Advanced entity taxation
The C Corporation Plan
Run the C corporation at 21 percent: take the DRD by ownership tier, cap the NOL at 80 percent, and weigh double taxation against 1202 QSBS.
How the exam words it
- -The stem gives dividends received and an ownership percentage and asks for the dividends-received deduction at the 50, 65, or 100 percent tier.
- -It gives an NOL carryforward and taxable income and asks the deductible amount under the 80 percent limit.
- -It describes retained earnings or concentrated passive income and asks about the accumulated earnings or personal holding company tax.
- -It compares combined entity-plus-shareholder tax on distributed earnings, or asks about the 1202 QSBS exclusion available only to C corporations.
The playbook
- 1Set the DRD percentage by ownership (under 20 percent is 50, 20 to 80 is 65, 80 or more is 100), then cap it at that percentage of taxable income unless the full DRD creates an NOL.
- 2Limit a post-2017 NOL carryforward to 80 percent of taxable income before the NOL, and carry the rest forward indefinitely.
- 3Offset corporate capital losses only against capital gains (no 3,000 allowance), carrying back 3 and forward 5 years as short-term.
- 4Flag the 20 percent accumulated earnings and personal holding company penalty taxes, and reserve the 1202 QSBS exclusion for C corporation stock.
The trap
Applying the DRD income limit even when the full deduction would create an NOL, or netting a corporate capital loss against ordinary income. The limit is waived if it creates an NOL, and corporations get no 3,000 offset.
How the exam varies it
The same pattern, re-skinned along these axes:
DRD tier and the taxable-income limitation versus its NOL-creating exception80 percent NOL limit and capital-loss-only offsetAccumulated earnings and PHC penalty taxes versus 1202 QSBS on exit
Drill this pattern
8 questions of The C Corporation Plan from across the AUD topics. Clear it by getting 5 right with a streak of 3.