1 Chapter 5: Other Corporate Tax Levies. 2 OTHER CORPORATE TAX LEVIES Alternative minimum tax (AMT)...
-
Upload
arthur-logan -
Category
Documents
-
view
212 -
download
0
Transcript of 1 Chapter 5: Other Corporate Tax Levies. 2 OTHER CORPORATE TAX LEVIES Alternative minimum tax (AMT)...
1
Chapter 5:Other Corporate
Tax Levies
2
OTHER CORPORATEOTHER CORPORATETAX LEVIESTAX LEVIES
Alternative minimum tax (AMT)Personal holding company (PHC)
tax Accumulated Earnings Tax (AET)
3
Alternative Minimum Alternative Minimum Tax (AMT)Tax (AMT)
AMT is an acceleration of a corp’s income taxes
Small C corp exemption from AMTAMT formulaStatutory exemption amountMinimum tax creditSee Topic Review C5-2 for a summary
of the AMT
4
Small C Corp Exemption from AMT
Initial year: all corps exempt 2nd year: exempt if first year gross
receipts $5M3rd year: exempt if avg. of yr1 and yr
2 gross receipts $7.5MSubsequent years: exempt if avg. of
prior 3 yrs’ gross receipts $7.5M
5
AMT Formula(1 of 3)
Taxable income before NOL+ Tax preference items+/- Adjustments to taxable income
other then ACE adjustment and AMT NOL deduction (see TR C5-1)
= Pre-adjustment AMTISee Topic Review 5-1 for a summary of
AMT adjustments
6
AMT Formula(2 of 3)
Pre-adjustment AMTI+/- 75% of difference between pre-
adjustment AMTI and ACE- AMT NOL deduction= AMTI- Statutory exemption= Tax base
7
AMT Formula(3 of 3)
Tax basex 20% tax rate= Tentative minimum tax before credits- AMT FTC= Tentative minimum tax (TMT)- Regular income tax liability= AMT due (if any)
8
Statutory Exemption Amount
$40,000Reduced by 25% x (AMTI -
$150,000)Fully phased out when AMTI ≥
$310,000
9
Minimum Tax Credit
Corp may take a credit in future years for AMT paid in previous years if computed regular tax, minus all non-refundable credits, is larger than that year’s TMT
10
Personal Holding Personal Holding Company (PHC)Company (PHC)
Prevents closely held C corps from sheltering passive income from higher individual tax rates
Stock ownership testPassive income testPHC penalty tax is 15%
PHC tax rate equal to highest individual income tax rate on dividends
11
Stock Ownership Test(1 of 2)
Five or fewer s/hs who own 50% of outstanding stock at any
time during last 6 months of corp’s tax year
12
Stock Ownership Test(2 of 2)
§544 attribution rules applySimilar to §318 attribution rules except:
Family attribution includes ALL ancestors and lineal descendents
Corp attribution for ALL shareholdersAttribution rules cannot be used to
prevent a corp from being a PHC
13
Passive Income Test(1 of 2)
60% of corp’s AOGI for year is PHCI See Fig. C5-1 for AOGI calculation
PHCI includesDividends, interest, annuity proceeds,
royalties, distributions from estate or trust, certain personal service contracts
14
Passive Income Test(2 of 2)
PHCI includes (continued)Rents, unless corp earnings are
predominantly from rental incomeSee Table C5-2 for tests to determine
exclusions from PHCI
15
PHC Penalty Tax(1 of 3)
Calculate undistributed personal holding company income (UPHCI)See next slide for calculation of
UPHCIApply 15% rate to determine tax
16
PHC Penalty Tax (2 of 3)
Taxable income+ Positive adjustments
DRD, NOL, charitable contrib. c/o, leased prop. net loss, excess rent exp.
- Negative adjustmentsAccrued US/foreign inc. taxes, excess NOL w/o
DRD, charitable contrib., after-tax cap. gain
- Dividends-paid deduction= UPHCI
17
PHC Penalty Tax(3 of 3)
Avoiding PHC status withThrowback dividendsConsent dividendsDividend carryoversLiquidating dividendsDeficiency dividends
See Topic Review C5-3 for a summary of PHC tax
18
Accumulated Earnings Accumulated Earnings TaxTax
(AET)(AET)
DefinitionEvidence of tax avoidanceEvidence of reasonable needsAET liabilitySee Topic Review C5-4
19
Definition of AET
Penalty tax to compel corps to distribute profits not needed for conduct of its businessTax at highest individual tax rate on
dividends(15%)S/h must have tax-avoidance motive to
avoid receipt of dividendsUsually applies to closely held corps
20
Evidence of Tax Avoidance
Loans to shareholdersCorporate funds spent for personal
benefit of shareholdersLoans to a brother/sister corpInvestments unrelated to corp’s businessProtection against unrealistic hazards
21
Evidence of Reasonable Needs
Expansion or replacement of facilitiesAcquisition of a business enterpriseDebt retirementWorking capital - Bardahl formulaLoans to suppliers or customersProduct liability lossesStock redemptionsBusiness contingencies
22
AET Liability(1 of 2)
15% of AE taxable incomeIssue usually raised one or more years
after tax year in question.Once determined, liability cannot be
reduced by deficiency dividendDividends actually paid during tax year
reduce AETIAEC available but subject to phaseout.
23
AET Liability(2 of 2)
Taxable income+ Positive adjustments
DRD, NOL, charitable contrib. c/o, capital loss carryover
- Negative adjustmentsAccrued US/foreign inc. taxes, excess net cap.
loss, charitable contrib., after-tax cap. gain- Dividends-paid deduction- Accumulated earnings credit= Accumulated taxable income
24
Comments or questions about PowerPoint Slides?Contact Dr. Richard Newmark atUniversity of Northern Colorado’s
Kenneth W. Monfort College of [email protected]