Ch 17 Flashcards
Chapter definitions for South-Western Federal Taxation 2015: Comprehensive, 38th Edition
Affiliated group
A parent-subsidiary group of corporations that is eligible to elect to file on a consolidated basis. Eighty percent ownership of the voting power and value of all of the corporations must be achieved every day of the tax year, and an identifiable parent corporation must exist (i.e., it must own at least 80 percent of another group member without applying attribution rules).
ASC 740 (SFAS 109)
Under Generally Accepted Accounting Principles, the rules for the financial reporting of the tax expense of an enterprise. Permanent differences affect the enterprise’s effective tax rate. Temporary differences create a deferred tax asset or a deferred tax liability on the balance sheet.
Balance sheet approach
The process under ASC 740 (SFAS 109) by which an entity’s deferred tax expense or deferred tax benefit is determined as a result of the reporting period’s changes in the balance sheet’s deferred tax asset and deferred tax liability accounts.
C corporation
A separate taxable entity subject to the rules of Subchapter C of the Code. This business form may create a double taxation effect relative to its shareholders. The entity is subject to the regular corporate tax and a number of penalty taxes at the Federal level.
Check-the-box regulation
By using the check-the-box rules prudently, an entity can select the most attractive tax results offered by the Code, without being bound by legal forms. By default, an unincorporated entity with more than one owner is taxed as a partnership; an unincorporated entity with one owner is a disregarded entity, taxed as a sole proprietorship or corporate division. No action is necessary by the taxpayer if the legal form or default status is desired. Form 8832 is used to check a box and change the tax status. Not available if the entity is incorporated under state law.
Controlled group
A controlled group of corporations is required to share the lower corporate tax rates and various other tax benefits among the members of the group. A controlled group may be either a brother-sister or a parent-subsidiary group.
Current tax expense
Under ASC 740 (SFAS 109), the book tax expense that relates to the current reporting period’s net income and is actually payable (or creditable) to the appropriate governmental agencies for the current period. Also known as cash tax or tax payable.
Deferred tax asset
Under ASC 740 (SFAS 109), an item created on an enterprise’s balance sheet by a temporary book-tax difference, such that a tax benefit is not recognized until a later date, although it already has been reported in the financial statements (e.g., the carryforward of a disallowed deduction).
Deferred tax benefit
Under ASC 740 (SFAS 109), a reduction in the book tax expense that relates to the current reporting period’s net income but will not be realized until a future reporting period. Creates or adds to the entity’s deferred tax asset balance sheet account. For instance, the carryforward of a net operating loss is a deferred tax benefit.
Deferred tax expense
Under ASC 740 (SFAS 109), a book tax expense that relates to the current reporting period’s net income but will not be realized until a future reporting period. Creates or adds to the entity’s deferred tax liability balance sheet account. For instance, a deferred tax expense is created when tax depreciation deductions for the period are accelerated and exceed the corresponding book depreciation expense.
Deferred tax liability
As determined under the rules of ASC 740 (SFAS 109), an item created on an enterprise’s balance sheet by a temporary book-tax difference, such that a tax benefit is recognized earlier for tax purposes than it is in the financial accounting records (e.g., the use of an accelerated cost recovery deduction).
Disregarded entity
The Federal income tax treatment of business income usually follows the legal form of the taxpayer (i.e., an individual’s sole proprietorship is reported on the Form 1040); a C corporation’s taxable income is computed on Form 1120. The check-the-box regulations are used if the unincorporated taxpayer wants to use a different tax regime. Under these rules, a disregarded entity is taxed as an individual or a corporate division; other tax regimes are not available. For instance, a one-member limited liability company is a disregarded entity.
Dividends received deduction
A deduction allowed a shareholder that is a corporation for dividends received from a domestic corporation. The deduction usually is 70 percent of the dividends received, but it could be 80 or 100 percent depending upon the ownership percentage held by the recipient corporation. ?? 243246.
Domestic production activities deduction (DPAD)
A deduction based on 3 percent of the lesser of qualified production activities income (QPAI) or modified adjusted gross income but not to exceed 50 percent of the W2 production wages paid. In the case of a corporate taxpayer, taxable income is substituted for modified AGI. The deduction rate increases to 6 percent for 2007 to 2009 and to 9 percent for 2010 and thereafter. ? 199.
Generally accepted accounting principles (GAAP)
Guidelines relating to how to construct the financial statements of enterprises doing business in the United States. Promulgated chiefly by the Financial Accounting Standards Board (FASB).
