includes (1) members of a family; (2) an individual and a corp. wherein more than 50% of outstanding stock is owned by the individual; (3) two corps. that are members of the same controlled group, etc. § 267(b). [See section for full list.] a.       Stock owned by corp. treated as owned proportionately by its shareholders. § 267(c)(1).
b.       Individual considered as owning stock owned by his family. § 267(c)(2).
Corp. can deduct amount of denied loss. § 267(d).