held corporations, particularly those that are family owned. For purposes of the more-than-50% shareholder test, an individual is deemed to own the stock owned, directly or indirectly, by family members (i.e., siblings, spouse, ancestors, and lineal descendents) [see, § 267(c)]. When a corporation’s stock is only owned by family members, each shareholder will be a related party under the more-than-50% test. For many family-owned (accrual basis) corporations then, § 267(a)(2) will affect the deductibility of many different types of accrued expenditures (e.g., salary, bonus, interest, rent, and lease).Example. Three brothers (cash basis, calendar year taxpayers) own all of the stock in Brown Corporation (accrual basis, calendar year taxpayer) and are its principal employees. After a particularly profitable year, in December 2008, Brown declares a bonus payable to each of its employees. Brown also accrues interest owed on amounts borrowed from its shareholders. The bonuses and interest are not paid until January 2009. Under the stock attribution rules of § 267, each of the brothers is deemed to own 100% of the stock of Brown. As a result, the bonuses attributable to the brothers and all of the interest are not deductible by Brown Corporation until 2009.Capital Gains and Losses14.Differences in corporate and individual taxpayer treatment of capital gains and losses.a.Net capital gains of corporations are not subject to lower rates, as are net capital gains of individuals.b.Corporate capital losses may only offset capital gains while individuals may deduct up to $3,000 of losses in excess of capital gains.c.Excess corporate capital losses are carried back 3 and forward 5 years to offset capital gains, while capital losses of individuals are carried forward indefinitely. When corporations carryover capital losses, they are treated as short term. For individuals, capital losses retain their original status as long term or short term.Passive Losses15.Passive loss limitations apply to closely held C corporations and personal service corporations (PSCs). However, closely held C corporations may offset passive losses against active income.
2-62009 Annual Edition/Instructor’s Guide with Lecture NotesETHICAL AND EQUITABLE CONSIDERATIONSIs It Better Not to Know?(page 2-14). A tax practitioner must not knowingly prepare a false tax return. You should determine whether your client had any reason to believe the museum would put the painting to an unrelated use. If not, the client is justified in taking a deduction based on fair market value of the painting. If the client knew the painting would be put to an unrelated use, the deduction is only equal to the basis of the painting. You should withdraw from the engagement if the client refuses to file a proper return.Charitable Contributions