Slide C3-1
Assignments
For Next Class:
Read Chapter 4, pages 4-1 through 4-13
Chapter
3
The Corporate Income Tax
Estimated Taxes
Slide C3-4
Due Dates
[IRC §6655(c)(2)] Corporations owing tax > $500
must make estimated tax payments as follows:
25% of the required amount must be paid in by the
15th day of the 4th month of fiscal year
50% of the required amount must be paid in by the
15th day of the 6th month of fiscal year
75% of the required amount must be paid in by the
15th day of the 9th month of fiscal year
100% of the required amount must be paid in by the
15th day of the 12th month of fiscal year
Slide C3-5
Required Payments
The required amount is:
For large corporations (taxable income > $1 million for
any of three preceding years), 100% of the tax due for
the year but can use prior year tax for the 1st payment
[IRC §6655(d)(2)]
For corporations that are not large corporations, 100%
of the lesser of the tax due for the year or the tax shown
on the prior year tax return [IRC §6655(d)(1)]
Annualized income method or adjusted seasonal
income method can be used if lower [IRC §6655(e)]
Slide C3-6
Penalties
Penalty at the rate in IRC §6621 is imposed on
the amount of the underpayment for the period of
the underpayment [IRC §6655(a)]
Controlled Groups of
Corporations
Slide C3-8
Controlled Groups of Corporations
Purpose of Limitations: To prevent groups of
corporations owned by the same parties from
splitting income and getting the benefit of multiple
progressive tax rate brackets and other amounts
Slide C3-9
Controlled Groups of Corporations
[IRC §1561(a)] Tax benefits must be allocated
amount members of controlled groups:
Lower tax rate brackets [IRC §11(b)(1)]
Accumulated earnings credit [IRC §535(c)(2)&(3)]
Alternative minimum tax exemption [IRC §55(d)(1)]
Environmental tax amount [IRC §59A]
Taxpayers can execute an apportionment plan
that specifically indicates how these amounts are
divided among the controlled group, otherwise
they are divided equally [Reg. §1.1561-3]
Slide C3-10
Controlled Groups
Problem C3-53
Slide C3-11
Controlled Groups of Corporations
[IRC §1563(b)(1)] Controlled group tests are
applied on December 31st of the tax year
Group includes all members on December 31st that
were members for at least one-half of the number of
days of the tax year that precede December 31st
[IRC §1563(b)(2)]
Group includes all corporations that were not members
on December 31st that were members for at least onehalf of the number of days of the tax year that precede
December 31st [IRC §1563(b)(3)]
Slide C3-12
Controlled Groups of Corporations
Three types of controlled groups:
Brother-sister
Parent-subsidiary
Combined group
Slide C3-13
Brother-Sister Controlled Groups
 2004 Jobs Act changed the definition of brothersister corporation but retained the old definition
for some purposes



IRC §1563(a)(2) contains the new “50%-only”
definition for Title 26, Subtitle A, Chapter 6, Part II
IRC §1563(f)(5) is the old “80%-50%” definition
which applies for purposes other than Title 26,
Subtitle A, Chapter 6, Part II, unless a Code section
specifically provides otherwise
Constructive stock ownership rules apply
[IRC §1563(d)(2) and (e)]
Slide C3-14
Brother-Sister Controlled Groups
Example 1: 50%-Only and 80%-50% Definitions Both Met
Hawk Eagle Crane Dove
Identical
Individuals Corp. Corp. Corp. Corp. Ownership
Allen
40%
30%
60%
60%
30%
Betty
50%
20%
30%
20%
20%
Camille
10%
30%
10%
10%
10%
Derek
0%
20%
0%
10%
0%
100%
100%
100%
100%
60%
Total
Slide C3-15
Brother-Sister Controlled Groups
Example 2: 50%-Only and 80%-50% Definitions Not Met
Hawk Eagle Crane Dove
Identical
Individuals Corp. Corp. Corp. Corp. Ownership
Allen
20%
10%
5%
60%
5%
Betty
10%
20%
60%
5%
5%
Camille
10%
70%
35%
25%
10%
Derek
60%
0%
0%
10%
0%
100%
100%
100%
100%
20%
Total
Slide C3-16
Brother-Sister Controlled Groups
Example 3: 50%-Only Definition Met but 80%-50%
Definition Not Met for Hawk Corp. and Eagle Corp.
Hawk Eagle Crane Dove
Identical
Individuals Corp. Corp. Corp. Corp. Ownership
Allen
30%
30%
40%
40%
30%
Betty
30%
30%
30%
30%
30%
Camille
0%
10%
30%
30%
0%
Derek
40%
30%
0%
0%
0%
100%
100%
100%
100%
60%
Total