the congressional intent behind the personal holding company tax.
Congress enacted this tax to prevent corporations from sheltering? passive, investment, or personal income within a corporate entity and have such earnings taxed at lower corporate tax rates. The measure taken is in the form of a penalty tax imposed on a
congressional intent behind the accumulated earnings tax.
Congress enacted this tax to prevent a corporation from retaining earnings to avoid the shareholder level income tax on distributed earnings. The measure takes the form of a penalty tax imposed on a corporation that retains earnings exceeding the reasonab
Because of its quality? investments, Carolina Corporation has always generated? 30% to? 40% of its gross income from passive sources. In the current? year, Carolina sold a block of stock in a company it acquired several years ago. As a result of the? sale
Carolina's president should be worried that her company could be considered a personal holding company? (PHC), since the stock ownership requirement is met. The company must compute its adjusted ordinary gross income? (AOGI). As AOGI excludes any capital
consent dividend
Consent dividends are hypothetical dividends deemed to be paid to shareholders on the last day of the? corporation's tax year.
How can a consent dividend be used to avoid the PHC and accumulated earnings? taxes? In each? case, what requirements must be met by the distributing corporation? and/or its shareholders to qualify a consent dividend for the? dividends-paid deduction?
PHC tax uses the consent dividend as a determination of the? corporation's liability and thereby lowering? it's liability, however the accumulated earnings tax is not a tax you plan to? pay, so distributing consent dividends is not a factor in avoiding th
What are the tax consequences of a consent dividend to the shareholders and the distributing? corporation?
The consent dividend is treated as being received on the distribution? date, and because the consent dividend rules treat the distribution as having been reinvested in the? corporation, it increases the? shareholder's basis in his stock. The consent divid
advantages of a deficiency dividend
A deficiency dividend substitutes an income tax payment at the shareholder level for the personal holding company? (PHC) penalty tax payment imposed at the corporate level. If a deficiency dividend were not? paid, the PHC penalty tax would have to be? pai
Select the requirements that a PHC and its shareholders must meet to use a deficiency dividend to reduce or eliminate the PHC tax liability.
- A dividend must be paid within 90 days of establishing the PHC tax liability.
- claim for a? dividends-paid deduction must be filed within 120 days of the determination date.
Your answer is correct.
- determination must be made that establishes the PHC
Can a deficiency dividend eliminate interest and? penalties, in addition to the PHC tax? liability?
The payment of a deficiency dividend
does not eliminate liability for interest and penalties that might be imposed with respect to the PHC penalty tax. A deficiency dividend
is not available to avoid or reduce the accumulated earnings tax.
Explain the implication of the following? statement: "Like many? dogs, the threat? (bark) of the PHC tax is much worse than the actual penalties assessed in connection with its? (bite).
- Individuals whose small businesses would be PHCs if they organized them as C corporations instead may organize them as limited liability companies treated as partnerships or organize them as corporations and make an S election. Both entity forms are not
Although the accumulated earnings tax can be imposed on both publicly held and closely held? corporations, the tax is likely to be imposed primarily on closely held? corporations." means
According to the IRC?, closely held corporations can be imposed an accumulated earnings tax
if a shareholder group is also involved in the management of the corporation and control its policies concerning dividend payments.
The IRC also states that public
The accumulated earnings tax is imposed only when the corporation is? "formed or availed of for the purpose of avoiding the income? tax." Does tax avoidance have to occur at the corporate or the shareholder level for the accumulated earnings tax to be? im
The tax avoidance scheme usually takes place at the corporate level and it usually involves
a reduction or elimination of the shareholder tax on the distribution of corporate earnings. According to the U.S. Supreme? Court, tax avoidance does not have to b
Angela forms a corporation during the current year to conduct her new business. The corporation is a C? corporation, and Angela is its only shareholder. Is the corporation potentially subject to the personal holding company tax or the accumulated earnings
The corporation could be subject to the personal holding company? (PHC) tax or the accumulated earnings? tax, but it is not subject to both of them because PHCs are exempt from the accumulated earnings tax.
To be subject to the accumulated earnings? tax,
A high tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings rather than paying them out as a dividend.
true
The personal holding company tax might be imposed
if more than? 50% of the company is owned by five or fewer individuals for the entire year.
Identify which of the following statements is true.
A. The personal holding company tax is levied to prevent closely held corporations from sheltering passive income.
B. Caleb Corporation is owned by a mother and her two daughters. It reports? $100,000 of rental? income; $30,000 of? depreciation, interest,
The personal holding company penalty tax rate is
20%
Dragon Corporation reports a distribution on its return from the third previous year as a stock redemption producing a capital gain. When the return is audited during the current? year, the distribution of the third previous year is characterized by the I
A. A dividend must be paid within 120 days of establishing the PHC tax liability and a claim for a dividends?paid deduction must be filed within 90 days of the determination date.
B. Dragon Corporation will owe interest? and/or underpayment penalty even i
The personal holding company tax
may be eliminated by the payment of a deficiency dividend.
A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.
FALSE
To avoid the accumulated earnings? tax, a corporation needs to have a definite plan for expending the accumulated earnings.
true
The accumulated earnings tax does not apply to corporations that
are personal holding companies.
Identify which of the following statements is true.
A. The accumulated earnings tax is applied to a? corporation's earnings. If the earnings are not subsequently? distributed, the earnings will be taxed again under the accumulated earnings tax the next year.
B. The accumulated earnings tax is not levied on
Which of the following entities is subject to the accumulated earnings? tax
A. C corporation
Your answer is correct.
B. personal holding company
C. Sec. 501 tax?exempt corporation
D. S corporation
A.
all are true
- A corporation bears the burden of proving that its earnings are not being accumulated to avoid income taxes.
- To avoid the accumulated earnings? tax, a corporation needs to have a definite plan for expending the accumulated earnings.
- In? practice, th
Which of following generally does not indicate an unreasonable earnings? accumulation?
A. loans to shareholders
B. planned expansion of business facilities
Your answer is correct.
C. expenditure of corporate funds for the personal benefit of the shareholders
D. investments in properties or securities unrelated to the activities of the corpo
which true
A. The Bardahl formula is based on the? firm's inventory? period, receivables? period, credit? period, and total cash expenditures for cost of sales and operating expenses.
Your answer is correct.
B. The Bardahl formula provides mathematical exactness whe
The accumulated earnings tax is imposed at what? rate?
20%