R3-M3 C Corporation Tax Computations and Credits

Question 1

The Accumulated Earning Tax

Answer 1

1. is a penalty tax
2. Imposed on C Corporations
3. Accumulated Earnings and Profits (E&P) are in excess of $250,000 IF the earnings are considered to be improperly retained instead of being distributed as dividends to shareholders.
4. Regular C Corporations are entitled to $250,000 (lifetime) accumulated earnings
5. Personal Service Corporations are entitled to only $150,000 of (lifetime) accumulated earnings.

The Accumulated Earnings Tax is NOT imposed on:
1. Personal Holding Companies (PHCs)
2. Tax-exempt corporations
3. Passive foreign investment corporations

The additional accumulated earnings tax rate is a flat 20%

Question 2

Required annual estimated tax payment for a C Corp

Answer 2

Is the least of:
1. 100% of tax liability of the prior year’s return, assuming a positive tax liability

2. 100% of the current year tax liability.
3. 100% of estimated current year tax liability according to the annualized income method.

Question 3

Personal Holding Company Tax

Answer 3

1. Stock ownership test: 50%.
   More than 50% owned by five or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and

A shareholder is considered to own stock held by family members, including brothers, sisters, ancestors and lineal descendants.

Neither in-laws nor cousins are considered family members.

2. Income Test: having 60% of adjusted ordinary gross income consisting of: NIRD
   -Net rent ( if less than 50% of ordinary gross income)
   -Interest that is taxable ( nontaxable is excluded)
   -Royalties (but not mineral, oil, gas , or copyright royalties, or
   -Dividends from an unrelated domestic corporations
   ( means ownership is <20%)
3. Self-assessed.
4. PHC is not subject to Accumulated Earning Tax
5. PHC deducts federal income taxes in computing undistributed PHC income
6. PHC deducts net LGCG less federal income taxes in computing undistributed PHC income.