Chapter 11 - The Corporate Taxpayer Flashcards
Define ACE Adjustment
An adjustment to regular taxable income in the computation of corporate AMTI. The adjustment equals 75% of the adjusted current earnings in excess of AMTI computed before the adjustment.
Define Affiliated Group
A parent corporation and its 80% or more controlled subsidiaries.
Define Alternative Minimum Tax
A second federal tax system parallel to the regular tax system. Congress enacted the AMT to ensure that every individual and corporation pays at least a minimal tax every year.
Define Alternative Minimum Taxable Income
The tax based for the AMT: regular taxable income increased or decreased by AMT adjustments and increased by AMT tax preferences.
Define AMT Adjustments
Increases or decreases to regular taxable income in the computation of AMTI.
Define Buy-Sell Agreement
A binding agreement that restricts the conditions and terms under which shareholders may dispose of corporate stock.
Define Centralized Management
A legal characteristic of the corporate form of business corporations are managed by a board of directors appointed by and acting on behalf of the shareholders.
Define Closely Held Corporation
Corporations privately owned by a relatively small number of shareholders.
Define Consolidated Tax Return
A single Form 1120 reporting the combined results of the operations of an affiliated group of corporations.
Define Dividends-Received Deduction
A corporate deduction equal to a percentage of dividend income received from other taxable domestic corporations. The purpose of which is to mitigate “triple” taxation.
Define Domestic Production Activities Deduction
A tax preference deduction for US manufacturers equal to a percentage of net income from a qualified domestic production activity.
Define Free Transferability
A legal characteristic of the corporate form of business shareholders can buy and sell corporate stock with maximum convenience and minimal transaction costs.
Define General Business Credit
The aggregate of numerous different tax credits available to business enterprises.
Define Limited Liability
A legal characteristic of the corporate form of business: Corporate shareholders are not personally liable for the unpaid debts of the corporation.
Define Minimum Tax Credit
AMT liability carried forward indefinitely as a credit against future regular tax liability.
Define Nonprofit Corporation
A corporation formed for philanthropic purposes and, as a result, exempt from the federal income tax.
Define Personal Service Corporation
Closely held corporations owned by individuals who perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting for the corporation’s clientele. Personal service corporations are subject to a flat 35% tax rate.
Define Publicly Held Corporation
Corporation with outstanding stock traded on an established securities market.
Define Rehabilitation Credit
A business credit equal to a percentage of the cost of rehabilitating commercial buildings placed in service before 1936 or certified historic structures.
Define Surtax
In the corporate context, the extra 5% or 3% tax imposed to recoup the benefit of the progressive tax rates.
Define Tax Credit
A direct reduction in tax liability.
Define Tax Preferences
In the general context, provisions included in the federal tax law as incentives to encourage certain behaviors or as subsidies for certain activities; in AMT context, specific items added to regular income in the computation of AMTI.
Define Tentative Minimum Tax
AMTI in excess of the exemption multiplied by the AMT rates. Any excess of tentative minimum tax over regular tax is the AMT for the year.
Define Underpayment Penalty
The penalty imposed by the Internal Revenue Code on both individuals and corporations that fail to make required estimated payments on current tax on a timely basis.
Define Unlimited Life
A legal characteristic of the corporate form of business: A corporation’s legal existence is not affected by changes in the identity of its shareholders.
What are the four legal characteristics of a corporation?
- Limited liability of shareholders
- Unlimited life
- Free transferability
- Centralized management (elected by shareholder)
What is the advantage of filing consolidated tax return?
losses and profits of affiliated members offset. Like financial accounting, intercompany transactions are eliminated.
What is a Schedule M1 for?
It tells the IRS where your tax and book differences come from.
