C Corporation Taxation

Section 351

Transferors in 80% control immediately after. Gain = lesser of realized gain or boot. Liabilities in excess of basis → gain. Services ≠ property. Shareholder basis = property basis + gain − boot − liabilities.

Taxable income

• Rate: 21%.
• Dividends received deduction: 50% (< 20%), 65% (20–80%), 100% (≥ 80%); taxable income limit unless it creates a net operating loss.
• Charity: 10% of taxable income cap; from 2026 only above a 1% floor; 5-year carryforward.
• Capital losses: only against gains; back 3, forward 5.
• Net operating losses: forward indefinitely, 80% limit.
• Business interest: 30% of adjusted taxable income (based on earnings before interest, taxes, depreciation, and amortization (EBITDA) again).

Schedule M-1

Add: federal tax, excess capital loss, fines, 50% meals. Subtract: tax-exempt interest, excess tax depreciation.

Distributions

• Dividend to the extent of current, then accumulated earnings and profits (E&P) → return of capital → capital gain.
• Appreciated property distributed: corporation recognizes gain (no loss).

Other taxes

Accumulated earnings tax 20% · personal holding company tax 20% · 15% minimum tax for $1 billion+ corporations.

Exam traps

• Section 351: a shareholder who gets stock for services has ordinary income, and that stock doesn't count toward the 80% control test unless they also contribute property.
• Organizational costs: up to $5,000 deducted (phase-out over $50,000), the rest over 180 months. Stock issuance costs are never deductible.
• Earnings and profits isn't taxable income: tax-exempt interest increases it and federal income tax reduces it.
• Fines and penalties are never deductible, and entertainment is 0% deductible (business meals 50%).