Shareholders recognize a taxable dividend to the extent a distribution is paid out of corporate earnings and profits. If the distribution exceeds E&P, the excess reduces the shareholder’s stock basis. Any amount in excess of the shareholder’s stock basis is capital gain.
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TOPICS
C Corporation Income Taxation
Application of Interest Charge for Installment Sale Obligations
As the merger and acquisition business continues to prosper, practitioners should be aware of the tax implications and compliance requirements of the interest charge on deferred tax under Sec. 453A that applies to certain installment sale obligations.
Fifth Circuit Affirms Tax Court’s Valuation of Façade Easement
The Fifth Circuit affirmed the Tax Court’s determination of the value of a façade easement, finding that the Tax Court had properly followed its instructions on remand.
Alternative Simplified Research Credit Can Now Be Claimed on Amended Returns
The IRS issued temporary regulations permitting taxpayers to elect the Sec. 41(c)(5) alternative simplified credit on an amended return, as long as the taxpayer (or a member of its controlled group) did not elect to use any other method of calculating the research credit on an original or amended return for that year.
Definitions of R&E Expenditures Are Amended Under Final Rules
The IRS issued final regulations on which amounts paid or incurred in connection with the development of tangible property, including pilot models, qualify for the Sec. 174 deduction (or amortization) for research and experimental expenditures.
Sec. 199 “Benefits and Burdens” Analysis: Key Guidance
The IRS’s primary objective with respect to any contract manufacturing arrangement is ensuring that only one party to the contract can claim to have the benefits and burdens during any qualifying activity. This protects the IRS from being “whipsawed,” i.e., being subject to claims by both parties to have the benefits and burdens during a qualifying activity.
Sec. 351 Control Requirement: Opportunities and Pitfalls
Sec. 351 allows a tax-free incorporation transfer if certain requirements are met, including that the property must be transferred to a corporation by one or more persons in exchange for stock in the corporation, and, immediately after the exchange, the transferor(s) is (are) in control (as defined in Sec. 368(c)) of the corporation.
Caution: Sec. 1234A May Apply to an Abandonment Loss
Change the character of a loss from ordinary to capital, and a taxpayer runs the risk of deferring or even failing to realize a tax benefit. While the general rules regarding characterization of gains or losses are well-known, more obscure statutory provisions can change an otherwise ordinary gain or loss into a capital gain or loss.
Sec. 1059: Adjusting More Than Basis
Sec. 1059 requires a corporate shareholder to reduce the stock basis of its subsidiary when it receives an extraordinary dividend from the subsidiary within the first two years of owning the subsidiary’s stock. The procedures for recalculating basis in that scenario are clear, but the effect of these basis adjustments on the corporate shareholder’s earnings and profits (E&P) is not as clear.
Unexpected Consequences of Changes in Entity Classifications
When entities change their classification, several income tax issues that are not immediately apparent may come into play. When these issues are discovered, they may require amending tax returns and could result in tax penalties as well.
Sec. 956 and Subpart F Inclusions, Actual Distributions, and Previously Taxed Income
Previously taxed income rules were designed to prevent double taxation of a controlled foreign corporation’s earnings. Keeping track of a foreign corporation’s earings and profits under the rules can be complicated.
Like-Kind Exchange Rules: Continued Evolution
For many years, taxpayers have been able to defer recognition of gain on the disposition of assets by engaging in Sec. 1031 like-kind exchanges. Consequently, many questions and issues surrounding these transactions have been addressed, but many cases and rulings continue to arise each year. This article analyzes these cases and rulings and identifies questions that still need to be answered.
“Killer B” Anti-Abuse Rules to Be Introduced
Recognizing that taxpayers are exploiting the rules in ways it had not intended, the IRS announced that it will amend the existing regulations on cross-border triangular reorganizations, popularly known as “Killer B” transactions.
Regs. Tighten Form 5472 Filing Requirements
The IRS is amending the rules for filing Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
Regulations Permit Election of Alternative Simplified Research Credit on Amended Returns
The IRS issued temporary regulations permitting taxpayers to elect the Sec. 41(c)(5) alternative simplified research credit on an amended return.
Retail Advertising: IRS Affirms Potential Application of Sec. 199
Retailers may be eligible to claim a Sec. 199 deduction for advertising revenue derived from producing and distributing printed fliers in cooperation with vendors. This item reviews recent IRS guidance and considers what it might mean for taxpayers that are engaged in cooperative advertising arrangements.
IRS Issues Updated Guidance on the Examination of Milestone Payments
The IRS’s Large Business and International exam division issued a directive instructing examiners not to challenge a taxpayer’s application of the safe harbor to “eligible milestone payments” incurred during the course of a covered transaction if the directive’s requirements are satisfied.
Proposed Rules Would Amend Definition of Acquiring Corporation in Corporate Reorganizations
The IRS issued proposed regulations under Sec. 381 that in certain acquisitions would change which corporation succeeds to the tax attributes, including the E&P, of the transferor or distributor corporation.
Tangible Property Regs. De Minimis Safe-Harbor Election: Frequently Asked Questions
The de minimis safe harbor is one of the areas of the regulations where taxpayers have significant questions. This article answers some of the most frequently asked questions.
Regs. Define Disregarded Stock for Purposes of Sec. 7874 Inversion Transactions
The IRS issued temporary regulations providing guidance on when foreign corporate stock is taken into account in determining whether the ownership test is satisfied for Sec. 7874.
TAX PRACTICE MANAGEMENT
2025 tax software survey
AICPA members in tax practice assess how their return preparation software performed during tax season and offer insights into their procedures.
