Corporate Tax 1 of 3 (6)

Question 1

C Corporation

Answer 1

A tax-paying entity, taxed separately from its owners, created formally in accordance with the laws of the state in which it is considered domiciled, with shareholders as owners who have limited liability.

Question 2

Section 351 Tax-Free Exchange

Answer 2

A provision that allows unincorporated entities to incorporate without significant tax ramifications by making exchanges of property or cash for equity nontaxable, provided only stock is received in exchange for the property and the party transferring the property and cash has control, consisting of at least 80% ownership when the exchange is complete. Services are excluded from the definition of property and are considered taxable exchanges.

Question 3

Accrual Basis

Answer 3

A method of accounting that requires a corporation to generally recognize revenues when earned, except for rents and interest received in advance, and expenses when incurred, provided they are paid within 2 ½ months of the corporation’s year-end.

Question 4

Dividends-Received Deduction (DRD)

Answer 4

Front

A corporate deduction equal to a percentage of dividends received based on the level of ownership:

• 50% if a company owns less than 20% of the voting stock of another company (Unaffiliated co)
• 65% if a company owns 20% or more, but less than 80% of the voting stock of another company
• 100% if a company owns 80% or more of the voting stock of another company (Control)