1. Chapter 5: Other Corporate Tax Levies

2. OTHER CORPORATE TAX LEVIES
Alternative minimum tax (AMT)
Personal holding company (PHC) tax
Accumulated Earnings Tax (AET)

3. Alternative Minimum Tax (AMT)
AMT is an acceleration of a corp’s income taxes
Small C corp exemption from AMT
AMT formula
Statutory exemption amount
Minimum tax credit
See Topic Review C5-2 for a summary of the AMT

4. Small C Corp Exemption from AMT
Initial year: all corps exempt
2nd year: exempt if first year gross receipts  $5M
3rd year: exempt if avg. of yr1 and yr 2 gross receipts  $7.5M
Subsequent years: exempt if avg. of prior 3 yrs’ gross receipts  $7.5M

5. AMT Formula (1 of 3) Taxable income before NOL + Tax preference items
+/- Adjustments to taxable income other then ACE adjustment and AMT NOL deduction (see TR C5-1)
= Pre-adjustment AMTI

6. AMT Formula (2 of 3) Pre-adjustment AMTI
+/- 75% of difference between pre- adjustment AMTI and ACE
- AMT NOL deduction
= AMTI
- Statutory exemption
= Tax base

7. AMT Formula (3 of 3) Tax base x 20% tax rate
= Tentative minimum tax before credits
- AMT FTC
= Tentative minimum tax (TMT)
- Regular income tax liability
= AMT due (if any)

8. Statutory Exemption Amount
$40,000
Reduced by 25% x (AMTI - $150,000)
Fully phased out when AMTI ≥ $310,000

9. Minimum Tax Credit
Corp may take a credit in future years for AMT paid in previous years if computed regular tax, minus all non-refundable credits, is larger than that year’s TMT

10. Personal Holding Company (PHC)
Prevents closely held C corps from sheltering passive income from higher individual tax rates
Stock ownership test
Passive income test
PHC penalty tax of 15%
PHC tax rate equal to highest individual income tax rate on dividends

11. Stock Ownership Test (1 of 2)
Five or fewer s/hs who own
50% of outstanding stock at any time during last 6 months of corp’s tax year

12. Stock Ownership Test (2 of 2)
§544 attribution rules apply
Similar to §318 attribution rules except:
Family attribution includes ALL ancestors and lineal descendents
Corp attribution for ALL shareholders
Attribution rules cannot be used to prevent a corp from being a PHC

13. Passive Income Test (1 of 2)
 60% of corp’s AOGI for year is PHCI
See Fig. C5-1 for AOGI calculation
PHCI includes
Dividends, interest, annuity proceeds, royalties, distributions from estate or trust, certain personal service contracts

14. Passive Income Test (2 of 2)
PHCI includes (continued)
Rents, unless corp earnings are predominantly from rental income
See Table C5-2 for tests to determine exclusions from PHCI

15. PHC Penalty Tax (1 of 3)
Calculate undistributed personal holding company income (UPHCI)
See next slide for calculation of UPHCI
Apply 15% rate to determine tax

16. PHC Penalty Tax (2 of 3) Taxable income + Positive adjustments
DRD, NOL, charitable contrib. c/o, leased prop. net loss, excess rent exp.
- Negative adjustments
Accrued US/foreign inc. taxes, excess NOL w/o DRD, charitable contrib., after-tax cap. gain
- Dividends-paid deduction
= UPHCI

17. PHC Penalty Tax (3 of 3) Avoiding PHC status with
Throwback dividends
Consent dividends
Dividend carryovers
Liquidating dividends
Deficiency dividends
See Topic Review C5-3 for a summary of PHC tax

18. Accumulated Earnings Tax (AET)
Definition
Evidence of tax avoidance
Evidence of reasonable needs
AET liability
See Topic Review C5-4

19. Definition of AET
Penalty tax to compel corps to distribute profits not needed for conduct of its business
Tax at highest individual tax rate on dividends(15%)
S/h must have tax-avoidance motive to avoid receipt of dividends
Usually applies to closely held corps

20. Evidence of Tax Avoidance
Loans to shareholders
Corporate funds spent for personal benefit of shareholders
Loans to a brother/sister corp
Investments unrelated to corp’s business
Protection against unrealistic hazards

21. Evidence of Reasonable Needs
Expansion or replacement of facilities
Acquisition of a business enterprise
Debt retirement
Working capital - Bardahl formula
Loans to suppliers or customers
Product liability losses
Stock redemptions
Business contingencies

22. AET Liability (1 of 2) 15% of AE taxable income
Issue usually raised one or more years after tax year in question.
Once determined, liability cannot be reduced by deficiency dividend
Dividends actually paid during tax year reduce AETI
AEC available but subject to phaseout.

23. AET Liability (2 of 2) Taxable income + Positive adjustments
DRD, NOL, charitable contrib. c/o, capital loss carryover
- Negative adjustments
Accrued US/foreign inc. taxes, excess net cap. loss, charitable contrib., after-tax cap. gain
- Dividends-paid deduction
- Accumulated earnings credit
= Accumulated taxable income

24. End of Chapter 5
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