1. Chapter 4- C Corporations69
Chapter 4- C Corporations
For tax years beginning after December 31, 2015
Domestic C Corps due date is on 15th day of 4 month
Exception is a 6/30 Year end C Corp
IRS confirms extension still for 6 months.
Code Sec. 6081(b) still indicates a 5 month extension.

2. Number of C Filers Has Decreased.
69-70
Number of C Filers Has Decreased.
C Corps have fallen to 8.1%
Going public you have to be a C Corp
PATAP

3. Number of C Filers Has Decreased.
69-70
Number of C Filers Has Decreased.
In C Corporations represented 52% of all business returns.
Currently C Corp’s account for 8.1% of all business returns.
Since Retirement plans that were exclusively
PATAP

4. What is going to Happen With Tax Rates
70-71
What is going to Happen With Tax Rates
PATAP

5. What is going to Happen With Tax Rates70
What is going to Happen With Tax Rates
CBO Found Compared to other G20 countries
Effective rate for Corps -18.6%
Average statutory rate including state taxes- 39.1% which was 10% higher than average G20.
Our effective tax rate is the 4th highest.
Our pass through situation is unique- ability to spread taxes over multiple owners.
PATAP

6. Chapter 04 –C Corp(Non-PSC)71
Chapter 04 –C Corp(Non-PSC)
Advantages
Tax rate
Fiscal Year
Better benefits
1202 treatment
1244 loss treatment
Passive loss offset Income.
Disadvantages
Audit Risk > S Corp
PSC restrictions
NIIT
No Capital loss
Cap. Gains ordinary rates
Double Taxation

7. Chapter 04 –C Corp(Non-PSC)71
Chapter 04 –C Corp(Non-PSC)
Advantages
Tax rate
Fiscal Year
Better benefits
1202 treatment
1244 loss treatment
Passive loss offset Income.
Disadvantages
Audit Risk > S Corp
PSC restrictions
NIIT
No Capital loss
Cap. Gains ordinary rates
Double Taxation
Let’s take a closer look in our manual at the pros and the cons of C Corporations.

8. ACME Inc. is announces that for every $100 purchase they will donate $1 to a local charity. During the Year they give $100,000 to the charity.
Acme will take a $100,000 charitable deduction on its tax return.
Acme cannot deduct the amount because it not a business deduction.
Acme should take the $100,000 as an advertising deduction.
Answer: See page 77.

9. 82 Schedule M-3 82 For fiscal years end December 31, 2014 and later:
Total Assets $10 M but less than $50M
File M-1 plus Part 1 of M-3
If assets drop below $10M no requirement to continue following M-3
Note: Corps with total receipts and assets at end of the year below $250K not required to file Sch. L, M-1 and M-2. (Check Line 13 on Schedule K.)

10. Reincorporate Lease/Sell to Sub Earnings Stripping 83 .
US taxes domestically Corps on World Wide Basis.
Most other nations on a territorial basis.
PATAP

11. Reincorporate Lease/Sell to Sub Earnings Stripping 83
US only has a Sub that is getting a deduction paid to the parent.
Has the parent that gets income from the Sub.
PATAP

12. 83
Earnings Stripping
IRS is authorized under Code Sec. 385(a) to prescribe regulations.
Under prior proposed regulations, IRS was going to reclassify “loans” as capital.
However the way they were written it could have been applied to our small corporations.
The final regs. provide relief.
PATAP

13. Earnings Stripping 83 F. The final regulations:
only apply to domestic corporations issuing debt related parties that are not part of the same consolidated group.
The new regs exempt debt issued by S Corporations, REITS and RIC.
Also exempt transactions in the ordinary course of business.
Update: Treasury Identified these regulations as unduly burdensome/complex and will simplify.
PATAP

14. XI. C CORPS AND PASSIVE ACTIVITIES80
XI. C CORPS AND PASSIVE ACTIVITIES
B. Non Professional Service Corporations
B. Closely held means 5 or fewer individuals own more than 50% of the value of the outstanding stock, directly or indirectly. Constructive ownership rules of 465(a)(3) apply.
That’s everyone in my world
D. PALs can offset passive activity income and active business income but not portfolio income.
Page 81 item H to meet Material participation more stick – but think about it you only need to meet material participation if you want to offset against portfolio income.
H. Material participation in an activity may be achieved if shareholders owning (directly or indirectly) more than 50% of outstanding stock (by value) materially participate in an activity or if all three conditions are met:
1. During the entire 12-month period ending on the last day of the tax year, at least one full-time employee (owner or non-owner) worked substantially full time in the active management of the activity,
2. During the same period, substantially all the efforts of at least three full-time non-owner employees were devoted to the activity, and
3. The business deductions of the activity for the tax year (IRC Sec. 162 and 404) exceeded 15% of its gross income for that year.
PATAP

15. Tim and Jim both have S Corporations.80
Tim and Jim both have
S Corporations.
B. Non Professional Service Corporations
B. Closely held means 5 or fewer individuals own more than 50% of the value of the outstanding stock, directly or indirectly. Constructive ownership rules of 465(a)(3) apply.
That’s everyone in my world
D. PALs can offset passive activity income and active business income but not portfolio income.
Page 81 item H to meet Material participation more stick – but think about it you only need to meet material participation if you want to offset against portfolio income.
H. Material participation in an activity may be achieved if shareholders owning (directly or indirectly) more than 50% of outstanding stock (by value) materially participate in an activity or if all three conditions are met:
1. During the entire 12-month period ending on the last day of the tax year, at least one full-time employee (owner or non-owner) worked substantially full time in the active management of the activity,
2. During the same period, substantially all the efforts of at least three full-time non-owner employees were devoted to the activity, and
3. The business deductions of the activity for the tax year (IRC Sec. 162 and 404) exceeded 15% of its gross income for that year.
PATAP

16. XI. C CORPS AND PASSIVE ACTIVITIES80
210
XI. C CORPS AND PASSIVE ACTIVITIES
B. Non Professional Service Corporations
B. Closely held means 5 or fewer individuals own more than 50% of the value of the outstanding stock, directly or indirectly. Constructive ownership rules of 465(a)(3) apply.
That’s everyone in my world
D. PALs can offset passive activity income and active business income but not portfolio income.
Page 81 item H to meet Material participation more stick – but think about it you only need to meet material participation if you want to offset against portfolio income.
H. Material participation in an activity may be achieved if shareholders owning (directly or indirectly) more than 50% of outstanding stock (by value) materially participate in an activity or if all three conditions are met:
1. During the entire 12-month period ending on the last day of the tax year, at least one full-time employee (owner or non-owner) worked substantially full time in the active management of the activity,
2. During the same period, substantially all the efforts of at least three full-time non-owner employees were devoted to the activity, and
3. The business deductions of the activity for the tax year (IRC Sec. 162 and 404) exceeded 15% of its gross income for that year.
PATAP

17. Contrractor Jim use C Corps80
Lets Pretend the
accountant Tim and the
Contrractor Jim use C Corps
B. Non Professional Service Corporations
B. Closely held means 5 or fewer individuals own more than 50% of the value of the outstanding stock, directly or indirectly. Constructive ownership rules of 465(a)(3) apply.
That’s everyone in my world
D. PALs can offset passive activity income and active business income but not portfolio income.
Page 81 item H to meet Material participation more stick – but think about it you only need to meet material participation if you want to offset against portfolio income.
H. Material participation in an activity may be achieved if shareholders owning (directly or indirectly) more than 50% of outstanding stock (by value) materially participate in an activity or if all three conditions are met:
1. During the entire 12-month period ending on the last day of the tax year, at least one full-time employee (owner or non-owner) worked substantially full time in the active management of the activity,
2. During the same period, substantially all the efforts of at least three full-time non-owner employees were devoted to the activity, and
3. The business deductions of the activity for the tax year (IRC Sec. 162 and 404) exceeded 15% of its gross income for that year.
PATAP

18. The Coffee Shop