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CHAPTER 2 CORPORATIONS: INTRODUCTION AND OPERATING RULES LECTURE NOTES SUMMARY OF CHANGES IN THE CHAPTER The following are notable changes in the chapter from the 2008 Edition. For major changes, see the Preface to the Instructor’s Edition of the text. News Boxes Replaced Global Tax Issue titled Entity Choice: S Corporation Versus C Corporation with new article titled Countries Cut Corporate Tax Rates to Attract Capital Investment . Added Tax in the News titled Does U.S. Corporate Tax Policy Hurt the Country’s Global Competitiveness? Deleted Tax in the News titled e-Filing—GE Sets an Example . Added Tax in the News titled Will the IRS Request FIN 48 Workpapers? Ethical and Equitable Considerations Added Ethical and Equitable Consideration titled Maximizing the Dividends Received Deduction . Text Changes Tax rate for dividends and capital gains for some taxpayers is 0% for 2008 - 2010. Added and revised several of the Examples. Revised contents of Taxation of Dividends section under the Corporations Increased coverage of two dividends received deduction limitations: the 45 day holding period requirement and debt-financed stock restriction. Added Financial Accounting Considerations section at the end of the chapter before the Form 1120 Illustrated heading. Includes FAS 109 and FIN 48 coverage with two examples. Added Learning Objective 7 – Understanding the impact of tax return positions on financial statements. 2-1
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2-2 2009 Annual Edition/Instructor’s Guide with Lecture Notes TAX TREATMENT OF VARIOUS BUSINESS FORMS 1. Business forms include: sole proprietorships, partnerships, trusts and estates, Subchapter S corporations, and regular Subchapter C corporations. 2. C corporations are separate taxable entities, compute their own taxable income, and pay their own taxes. Compare corporations as taxable entities to proprietorships, partnerships (covered in Chapters 10 and 11), and S corporations (discussed in Chapter 12). Sole Proprietorship 3. Sole proprietorship is not a taxable entity. Net income or loss from the proprietorship is computed on Schedule C, which is attached to the proprietor’s Form 1040. Thus, the proprietor pays tax on the profits of the proprietorship. Partnerships 4. Partnerships, which are not taxable entities, must file Form 1065 (an information return). Each partner receives a Schedule K-1 that reports the partner’s share of net income or loss along with each separately reported pass-through item. Schedule K-1 items are reported on each partner’s return. Corporations 5. There are two types of corporations: regular corporations governed by Subchapter C and nontaxable corporations governed by Subchapter S. a.
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This note was uploaded on 04/01/2011 for the course ACCT 730 taught by Professor Tom during the Spring '11 term at Davenport.

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