C12-Chp-03-1B-PHC-and-Accum-Earn-Tax-2012

C12-Chp-03-1B-PHC-and-Accum-Earn-Tax-2012 - Chapter 3 PHC...

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Chapter 3. PHC and Accumulated Earnings Tax Edited January 16, 2012 Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright Howard Godfrey, 2012 C12-Chp-03-1B-PHC-and-Accum-Earn-Tax-2012
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2 The student should be able to: 1. Explain why we have a penalty tax on accumulated earnings. Pg-28 2. Determine whether a corporation is liable for the accumulated earnings tax. Pg-28 3. Calculate the amount of the corporation's accumulated earnings tax. Pg-28
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3 4. Determine whether a corporation is a personal holding company (PHC). Pg-29 5. Calculate the corporation's PHC tax. Pg-29 6. Explain how a corporation can avoid the personal holding company tax. Pg-29 7. Explain how a corporation can avoid the accumulated earnings tax.
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4 Highlights of Recent Tax Law Changes The accumulated earnings tax rate was decreased beginning in 2002 due to the decrease in the highest marginal individual tax rate. The tax rate now is tied to the highest rate for a dividend which is now 15% (temporarily). The 15% rate also applies to Personal Holding Companies.
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5 1. Introduction to penalty taxes.
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6 Impact of Corporate Motive -1 Which of the following taxes is affected by the motives of management for its decisions regarding dividend policy? a. Alternative Minimum Tax b. Accumulated Earnings Tax c. Personal Holding Company Tax d. All of these e. None of these
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7 Impact of Corporate Motive -2 Which of the following taxes is affected by the motives of management for its decisions regarding dividend policy? b. Accumulated Earnings Tax §532
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8 Liable for Both? 1 of 2 May a corporation be subject to both the PHC and the accumulated earnings tax in the same year?
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9 Liable for Both? 2 of 2 May a corporation be subject to both the PHC and the accumulated earnings tax in the same year? No. §532(b)
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10 2. Determine whether a corporation is liable for the accumulated earnings tax.
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11 Accumulated Earnings Tax The IRS is auditing a particular year and finds that the company has been unreasonably accumulating earnings for the tax year under audit, and in many years prior to the year under audit, as well. How is the accumulated earnings tax applied? For all years? For year under audit?
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12 Accumulated Earnings Tax The accumulated earnings tax does not apply to: a. Corporations that have more than 100 stockholders. b. S Corporations. c. Corporations filing consolidated returns. d. Corporations that have more than one class of stock. [CPA - May, 1988]
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13 Accumulated Earnings Tax The accumulated earnings tax does not apply to: b. S Corporations. §1362(a) S corporation not subject to taxes imposed under this chapter: [Chapter 1 – Normal taxes and surtaxes (§§1-1400s)]
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14 3. Calculate the amount of the corporation's accumulated earnings tax.
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15 Accumulated Earnings Tax The accumulated earnings tax is a penalty tax assessed on corporations that accumulate income beyond the reasonable needs of their business. An exemption of $250,000 of
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C12-Chp-03-1B-PHC-and-Accum-Earn-Tax-2012 - Chapter 3 PHC...

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