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Corp Tax - Corp Tax I Overview a Corps taxed just like any...

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Corp Tax I. Overview a. Corp’s taxed just like any person b. §7701 includes corporation as a “person” within the IRC b.i. Taxpayer is any person subject to tax c. §11 gives tax rate for corps 35% d. § 199 gives deduction for domestic manufacturing d.i. Taxes domestic income at 31.8% d.ii. Does movie production count ? e. Companies are assumed to be in trade or business. f. Cap gains f.i. § 1h doesn’t apply to corp’s f.ii. Corporations taxed on cap gians at full rate f.iii. Cap losses offset only cap gains. Can’t offset ordinary income f.iv. Corp gets 5 year cap loss carryover g. Corp’s can’t use cash method…only accrual method of accounting g.i. Except farmers h. Corps can get dividends (inter-corporate dividends) h.i. Special rule in 243 i. International operations i.i. C corps are public companies many times multinational i.ii. US has highest statutory rate for corps j. 1h(11) dividends to individuals taxed at 15% k. Irreversibility k.i. Doing opposite transaction = different tax consequences k.i.1. If tax free going in, dividend coming out l. Realization vs recognition l.i. Recognized gain = taxable l.ii. Like kind exchange realize gain/loss but not recognized l.iii. If we don’t recognize gain, preserve basis m. Incidence m.i. Who pays the corp tax II. What do we tax as a corporation? a. Corps are taxed as persons b. Partnerships are a “fiscal transparency” c. What about trusts? c.i. Grantor places property in trust for future generations c.ii. Trustee preserves assets, manages, etc c.iii. Trusts designed to conserve/preserve wealth d. Morrissey d.i. Golf club in LA d.ii. Principals form a trust give prop in return for trust interests d.iii. IRS says the trust is an association taxable as a corporation d.iv. Court defines association d.v. An assoc implies associates
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d.v.1. People getting to gether in joint enterprise to conduct business d.vi. Trust is different b/c trust holders don’t necessarily get together to conduct business d.vii. Association resembles a corporation d.viii. Here, the trust was engaged in business of running the golf course d.ix. Diff b/t association and partnership is centralization of management d.x. P 10 gives core characteristics of entities that should be taxed as corporations. d.x.1. Centralized control d.x.2. Continuity of entity notwithstanding demise of owner d.x.3. Limited liability d.x.4. Transferable interest d.xi. Therefore, this thing was closer to a corp than a trust e. 7701-4 describes business trusts (reminiscent of Morrissey f. How do we balance the 4 factors? f.i. All of the factors are equal g. Larson 1976 g.i. Tie goes to the taxpayer h. Check the box regulations h.i. Reaction against differing taxation of different entities h.ii. Ask is this a business entity? h.iii. If yes, figure out classification if you are a corporation under state law, then corp for tax purposes same w/ insurance co’s h.iv. 7701-2 lists countries with analogies to corporation these are per se corporations for tax purposes h.v. Partnership is business entity engaged in business w/ 2 members or more 7701-2b h.vi. 7701-3
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