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Tax 2011

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Tax 2011

Tax 2011 Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Tax 2011 Employee-owners. Tax 2011 Other rules. Tax 2011 Other rules. Tax 2011 Property Exchanged for StockNonqualified preferred stock. Tax 2011 Liabilities. Tax 2011 Election to reduce basis. Tax 2011 Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Tax 2011 S. Tax 2011 Real Property Interest Accounting MethodsSection 481(a) adjustment. Tax 2011 Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Tax 2011 Business formed before 1997. Tax 2011   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Tax 2011 Business formed after 1996. Tax 2011   The following businesses formed after 1996 are taxed as corporations. Tax 2011 A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Tax 2011 A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Tax 2011 An insurance company. Tax 2011 Certain banks. Tax 2011 A business wholly owned by a state or local government. Tax 2011 A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Tax 2011 Certain foreign businesses. Tax 2011 Any other business that elects to be taxed as a corporation. Tax 2011 For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Tax 2011 For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Tax 2011 S corporations. Tax 2011   Some corporations may meet the qualifications for electing to be S corporations. Tax 2011 For information on S corporations, see the instructions for Form 1120S, U. Tax 2011 S. Tax 2011 Income Tax Return for an S Corporation. Tax 2011 Personal service corporations. Tax 2011   A corporation is a personal service corporation if it meets all of the following requirements. Tax 2011 Its principal activity during the “testing period” is performing personal services (defined later). Tax 2011 Generally, the testing period for any tax year is the prior tax year. Tax 2011 If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Tax 2011 Its employee-owners substantially perform the services in (1), above. Tax 2011 This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Tax 2011 Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Tax 2011 Personal services. Tax 2011   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Tax 2011 Employee-owners. Tax 2011   A person is an employee-owner of a personal service corporation if both of the following apply. Tax 2011 He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Tax 2011 He or she owns any stock in the corporation at any time during the testing period. Tax 2011 Other rules. Tax 2011   For other rules that apply to personal service corporations see Accounting Periods, later. Tax 2011 Closely held corporations. Tax 2011   A corporation is closely held if all of the following apply. Tax 2011 It is not a personal service corporation. Tax 2011 At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Tax 2011 “Individual” includes certain trusts and private foundations. Tax 2011 Other rules. Tax 2011   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Tax 2011 Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Tax 2011 This rule applies both to individuals and to groups who transfer property to a corporation. Tax 2011 It also applies whether the corporation is being formed or is already operating. Tax 2011 It does not apply in the following situations. Tax 2011 The corporation is an investment company. Tax 2011 You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Tax 2011 The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Tax 2011 Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Tax 2011 For more information, see section 1. Tax 2011 351-3 of the Regulations. Tax 2011 Control of a corporation. Tax 2011   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Tax 2011 Example 1. Tax 2011 You and Bill Jones buy property for $100,000. Tax 2011 You both organize a corporation when the property has a fair market value of $300,000. Tax 2011 You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Tax 2011 No gain is recognized by you, Bill, or the corporation. Tax 2011 Example 2. Tax 2011 You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Tax 2011 This represents only 75% of each class of stock of the corporation. Tax 2011 The other 25% was already issued to someone else. Tax 2011 You and Bill recognize a taxable gain of $200,000 on the transaction. Tax 2011 Services rendered. Tax 2011   The term property does not include services rendered or to be rendered to the issuing corporation. Tax 2011 The value of stock received for services is income to the recipient. Tax 2011 Example. Tax 2011 You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Tax 2011 Right after the exchange, you own 85% of the outstanding stock. Tax 2011 No gain is recognized on the exchange of property. Tax 2011 However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Tax 2011 Property of relatively small value. Tax 2011   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Tax 2011   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Tax 2011 Stock received in disproportion to property transferred. Tax 2011   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Tax 2011 If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Tax 2011 It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Tax 2011 Money or other property received. Tax 2011   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Tax 2011 You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Tax 2011 The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Tax 2011 If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Tax 2011 See chapter 3 of Publication 544. Tax 2011 No loss is recognized. Tax 2011 Nonqualified preferred stock. Tax 2011   Nonqualified preferred stock is treated as property other than stock. Tax 2011 Generally, it is preferred stock with any of the following features. Tax 2011 The holder has the right to require the issuer or a related person to redeem or buy the stock. Tax 2011 The issuer or a related person is required to redeem or buy the stock. Tax 2011 The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Tax 2011 The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Tax 2011 For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Tax 2011 Liabilities. Tax 2011   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Tax 2011 There are two exceptions to this treatment. Tax 2011 If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Tax 2011 However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Tax 2011 If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Tax 2011 For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Tax 2011 Example. Tax 2011 You transfer property to a corporation for stock. Tax 2011 Immediately after the transfer, you control the corporation. Tax 2011 You also receive $10,000 in the exchange. Tax 2011 Your adjusted basis in the transferred property is $20,000. Tax 2011 The stock you receive has a fair market value (FMV) of $16,000. Tax 2011 The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Tax 2011 Gain is realized as follows. Tax 2011 FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Tax 2011 The recognized gain is limited to $10,000, the cash received. Tax 2011 Loss on exchange. Tax 2011   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Tax 2011 For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Tax 2011 Basis of stock or other property received. Tax 2011   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Tax 2011 Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Tax 2011 Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Tax 2011 Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Tax 2011    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Tax 2011 This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Tax 2011 The basis of any other property you receive is its fair market value on the date of the trade. Tax 2011 Basis of property transferred. Tax 2011   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Tax 2011 However, the increase for the gain recognized may be limited. Tax 2011 For more information, see section 362 of the Internal Revenue Code. Tax 2011 Election to reduce basis. Tax 2011   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Tax 2011 The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Tax 2011 However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Tax 2011 R. Tax 2011 B. Tax 2011 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Tax 2011    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Tax 2011 Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Tax 2011 Paid-in capital. Tax 2011   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Tax 2011 These contributions are not taxable to the corporation. Tax 2011 Basis. Tax 2011   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Tax 2011 However, the increase for the gain recognized may be limited. Tax 2011 For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Tax 2011   The basis of property contributed to capital by a person other than a shareholder is zero. Tax 2011   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Tax 2011 If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Tax 2011 Depreciable property. Tax 2011 Amortizable property. Tax 2011 Property subject to cost depletion but not to percentage depletion. Tax 2011 All other remaining properties. Tax 2011   Reduce the basis of property in each category to zero before going on to the next category. Tax 2011   There may be more than one piece of property in each category. Tax 2011 Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Tax 2011 The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Tax 2011 Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Tax 2011 A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Tax 2011 After the end of the year, the corporation must file an income tax return. Tax 2011 This section will help you determine when and how to pay and file corporate income taxes. Tax 2011 For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Tax 2011 The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Tax 2011 For more information, visit www. Tax 2011 irs. Tax 2011 gov/newsroom/article/0,,id=108362. Tax 2011 00. Tax 2011 Income Tax Return This section will help you determine when and how to report a corporation's income tax. Tax 2011 Who must file. Tax 2011   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Tax 2011 Which form to file. Tax 2011   A corporation generally must file Form 1120, U. Tax 2011 S. Tax 2011 Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Tax 2011 Certain organizations and entities must file special returns. Tax 2011 For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Tax 2011 Electronic filing. Tax 2011   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Tax 2011 Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Tax 2011 However, in certain instances, these corporations can request a waiver. Tax 2011 For more information regarding electronic filing, visit www. Tax 2011 irs. Tax 2011 gov/efile. Tax 2011 When to file. Tax 2011   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Tax 2011 A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Tax 2011 A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Tax 2011 Example 1. Tax 2011 A corporation's tax year ends December 31. Tax 2011 It must file its income tax return by March 15th. Tax 2011 Example 2. Tax 2011 A corporation's tax year ends June 30. Tax 2011 It must file its income tax return by September 15th. Tax 2011   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Tax 2011 Extension of time to file. Tax 2011   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Tax 2011 The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Tax 2011   Form 7004 does not extend the time for paying the tax due on the return. Tax 2011 Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Tax 2011 The interest is figured from the original due date of the return to the date of payment. Tax 2011   For more information, see the instructions for Form 7004. Tax 2011 How to pay your taxes. Tax 2011   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Tax 2011 Electronic Federal Tax Payment System (EFTPS). Tax 2011   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Tax 2011 For more information on EFTPS and enrollment, visit www. Tax 2011 eftps. Tax 2011 gov or call 1-800-555-4477. Tax 2011 Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Tax 2011 Note. Tax 2011 Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Tax 2011 Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Tax 2011 Do not attach an explanation when the corporation's return is filed. Tax 2011 See the instructions for your income tax return. Tax 2011 Late filing of return. Tax 2011    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Tax 2011 If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Tax 2011 The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Tax 2011 The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Tax 2011 Late payment of tax. Tax 2011    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Tax 2011 The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Tax 2011 Trust fund recovery penalty. Tax 2011   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Tax 2011 The penalty is the full amount of the unpaid trust fund tax. Tax 2011 This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Tax 2011   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Tax 2011   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Tax 2011 A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Tax 2011   Willfully means voluntarily, consciously, and intentionally. Tax 2011 A responsible person acts willfully if the person knows the required actions are not taking place. Tax 2011   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Tax 2011 Other penalties. Tax 2011   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Tax 2011 See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Tax 2011 Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Tax 2011 If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Tax 2011 This section will explain how to avoid this penalty. Tax 2011 When to pay estimated tax. Tax 2011   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Tax 2011 Example 1. Tax 2011 Your corporation's tax year ends December 31. Tax 2011 Installment payments are due on April 15, June 15, September 15, and December 15. Tax 2011 Example 2. Tax 2011 Your corporation's tax year ends June 30. Tax 2011 Installment payments are due on October 15, December 15, March 15, and June 15. Tax 2011   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Tax 2011 How to figure each required installment. Tax 2011   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Tax 2011 You will generally use one of the following two methods to figure each required installment. Tax 2011 You should use the method that yields the smallest installment payments. Tax 2011 Note. Tax 2011 In these discussions, “return” generally refers to the corporation's original return. Tax 2011 However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Tax 2011 Method 1. Tax 2011   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Tax 2011 Method 2. Tax 2011   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Tax 2011   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Tax 2011 Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Tax 2011   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Tax 2011 Other methods. Tax 2011   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Tax 2011 The annualized income installment method. Tax 2011 The adjusted seasonal installment method. Tax 2011 Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Tax 2011 Refiguring required installments. Tax 2011   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Tax 2011 An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Tax 2011 Underpayment penalty. Tax 2011   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Tax 2011 The penalty is figured separately for each installment due date. Tax 2011 The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Tax 2011 This is true even if the corporation is due a refund when its return is filed. Tax 2011 Form 2220. Tax 2011   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Tax 2011   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Tax 2011 The amount of the underpayment. Tax 2011 The period during which the underpayment was due and unpaid. Tax 2011 The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Tax 2011   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Tax 2011 However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Tax 2011 The annualized income installment method was used to figure any required installment. Tax 2011 The adjusted seasonal installment method was used to figure any required installment. Tax 2011 The corporation is a large corporation figuring its first required installment based on the prior year's tax. Tax 2011 How to pay estimated tax. Tax 2011   A corporation is generally required to use EFTPS to pay its taxes. Tax 2011 See Electronic Federal Tax Payment System (EFTPS), earlier. Tax 2011 Also see the Instructions for Form 1120-W. Tax 2011 Quick refund of overpayments. Tax 2011   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Tax 2011 Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Tax 2011 A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Tax 2011 Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Tax 2011 File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Tax 2011 Do not file Form 4466 before the end of the corporation's tax year. Tax 2011 An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Tax 2011 The IRS will act on the form within 45 days from the date you file it. Tax 2011 U. Tax 2011 S. Tax 2011 Real Property Interest If a domestic corporation acquires a U. Tax 2011 S. Tax 2011 real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Tax 2011 The amount paid includes cash, the fair market value of other property, and any assumed liability. Tax 2011 If a domestic corporation distributes a U. Tax 2011 S. Tax 2011 real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Tax 2011 A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Tax 2011 For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Tax 2011 S. Tax 2011 Withholding Tax Return for Dispositions by Foreign Persons of U. Tax 2011 S. Tax 2011 Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Tax 2011 S. Tax 2011 Real Property Interests. Tax 2011 Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Tax 2011 Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Tax 2011 In all cases, the method used must clearly show taxable income. Tax 2011 Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Tax 2011 Accrual method. Tax 2011   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Tax 2011 A corporation engaged in farming operations also must use the accrual method. Tax 2011   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Tax 2011 However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Tax 2011   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Tax 2011   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Tax 2011   There are exceptions to the economic performance rule for certain items, including recurring expenses. Tax 2011 See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Tax 2011 Nonaccrual experience method. Tax 2011   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Tax 2011   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Tax 2011 Percentage of completion method. Tax 2011   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Tax 2011 Mark-to-market accounting method. Tax 2011   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Tax 2011 Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Tax 2011 Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Tax 2011 Any gain or loss must be taken into account in determining gross income. Tax 2011 The gain or loss taken into account is treated as ordinary gain or loss. Tax 2011   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Tax 2011 Change in accounting method. Tax 2011   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Tax 2011 The corporation must file Form 3115, Application for Change in Accounting Method. Tax 2011 For more information, see Form 3115 and Publication 538. Tax 2011 Section 481(a) adjustment. Tax 2011   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Tax 2011 The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Tax 2011 However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Tax 2011 The corporation must complete the appropriate lines of Form 3115 to make the election. Tax 2011 See the Instructions for Form 3115. Tax 2011 Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Tax 2011 A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Tax 2011 Generally, corporations can use either a calendar year or a fiscal year as its tax year. Tax 2011 Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Tax 2011 For more information, see Publication 538. Tax 2011 Personal service corporation. Tax 2011   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Tax 2011 See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Tax 2011 Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Tax 2011   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Tax 2011 See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Tax 2011 Change of tax year. Tax 2011   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Tax 2011 However, under certain conditions, a corporation can change its tax year without getting the consent. Tax 2011 For more information, see Form 1128 and Publication 538. Tax 2011 Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Tax 2011 Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Tax 2011 Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Tax 2011 The corporation should keep copies of all filed returns. Tax 2011 They help in preparing future and amended returns and in the calculation of earnings and profits. Tax 2011 Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Tax 2011 However, the following special provisions apply only to corporations. Tax 2011 Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Tax 2011 However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Tax 2011 Any costs not deducted can be amortized. Tax 2011 Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Tax 2011 Organizational costs are the direct costs of creating the corporation. Tax 2011 For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Tax 2011 Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Tax 2011 Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Tax 2011 Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Tax 2011 If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Tax 2011 These rules also deny the deduction of losses on the sale or exchange of property between related persons. Tax 2011 Related persons. Tax 2011   For purposes of this rule, the following persons are related to a corporation. Tax 2011 Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Tax 2011 An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Tax 2011 A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Tax 2011 An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Tax 2011 A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Tax 2011 Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Tax 2011 Ownership of stock. Tax 2011   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Tax 2011 Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Tax 2011 An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Tax 2011 Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Tax 2011 Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Tax 2011 To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Tax 2011 But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Tax 2011 Reallocation of income and deductions. Tax 2011   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Tax 2011 Complete liquidations. Tax 2011   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Tax 2011 More information. Tax 2011   For more information about the related person rules, see Publication 544. Tax 2011 Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Tax 2011 If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Tax 2011 Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Tax 2011 A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Tax 2011 A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Tax 2011 For more information regarding the election, see Form 8902. Tax 2011 Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Tax 2011 The deduction is allowed for the year in which the property is placed in service. Tax 2011 A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Tax 2011 For more information, see section 179C of the Internal Revenue Code and the related Regulations. Tax 2011 Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Tax 2011 A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Tax 2011 For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Tax 2011 Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Tax 2011 In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Tax 2011 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Tax 2011 The deduction is limited to $1. Tax 2011 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Tax 2011 Other rules and limitations apply. Tax 2011 The corporation must reduce the basis of any property by any deduction taken. Tax 2011 The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Tax 2011 For more information, see section 179D of the Internal Revenue Code. Tax 2011 Also see Notice 2006-52, 2006-26 I. Tax 2011 R. Tax 2011 B. Tax 2011 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Tax 2011 R. Tax 2011 B. Tax 2011 725, and any successor. Tax 2011 Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Tax 2011 These items are known as corporate preference items and they include the following. Tax 2011 Gain on the disposition of section 1250 property. Tax 2011 For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Tax 2011 Percentage depletion for iron ore and coal (including lignite). Tax 2011 For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Tax 2011 Amortization of pollution control facilities. Tax 2011 For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Tax 2011 Mineral exploration and development costs. Tax 2011 For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Tax 2011 For more information on corporate preference items, see section 291 of the Internal Revenue Code. Tax 2011 Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Tax 2011 This section discusses the general rules that apply. Tax 2011 The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Tax 2011 For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Tax 2011 Dividends from domestic corporations. Tax 2011   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Tax 2011 If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Tax 2011 Ownership. Tax 2011   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Tax 2011 Small business investment companies. Tax 2011   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Tax 2011 Dividends from regulated investment companies. Tax 2011   Regulated investment company dividends received are subject to certain limits. Tax 2011 Capital gain dividends received from a regulated investment company do not qualify for the deduction. Tax 2011 For more information, see section 854 of the Internal Revenue Code. Tax 2011 No deduction allowed for certain dividends. Tax 2011   Corporations cannot take a deduction for dividends received from the following entities. Tax 2011 A real estate investment trust (REIT). Tax 2011 A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Tax 2011 A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Tax 2011 Ex-dividend means the holder has no rights to the dividend. Tax 2011 A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Tax 2011 Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Tax 2011 Dividends on deposits. Tax 2011   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Tax 2011 They do not qualify for this deduction. Tax 2011 Limit on deduction for dividends. Tax 2011   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Tax 2011 Figuring the limit. Tax 2011   In figuring the limit, determine taxable income without the following items. Tax 2011 The net operating loss deduction. Tax 2011 The domestic production activities deduction. Tax 2011 The deduction for dividends received. Tax 2011 Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Tax 2011 Any capital loss carryback to the tax year. Tax 2011 Effect of net operating loss. Tax 2011   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Tax 2011 To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Tax 2011 Example 1. Tax 2011 A corporation loses $25,000 from operations. Tax 2011 It receives $100,000 in dividends from a 20%-owned corporation. Tax 2011 Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Tax 2011 If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Tax 2011 Therefore, the 80% of taxable income limit does not apply. Tax 2011 The corporation can deduct the full $80,000. Tax 2011 Example 2. Tax 2011 Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Tax 2011 Its taxable income is $85,000 before the deduction for dividends received. Tax 2011 After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Tax 2011 Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Tax 2011 Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Tax 2011 The nontaxed part is any dividends-received deduction allowable for the dividends. Tax 2011 Extraordinary dividend. Tax 2011   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Tax 2011 The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Tax 2011 Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Tax 2011 Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Tax 2011 Disqualified preferred stock. Tax 2011   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Tax 2011   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Tax 2011 The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Tax 2011 The issue price of the stock exceeds its liquidation rights or stated redemption price. Tax 2011 The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Tax 2011   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Tax 2011 More information. Tax 2011   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Tax 2011 Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Tax 2011 A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Tax 2011 A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Tax 2011 Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Tax 2011 Foregone interest. Tax 2011   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Tax 2011 See Below-market loans, in chapter 4 of Publication 535 for more information. Tax 2011 Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Tax 2011 The contribution is deductible if made to, or for the use of, a qualified organization. Tax 2011 For more information on qualified organizations, see Publication 526, Charitable Contributions. Tax 2011 Also see, Exempt Organizations Select Check (EO Select Check) at www. Tax 2011 irs. Tax 2011 gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Tax 2011 Note. Tax 2011 You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Tax 2011 Cash method corporation. Tax 2011   A corporation using the cash method of accounting deducts contributions in the tax year paid. Tax 2011 Accrual method corporation. Tax 2011   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Tax 2011 Make the choice by reporting the contribution on the corporation's return for the tax year. Tax 2011 A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Tax 2011 The declaration must include the date the resolution was adopted. Tax 2011 Limitations on deduction. Tax 2011   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Tax 2011 Figure taxable income for this purpose without the following. Tax 2011 The deduction for charitable contributions. Tax 2011 The dividends-received deduction. Tax 2011 The deduction allowed under section 249 of the Internal Revenue Code. Tax 2011 The domestic production activities deduction. Tax 2011 Any net operating loss carryback to the tax year. Tax 2011 Any capital loss carryback to the tax year. Tax 2011 Farmers and ranchers. Tax 2011    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Tax 2011 Carryover of excess contributions. Tax 2011   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Tax 2011 You lose any excess not used within that period. Tax 2011 For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Tax 2011 Any excess not used in 2015 is lost. Tax 2011 Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Tax 2011 You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Tax 2011 Cash contributions. Tax 2011   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Tax 2011 The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Tax 2011 Keep the record of the contribution with the other corporate records. Tax 2011 Do not attach the records to the corporation's return. Tax 2011 For more information on cash contributions, see Publication 526. Tax 2011 Gifts of $250 or more. Tax 2011   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Tax 2011 The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Tax 2011 The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Tax 2011 Keep the acknowledgement with other corporate records. Tax 2011 Do not attach the acknowledgement to the return. Tax 2011 Contributions of property other than cash. Tax 2011   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Tax 2011 In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Tax 2011   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Tax 2011 For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Tax 2011   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Tax 2011 A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Tax 2011 The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Tax 2011   See Form 8283 for more information. Tax 2011 Qualified conservation contributions. Tax 2011   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Tax 2011 For more information, see section 170(h) of the Internal Revenue Code. Tax 2011 Contributions of used vehicles. Tax 2011   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Tax 2011 The deduction is limited, and other special rules apply. Tax 2011 For more information, see Publication 526. Tax 2011 Reduction for contributions of certain property. Tax 2011   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Tax 2011   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Tax 2011 Larger deduction. Tax 2011   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Tax 2011 This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Tax 2011 Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Tax 2011 The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Tax 2011 Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Tax 2011 Contributions to organizations conducting lobbying activities. Tax 2011   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Tax 2011 More information. Tax 2011   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Tax 2011 Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Tax 2011 In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Tax 2011 Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Tax 2011 A capital loss is carried to other years in the following order. Tax 2011 3 years prior to the loss year. Tax 2011 2 years prior to the loss year. Tax 2011 1 year prior to the loss year. Tax 2011 Any loss remaining is carried forward for 5 years. Tax 2011 When you carry a net capital loss to another tax year, treat it as a short-term loss. Tax 2011 It does not retain its original identity as long term or short term. Tax 2011 Example. Tax 2011 A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Tax 2011 The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Tax 2011 The corporation treats this $6,000 as a short-term loss when carried back or forward. Tax 2011 The corporation carries the $6,000 short-term loss back 3 years. Tax 2011 In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Tax 2011 It subtracts the $6,000 short-term loss first from the net short-term gain. Tax 2011 This results in a net capital gain for year 1 of $7,000. Tax 2011 This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Tax 2011 S corporation status. Tax 2011   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Tax 2011 Rules for carryover and carryback. Tax 2011   When carrying a capital loss from one year to another, the following rules apply. Tax 2011 When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Tax 2011 In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Tax 2011 If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Tax 2011 You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Tax 2011 Refunds. Tax 2011   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Tax 2011 If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Tax 2011 S. Tax 2011 Corporation Income Tax Return, to apply for a refund. Tax 2011 Form 1139. Tax 2011    A corporation can get a refund faster by using Form 1139. Tax 2011 It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Tax 2011 Form 1120X. Tax 2011   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Tax 2011 The corporation must file the Form 1120X within 3 years of the due date, includin
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The Tax 2011

Tax 2011 2. Tax 2011   Withholding Tax Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Income Tax Withholding Statement. Tax 2011 30% Flat Rate Withholding Social Security and Medicare TaxesGeneral Information Bilateral Social Security (Totalization) Agreements Topics - This chapter discusses: Withholding income tax from the pay of U. Tax 2011 S. Tax 2011 citizens, Withholding tax at a flat rate, and Social security and Medicare taxes. Tax 2011 Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 673 Statement For Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion Provided by Section 911 W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification See chapter 7 for information about getting this publication and these forms. Tax 2011 Income Tax Withholding U. Tax 2011 S. Tax 2011 employers generally must withhold U. Tax 2011 S. Tax 2011 income tax from the pay of U. Tax 2011 S. Tax 2011 citizens working abroad unless the employer is required by foreign law to withhold foreign income tax. Tax 2011 Foreign earned income exclusion. Tax 2011   Your employer does not have to withhold U. Tax 2011 S. Tax 2011 income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion. Tax 2011   Your employer should withhold taxes from any wages you earn for working in the United States. Tax 2011 Statement. Tax 2011   You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion. Tax 2011   Form 673 is an acceptable statement. Tax 2011 You can use Form 673 only if you are a U. Tax 2011 S. Tax 2011 citizen. Tax 2011 You do not have to use the form. Tax 2011 You can prepare your own statement. Tax 2011 See a copy of Form 673, later. Tax 2011   Generally, your employer can stop the withholding once you submit the statement that includes a declaration that the statement is made under penalties of perjury. Tax 2011 However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold. Tax 2011   In determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion, if your employer has any information about pay you received from any other source outside the United States, your employer must take that information into account. Tax 2011 Foreign tax credit. Tax 2011   If you plan to take a foreign tax credit, you may be eligible for additional withholding allowances on Form W-4. Tax 2011 You can take these additional withholding allowances only for foreign tax credits attributable to taxable salary or wage income. Tax 2011 Withholding from pension payments. Tax 2011   U. Tax 2011 S. Tax 2011 payers of benefits from employer-deferred compensation plans, individual retirement plans, and commercial annuities generally must withhold income tax from payments delivered outside of the United States. Tax 2011 You can choose exemption from withholding if you: Provide the payer of the benefits with a residence address in the United States or a U. Tax 2011 S. Tax 2011 possession, or Certify to the payer that you are not a U. Tax 2011 S. Tax 2011 citizen or resident alien or someone who left the United States to avoid tax. Tax 2011 Check your withholding. Tax 2011   Before you report U. Tax 2011 S. Tax 2011 income tax withholding on your tax return, you should carefully review all information documents, such as Form W-2, Wage and Tax Statement, and the Form 1099 information returns. Tax 2011 Compare other records, such as final pay records or bank statements, with Form W-2 or Form 1099 to verify the withholding on these forms. Tax 2011 Check your U. Tax 2011 S. Tax 2011 income tax withholding even if you pay someone else to prepare your tax return. Tax 2011 You may be assessed penalties and interest if you claim more than your correct amount of withholding allowances. Tax 2011 This image is too large to be displayed in the current screen. Tax 2011 Please click the link to view the image. Tax 2011 Form 673 30% Flat Rate Withholding Generally, U. Tax 2011 S. Tax 2011 payers of income other than wages, such as dividends and royalties, are required to withhold tax at a flat 30% (or lower treaty) rate on nonwage income paid to nonresident aliens. Tax 2011 If you are a U. Tax 2011 S. Tax 2011 citizen or resident alien and this tax is withheld in error from payments to you because you have a foreign address, you should notify the payer of the income to stop the withholding. Tax 2011 Use Form W-9 to notify the payer. Tax 2011 You can claim the tax withheld in error as a withholding credit on your tax return if the amount is not adjusted by the payer. Tax 2011 Social security benefits paid to residents. Tax 2011   If you are a lawful permanent resident (green card holder) and a flat 30% tax was withheld in error on your social security benefits, the tax is refundable by the Social Security Administration (SSA) or the IRS. Tax 2011 The SSA will refund the tax withheld if the refund can be processed during the same calendar year in which the tax was withheld. Tax 2011 If the SSA cannot refund the tax withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center at the address listed under Where To File to determine if you are entitled to a refund. Tax 2011 The following information must be submitted with your Form 1040 or Form 1040A. Tax 2011 A copy of Form SSA-1042S, Social Security Benefit Statement. Tax 2011 A copy of your “green card. Tax 2011 ” A signed declaration that includes the following statements. Tax 2011   “I am a U. Tax 2011 S. Tax 2011 lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Tax 2011 I am filing a U. Tax 2011 S. Tax 2011 income tax return for the taxable year as a resident alien reporting all of my worldwide income. Tax 2011 I have not claimed benefits for the taxable year under an income tax treaty as a nonresident alien. Tax 2011 ” Social Security and Medicare Taxes Social security and Medicare taxes may apply to wages paid to an employee regardless of where the services are performed. Tax 2011 General Information In general, U. Tax 2011 S. Tax 2011 social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States unless one of the following exceptions applies. Tax 2011 You perform the services on or in connection with an American vessel or aircraft (defined later) and either: You entered into your employment contract within the United States, or The vessel or aircraft touches at a U. Tax 2011 S. Tax 2011 port while you are employed on it. Tax 2011 You are working in one of the countries with which the United States has entered into a bilateral social security agreement (discussed later). Tax 2011 You are working for an American employer (defined later). Tax 2011 You are working for a foreign affiliate (defined later) of an American employer under a voluntary agreement entered into between the American employer and the U. Tax 2011 S. Tax 2011 Treasury Department. Tax 2011 American vessel or aircraft. Tax 2011   An American vessel is any vessel documented or numbered under the laws of the United States and any other vessel whose crew is employed solely by one or more U. Tax 2011 S. Tax 2011 citizens, residents, or corporations. Tax 2011 An American aircraft is an aircraft registered under the laws of the United States. Tax 2011 American employer. Tax 2011   An American employer includes any of the following. Tax 2011 The U. Tax 2011 S. Tax 2011 Government or any of its instrumentalities. Tax 2011 An individual who is a resident of the United States. Tax 2011 A partnership of which at least two-thirds of the partners are U. Tax 2011 S. Tax 2011 residents. Tax 2011 A trust of which all the trustees are U. Tax 2011 S. Tax 2011 residents. Tax 2011 A corporation organized under the laws of the United States, any U. Tax 2011 S. Tax 2011 state, or the District of Columbia, Puerto Rico, the U. Tax 2011 S. Tax 2011 Virgin Islands, Guam, or American Samoa. Tax 2011   An American employer also includes any foreign person with an employee who is performing services in connection with a contract between the U. Tax 2011 S. Tax 2011 government (or any instrumentality thereof) and a member of a domestically controlled group of entities which includes such foreign person. Tax 2011 Foreign affiliate. Tax 2011   A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one or more entities. Tax 2011 For a corporation, the 10% interest must be in its voting stock. Tax 2011 For any other entity, the 10% interest must be in its profits. Tax 2011   Form 2032, Contract Coverage Under Title II of the Social Security Act, is used by American employers to extend social security coverage to U. Tax 2011 S. Tax 2011 citizens and resident aliens working abroad for foreign affiliates of American employers. Tax 2011 Once you enter into an agreement, coverage cannot be terminated. Tax 2011 Excludable meals and lodging. Tax 2011   Social security tax does not apply to the value of meals and lodging provided to you for the convenience of your employer if it is reasonable to believe that you will be able to exclude the value from your income. Tax 2011 Bilateral Social Security (Totalization) Agreements The United States has entered into agreements with some foreign countries to coordinate social security coverage and taxation of workers who are employed in those countries. Tax 2011 These agreements are commonly referred to as totalization agreements and are in effect with the following countries. Tax 2011 Australia Greece Norway Austria Ireland Poland Belgium Italy Portugal Canada Japan Spain Chile Korea, Sweden Czech South Switzerland Republic Luxembourg United Denmark Netherlands Kingdom Finland     France     Germany           Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Tax 2011 The agreements generally make sure that you pay social security taxes to only one country. Tax 2011 Generally, under these agreements, you will only be subject to social security taxes in the country where you are working. Tax 2011 However, if you are temporarily sent to work in a foreign country and your pay would otherwise be subject to social security taxes in both the United States and that country, you generally can remain covered only by U. Tax 2011 S. Tax 2011 social security. Tax 2011 You can get more information on any specific agreement by contacting: Social Security Administration Office of International Programs P. Tax 2011 O. Tax 2011 Box 17741 Baltimore, MD 21235-7741 If you have access to the Internet, you can get more information at: http://www. Tax 2011 socialsecurity. Tax 2011 gov/international. Tax 2011 Covered by U. Tax 2011 S. Tax 2011 only. Tax 2011   If your pay in a foreign country is subject only to U. Tax 2011 S. Tax 2011 social security tax and is exempt from foreign social security tax, your employer should get a certificate of coverage from the Office of International Programs. Tax 2011 Covered by foreign country only. Tax 2011   If you are permanently working in a foreign country with which the United States has a social security agreement and, under the agreement, your pay is exempt from U. Tax 2011 S. Tax 2011 social security tax, you or your employer should get a statement from the authorized official or agency of the foreign country verifying that your pay is subject to social security coverage in that country. Tax 2011   If the authorities of the foreign country will not issue such a statement, either you or your employer should get a statement from the U. Tax 2011 S. Tax 2011 Social Security Administration, Office of International Programs, at the address listed earlier. Tax 2011 The statement should indicate that your wages are not covered by the U. Tax 2011 S. Tax 2011 social security system. Tax 2011   This statement should be kept by your employer because it establishes that your pay is exempt from U. Tax 2011 S. Tax 2011 social security tax. Tax 2011   Only wages paid on or after the effective date of the totalization agreement can be exempt from U. Tax 2011 S. Tax 2011 social security tax. Tax 2011 Prev  Up  Next   Home   More Online Publications