Introduction to Corporate Taxation

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Corporations are people too! At least they are “persons” under the law that are separately taxed just like each one of us individuals. With the advent of lower corporate tax rates pursuant to the Tax Cuts and Jobs Act, more businesses are considering the benefits of taxation as corporations under Subchapter C. This course will cover the basic framework of corporations as taxable entities, the principles of Subchapter C taxation, and the differences between Subchapter C and Subchapter S. 

Topics covered will include:

  • The nature of the corporation as a taxable entity
  • Tax aspects of corporate formation
  • How C corporation income is taxed
  • Dividends and the dividends received deduction
  • Stock redemptions and Code section 306 stock
  • Corporate reorganizations
  • The TCJA acronyms: FDII, GILTI, and BEAT
  • Accumulated earnings tax
  • Personal holding companies
  • Corporate estimated taxes

Level: Basic
Format: Live webcast
Instructional Method: Group: Internet-based
NASBA Field of Study: Taxes 
Program Prerequisites: None
Advance Preparation: None

  1. Introduction
  2. The Corporate Soul 00:02:07
  3. Check the Box Corporations 00:07:14
  4. LLCs 00:11:56
  5. Corporate Tax Rate 00:16:46
  6. Accumulated Earnings Tax 00:19:22
  7. Accumulated Earnings Tax - Reasonable Needs 00:21:32
  8. Accumulated Earnings Tax - Determination 00:24:36
  9. Regular Dividends 00:26:24
  10. Property Distributions 00:30:23
  11. Stock Distributions 00:35:29
  12. Disguised Dividends 00:37:37
  13. Personal Service Corporations 00:41:26
  14. Personal Services 00:42:55
  15. Code Section 351 00:44:00
  16. Form 1120 00:48:54
  17. Estimated Quarterly Installments 00:50:17
  18. Accounting Methods - Accrual Method 00:52:55
  19. Accounting Methods - Inventories 00:56:48
  20. Tax Year 00:58:56
  21. Dividends Received Deduction 01:01:28
  22. DRD Not Applicable 01:02:40
  23. Overall DRD Limit 01:04:17
  24. Corporate Contributions 01:04:49
  25. NOLs 01:06:12
  26. Capital Losses 01:08:15
  27. At-Risk Rules 01:08:48
  28. What is an S Corporation? 01:10:00
  29. Why Sub-Chapter S Exists - Dwight D. Eisenhower 01:11:22
  30. Advantages of S Corporations 01:18:48
  31. Loss Pass-Through 01:19:06
  32. Cheating on FICA 01:20:11
  33. Income Splitting 01:22:59
  34. No Accumulated Earnings Tax  01:24:41
  35. Cash Method  01:26:34
  36. No Double Taxation (Generally)  01:27:37
  37. Eligibility for S Corporation Status 01:29:22
  38. S Corporation Eligible Shareholders 01:32:54
  39. Trusts As Shareholders 01:34:32
  40. Certain LLCs Can Be Eligible S Corporation 01:35:17
  41. Certain LLCs Can Be Eligible S Corporation Cont’d 01:36:47
  42. Making the Election 01:337:42
  43. Time For Making the S Election - Existing Corporations 01:37:49
  44. Time For Making the S Election - Newly Formed Corporations 01:38:32
  45. Shareholder Compensation 01:39:21
  46. Presentation Closing 01:41:30
  • Chuck Borek

    Chuck Borek

    Chuck Borek is a practicing attorney and founder of  the Borek Group, LLC. Chuck is also a CPA, and his background includes  five years as a partner in a public accounting firm. He received his law degree and MBA summa cum laude from the University of Baltimore in 1993, where he was editor [...]

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  • Accrual Method Of Accounting  00:53:07, 01:26:38
  • Accumulated Earnings Tax  00:19:43, 01:21:45
  • Cash Method Of Accounting  00:53:16
  • C Corporation 00:26:04, 00:38:08, 00:44:12, 00:59:05, 01:19:23, 01:25:13
  • Code Section 351 00:44:05
  • Corporate Tax Rate 00:17:01
  • Disregarded Entity 00:12:50
  • Dividends 00:27:09, 01:01:44
  • Dividends Received Deduction 01:01:28
  • Exempt 01:02:50
  • Fair Market Value (FMV) 00:31:20
  • Federal Insurance Contributions Act (FICA) 01:20:14
  • Form 1099-DIV 00:27:04
  • Form 1120 00:49:11
  • Form 2553 00:15:19, 01:35:36
  • Form 8832 00:13:45, 00:15:03, 01:35:33, 01:36:53
  • Limited Liability Company (LLC) 00:12:00, 00:39:34, 01:35:22
  • Net Operating Loss (NOL)  01:06:15, 01:19:29
  • Nonresident Alien 01:31:34
  • Personal Service Corporation 00:41:35, 00:59:10
  • Publicly Traded Partnerships (PTP) 00:09:50
  • REIT - Real Estate Investment Trust 01:02:47
  • S Corporation 00:15:17, 00:44:12, 01:10:11, 01:25:11
  • Shareholder 00:22:08, 00:26:33, 00:30:52, 00:35:36, 01:19:22, 01:31:21, 01:39:26

Accrual Method Of Accounting: Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs versus when payment is received or made. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period.

Accumulated Earnings Tax : An accumulated earnings tax is a tax imposed by the federal government on companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary. Essentially, this tax encourages companies to issue dividends, rather than retain their earnings.

C Corporation: A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies are treated as C corporations for U.S. federal income tax purposes.

Cash Method Of Accounting: Cash accounting is an accounting method where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid. In other words, revenues and expenses are recorded when cash is received and paid, respectively.

Code Section 351: § 351(a) provides: No gain or loss shall be recognized if the property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation and immedi- ately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.

Corporate Tax Rate: A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% due to the passage of the Tax Cuts and Jobs Act of 2017.

Disregarded Entity: A disregarded entity refers to a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. A single-member LLC ( “SMLLC”), for example, is considered to be a disregarded entity. (www.pntax.com)

Dividends: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business and pay a proportion of the profit as a dividend to shareholders.

Dividends Received Deduction (DRD): The dividends received deduction (DRD) is a federal tax deduction in the United States that is given to certain corporations that get dividends from related entities. The amount of the dividend that a company can deduct from its income tax is tied to how much ownership the company has in the dividend-paying company.

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.

Federal Insurance Contributions Act (FICA): The Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

Form 1099-DIV : Form 1099-DIV: Dividends and Distributions is an Internal Revenue Service (IRS) form sent to investors who receive distributions from any type of investment during a calendar year. Investors can receive multiple 1099-DIVs. Each Form 1099-DIV should be reported on an investor's tax filing.

Form 1120: Form 1120 is the U.S. corporation income tax return. It is an Internal Revenue Service (IRS) document that American corporations use to report their credits, deductions, losses, gains, and income. It also helps corporations find out how much income tax they need to pay, according to the IRS.

Form 2553: IRS Form 2553, “Election By a Small Business Corporation,” is required to be filed with the IRS to switch a C Corporation to S Corporation status for purposes of federal taxation.

Form 8832: Form 8832 is the Entity Classification Election form from the IRS. It is filed to elect a tax status other than the default status for your entity. For example, an LLC can elect to be taxed as a C Corporation.

Limited Liability Company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.

Nonresident Alien (NRA): This income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate. Nonresident aliens must file and pay any tax due using Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents.

Personal Service Corporation: A personal service corporation is a company which, as the name suggests, provides personal services. These services span a wide variety of endeavors in many fields, and are specified for tax purposes in the United States by the Internal Revenue Service.

Publicly Traded Partnerships (PTP): A publicly traded partnership (PTP) is a business organization owned by two or more co-owners whose shares are regularly traded on an established securities market. A publicly traded partnership is a type of limited partnership managed by two or more general partners—including individuals, corporations, or other partnerships—and is capitalized by limited partners who provide capital but have no management role in the partnership.

REIT - Real Estate Investment Trust: A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves.

S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.

Shareholder: A shareholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation.

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Frequently Asked Questions

Under US federal tax law, corporations are taxed as either C corporations (Subchapter C) or S corporations (Subchapter S), with fundamentally different tax treatment. A C corporation is a separate taxable entity: it pays corporate income tax on profits at the flat 21% rate established by the Tax Cuts and Jobs Act, and shareholders pay a second layer of tax when the corporation distributes dividends—the well-known double taxation disadvantage. An S corporation generally does not pay entity-level federal income tax; income and losses pass through to shareholders' personal returns and are taxed at individual rates. S corporations avoid double taxation, allow income splitting, permit loss pass-through to shareholders, and can offer FICA savings on distributions. However, S corporations face strict eligibility restrictions: maximum 100 shareholders, shareholders must be US citizens or resident aliens, only one class of stock is permitted, and certain entity types cannot be shareholders. The choice between C and S corporation status is one of the most consequential tax decisions a business owner makes, particularly since the TCJA's rate reductions made C corporation rates more competitive for businesses that primarily retain rather than distribute earnings.
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017 and effective for tax years beginning after December 31, 2017, replaced the prior graduated corporate tax rate structure—which reached as high as 35%—with a flat 21% corporate income tax rate. This significant rate reduction changed the entity selection calculus for many businesses: the lower C corporation rate made C corporation status more attractive relative to pass-through entities for businesses that primarily retain earnings rather than distributing them to owners. At 21%, C corporations retaining earnings for reinvestment may face a lower current tax burden than S corporation shareholders paying individual rates—potentially as high as 37%—on all pass-through income regardless of distribution. The TCJA also introduced the qualified business income (Section 199A) deduction for pass-through entities, partially offsetting the C corporation rate advantage. Tax advisors regularly model the C versus S corporation comparison for clients, and the optimal structure depends on distribution patterns, ownership composition, state tax implications, and the long-term plans of each specific business situation.
The accumulated earnings tax (AET) is a penalty tax imposed on C corporations that retain earnings beyond their reasonable business needs rather than distributing them to shareholders as dividends. The tax was designed to prevent shareholders from using the corporate form to shield dividend income from individual taxation by accumulating earnings indefinitely within the corporation. The AET is imposed at a flat 20% rate on accumulated taxable income exceeding the accumulated earnings credit ($250,000 for most corporations; $150,000 for personal service corporations). To avoid the AET, corporations must demonstrate accumulated earnings are retained for identifiable, reasonable business needs: planned capital expenditures, future operating requirements, research and development funding, or working capital maintenance. Personal holding companies—corporations where more than 60% of adjusted ordinary gross income is passive income and five or fewer shareholders own more than 50% of stock—face the separate 20% personal holding company tax on undistributed PHC income. Corporations that distribute regular dividends or maintain documented business justifications for retained earnings generally avoid AET exposure and the associated interest and penalty risk from IRS challenge.
Code Section 351 provides powerful tax-free treatment for property transfers to a corporation in exchange for stock, making it the foundational tool for corporate formation tax planning. Under Section 351, no gain or loss is recognized when property is transferred to a corporation solely in exchange for stock, as long as the transferors are in 'control' of the corporation immediately after the exchange—owning at least 80% of voting stock and 80% of all other classes. This allows founders to contribute appreciated property (real estate, intellectual property, equipment) to a corporation without triggering taxable gain on transfer. The corporation takes a carryover basis in contributed property, and shareholders take a substituted basis in their stock. Section 351 does not apply to transfers of services: stock received for services is compensation, taxable as ordinary income in the year received. Planning the capital structure of a new corporation carefully—including the mix of equity, debt, and contributed property—significantly impacts founding shareholders' tax positions over the long term. Engaging tax counsel before incorporation prevents inadvertent gain recognition that could have been deferred under Section 351's non-recognition framework.
The Tax Cuts and Jobs Act introduced three major international tax provisions—FDII, GILTI, and BEAT—that profoundly affect US C corporations with international operations. FDII (Foreign-Derived Intangible Income) provides a preferential tax rate for income derived from selling or licensing goods, services, or intellectual property to foreign customers, creating an incentive for corporations to maintain valuable intangible assets in the US rather than moving them offshore. GILTI (Global Intangible Low-Taxed Income) requires US shareholders of controlled foreign corporations (CFCs) to include a minimum amount of CFC income in US taxable income annually, preventing indefinite deferral of foreign earnings in low-tax jurisdictions. GILTI has significant planning implications around the foreign tax credit and the Section 250 deduction. BEAT (Base Erosion and Anti-Abuse Tax) is a minimum tax targeting large corporations that make deductible payments to foreign affiliates, designed to prevent corporate tax base erosion through intercompany pricing. Understanding these three provisions is essential for any CPA or tax attorney advising US corporations with cross-border operations, foreign subsidiaries, or significant intellectual property held in international structures.