Section 5: 23–33%R17

C Corporations: Formation, Income, and Distributions

Exam insight

The C corporation life cycle (tax-free formation, the book-to-tax reconciliation, and the distribution waterfall) is the backbone of REG entity taxation. Miss the 80% control test at formation, or get the E&P ordering wrong on distributions, and the rest of your answer falls apart.

What AICPA wants you to know

1Apply §351 tax-free formation, the 80% control test, and boot recognition
2Determine shareholder and corporate basis after a §351 transfer
3Compute corporate taxable income and reconcile book to tax on Schedule M-1
4Calculate the dividends-received deduction and its taxable-income limitation
5Apply the 21% flat rate, the 10% charitable limit, and post-TCJA NOL rules
6Order distributions through E&P: dividend, return of capital, then capital gain

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Corporate TransactionSection 351 defers formation gain unless boot appears, and a distribution is a dividend only to the extent of earnings and profits.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.