Assignment on Corporate Tax
ACCT553
Week 4 Homework
_________________________________________________________
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.
Chapter 14
1. Please describe the concept of "double taxation" and discuss which entity(ies) are subject to this type of taxation. (5 pts)
C corporations are subject to double taxation.
Double taxation is a taxation principle referring to income taxes that are paid twice on the same source of earned income.
Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level.
2. What type of taxpayers are considered "eligible" taxpayers with regard to special ordinary loss treatment of IRC Section 1244 stock? (5 pts.)
The allowance of an ordinary loss deduction for a loss of section 1244 stock is permitted only to the following two classes of taxpayers:
(1) An individual sustaining the loss to whom the stock was issued by a small business corporation, or
(2) An individual who is a partner in a partnership at the time the partnership acquired the stock in an issuance from a small business corporation and whose distributive share of partnership items reflects the loss sustained by the partnership. The ordinary loss deduction is limited to the lesser of the partner's distributive share at the time of the issuance of the stock or the partner's distributive share at the time the loss is sustained. In order to claim a deduction under section 1244 the individual, or the partnership, sustaining the loss must have continuously held the stock from the date of issuance. A corporation,
Week 4 Homework
_________________________________________________________
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.
Chapter 14
1. Please describe the concept of "double taxation" and discuss which entity(ies) are subject to this type of taxation. (5 pts)
C corporations are subject to double taxation.
Double taxation is a taxation principle referring to income taxes that are paid twice on the same source of earned income.
Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level.
2. What type of taxpayers are considered "eligible" taxpayers with regard to special ordinary loss treatment of IRC Section 1244 stock? (5 pts.)
The allowance of an ordinary loss deduction for a loss of section 1244 stock is permitted only to the following two classes of taxpayers:
(1) An individual sustaining the loss to whom the stock was issued by a small business corporation, or
(2) An individual who is a partner in a partnership at the time the partnership acquired the stock in an issuance from a small business corporation and whose distributive share of partnership items reflects the loss sustained by the partnership. The ordinary loss deduction is limited to the lesser of the partner's distributive share at the time of the issuance of the stock or the partner's distributive share at the time the loss is sustained. In order to claim a deduction under section 1244 the individual, or the partnership, sustaining the loss must have continuously held the stock from the date of issuance. A corporation,