ACCT1021 Lecture Notes - Lecture 19: Internal Revenue Code, Double Taxation, C Corporation

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viridiancamel50

30 Nov 2017

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C corporation: subchapter c of the internal revenue code. C corps earn taxable income, corporate tax rate in us is 35% Also pay state and local taxes, ma corp tax is 7% C corp is subject to double taxation. If they reinvest it is only taxed once. Shareholder will pay their own taxes on what"s left at 20% cap gain. (cid:1152) of all us corporations are s corps. Net income passes through to the shareholders, taxed at the shareholder level. C corp rate is being cut to 20% Ron johnson and many others aren"t super okay with that. (cid:1152) of us businesses aren"t being helped. More money you make the higher your bracket is. To be in the top 1% you have to earn 465,000. % of total income earned by top 1%, ~ 20% of income. Top 5% earns 189,000 and pays 60% of total tax burden, 36% of income.

Related Questions

Argue either in favor or against the estate tax. Then, respond to at least two other students' posts in the following manner:

Support one studentâs argument with additional information or examples.

Counter one studentâs argument with information and/or examples.

Student 1 answer : Samantha

Samantha Caterina 5 posts

Re:Module 7 DQ 2

The estate tax is very tricky, it can be argued both ways, for and against. For arguments sake I would be in favor of the estate tax. Currently for 2017 the federal estate tax threshold is 5.49 million. This is only targeting the wealthiest of people. The estate tax will tax any amount of an estate above this. It makes up for a small portion of the total tax collected by the federal government but it is still a substantial amount. The estate tax can be different in each state therefore being taxed more if the threshold is smaller. It is argued that the successful decedent should not be penalized for being successful I would not agree this is true. They are no longer the owner of the estate and the money would just be passed to a beneficiary. The beneficiary then has the rights to do what they please with the money. This can cause the beneficiaries to become non-productive members of society. If the estate tax was taken out tax would have to be made up somewhere, therefore cause middle class taxpayers to pay more taxes. The estate tax does not target the average person only the wealthiest are affected by it. I do not think the estate tax needs to be taken out of order.

https://www.forbes.com/sites/kellyphillipserb/2014/10/06/guest-post-pros-and-cons-of-the-federal-estate-tax/#6e3c8eb975a6

Student answer Andrea:

Andrea Robinson-Parker 4 posts

Re:Module 7 DQ 2

The estate tax was once known as the death tax, there is a pun in there somewhere. Firstly, it is associated with the inheritance of a dead relative and secondly, it can be the death of small family businesses. I believe that this tax is essential for our country to survive. Bob Rywick, in his article, Pros and Cons of the Federal Estate Tax argues both sides of the coin. I agree with his pro stance and here is why:

Revenue from the estate tax will create around $200 billion revenue in the next several years. There has been a great increase in wealth in the recent past and this number may climb.

The estate tax will help to dilute the concentration of wealth. This concentration can be damaging to our free democratic society.

Many wealthy people donate large sums to charities each year to lower their tax bracket. If there was no estate tax, these donations would most likely drop off significantly.

Small business, (making less than $5,000,000) will not be affected. There are also rules set in place to protect farms regarding the valuation of farm land.

Less than 2/10 of 1% of the descendants dying each year will be affected by this tax, based on the current exemption amount.

Lastly, I personally believe that estate planning can alleviate some of these taxes. Estate taxes should not be confused with gift taxes. This is an option that can protect inheritances.

Student Answer

Lakisha Minniefield 3 posts

Re:Module 7 DQ 2

I am against âestate taxâ and feel that when the property value goes up, it will increase my mortgage payment each year. I agree with Justin Haskins article regarding scrapping property taxes because as a property owner, charging fees for a specific service should be allowable. Also, property owners should be able to choose where the property taxes should be allocated especially when it comes down to our public education. I have two children who are autistic and in the past it was very difficult to find a school who had the staff to supply all of their educational special needs. Even though we live in the best neighbors that were very costly, the schools zone in the area had 2 out of 10 rating so I would have to transfer my children our of the district in order to get better services. Currently, my husband is getting ready for retirement out of the military and we have looked at all 50 states within the United States to see which state would give us the most exemptions when purchasing a home. The state we chose to move back to is Texas because of the no state property taxes. Property tax for the state of Texas brings in the most money of all taxes available to local government to pay for schools, roads, police and firemen, emergency response services, libraries, parks and other services provided by local government. The state also has a variety of partial or total (absolute) exemptions from appraised property values used to determine local property taxes. A partial exemption removes a percentage or a fixed dollar amount of a property's value from taxation. A total (absolute) exemption excludes the entire property from taxation. Since we will be on a fixed income, Texas property tax exemptions for disabled veterans was the best out of all 50 states. However, we will still have to look for a county with low property tax rate. Since I am already a disabled veteran, Texas has a property tax exempt chart for qualifying disabled veterans.

The exemption amount that a qualified disabled veteran receives depends on the veteran's disability rating from the branch of the armed service.

Disability Exemption
Disability Rating	Exemption Amount Up To
10% to 29%	$5,000 from the property's value
30% to 49%	$7,500 from the property's value
50% to 69%	$10,000 from the property's value
70% to 100%	$12,000 from the property's value

*The Texas Comptroller website lists all of the benefits for disabled veterans regarding property tax exemptions.

Even as a disabled veteran, I would still have to pay property tax but the exemption will only exempt the amount of the disability rating off the value of property. Disabled veterans who are 100% total and permanently disable will be exempt from paying all property taxes. Financially, my family will still have to find a home affordable in a safe neighborhood, public education is rated above 7 out of 10 and choose a county that property taxes are low.

Reference:

https://www.comptroller.texas.gov/taxes

Today, 90% of all US exporting and importing is done by smalland medium sized companies. If structured properly, if profits arenot repatriated back to the US, a US entity does not have to pay UStaxes on those foreign profits.

Research Questions:

What are the tax rules of the repatriation and IRC Â§ 952 subpart Fincome laws that avoid paying tax in the US? How do the IRC Â§ 482transfer tax rules work and what should they know about them?

Discussion Questions:

Do you think it's fair that companies not pay tax on foreignprofits? Also, read the attached article and provide an opinion ifUS corporations indeed are paying to much tax.

U.S. companies may not be fleeing due to high tax rate, Reutersanalysis shows By Kevin Drawbaugh, Amy Stevens and Martin HowellFebruary 10, 2015 WASHINGTON (Reuters) - When a series of big U.S.companies last year moved to reincorporate abroad in inversiondeals, some Republican lawmakers and tax policy critics blamed thehigh U.S. corporate tax rate. Lowering it, they said, would keepcompanies from fleeing the country. But a Reuters analysis of thetaxes being paid by the six largest companies known to be doinginversions in late 2014 and early 2015 showed that, even before thedeals, all were paying below the statutory U.S. federal corporaterate of 35 percent. Most were well below it. The average effectivetax rate for the six companies was 20.3 percent for 2011- 2013,Reuters found, using an estimation method reviewed by tax expertsthat was based on public data for U.S. profits and U.S. taxes. TheReuters analysis suggests that the surge in inversion transactionsmay not have had much to do with the statutory corporate incometax. Moreover, it shows Washington's current debate over businesstax reform may be too focused on the statutory rate, neglectingeffective rates and the incentives that companies have to shiftprofits abroad. The six companies analyzed were Medtronic Inc,Applied Materials Inc, Steris Corp, Mylan Inc, C&J EnergyServices Inc and Burger King, which has been renamed RestaurantBrands International Inc. All six have recently completed or are inthe midst of completing inversion-type deals, despite a TreasuryDepartment crackdown in September that slowed inversiondeal-making. Inversions have been around for three decades, butthey became more common in recent years. Guided by tax lawyers andaccountants, companies have done more than 50 such deals since the1980s; about half of them just since 2008. The deals typicallyinvolve a U.S. company buying a smaller foreign rival, then takingon its nationality for tax purposes, while many core operationsremain in the United States. The six companies studied havethemselves disclosed 2011-2013 effective tax rates averaging 27.8percent, or 7.5 percentage points higher than the Reuterscalculation. The discrepancy with the Reuters figure is likelybecause the companies' figures include not just U.S. federal taxes,but all taxes, including state, local and foreign. In a project forReuters, the Institute on Taxation and Economic Policy (ITEP), atax policy think tank in Washington, looked at the six companies'data somewhat differently, stripping out certain accountingadjustments, and found an average effective tax rate of 22.2percent over the period. Tax inversion deals are mainly driven byefforts to shift profits out of the U.S. and to access overseasearnings at little or no cost in U.S. tax, tax specialists said."The issue is much broader than the U.S. corporate tax rate beinghigh," said Steve Rosenthal, a senior fellow at the Urban-BrookingsTax Policy Center, a centrist think tank. To be sure, some othertax experts and activists say the statutory rate is the key, notonly to inversions, but to broad U.S. business competitivenessaround the world. "You fix the rates, you fix it all," said GroverNorquist, a Republican activist and president of Americans for TaxReform, which advocates for lower taxes and smaller government.(For related graphic on statutory corporate tax rates around theworld, see: link.reuters.com/qak93w NO DIRECT CONNECTION A closelook at of some of the six deals suggests no direct connection withthe 35-percent U.S statutory rate. For instance, Pittsburgh-basedpharmaceuticals company Mylan is buying the non-U.S. generic drugbusiness of Chicago's Abbott Laboratories to create a combinedcompany incorporated in the Netherlands and managed fromPennsylvania. The Netherlandsâ statutory rate is 25 percent.However, Mylan's global effective tax rates, as disclosed in thecompany's annual reports to investors, were 16.2 percent in 2013,20.0 percent in 2012 and 17.7 percent in 2011. ITEP pegged Mylan'sU.S.-specific effective tax rate at 20.5 percent on average forthose same years, and the Reuters analysis found it to be 19.7percent. When Mylan announced the Abbott deal in July 2014, it saidit expected it to bring many advantages and "to lower Mylan's taxrate to approximately 20-21 percent in the first full year, and tothe high teens thereafter." A spokeswoman for Mylan declined tocomment and referred questions to past statements. In another deal,Steris Corp, based near Cleveland, is buying out the UK's SynergyHealth Plc, with the combined company to be managed from Ohio, butincorporated in Britain where the statutory corporate tax rate is21 percent. Reuters found a 2011-2013 U.S.-specific average taxrate for Steris of 17.2 percent; ITEP's calculation came to 16.6percent. The company has disclosed global effective tax ratesaveraging 32.1 percent for the same period. A Steris spokesman saidthe company expects its effective tax rate beginning in 2016 to beabout 25 percent. "This transaction is not being driven by taxrates,â he said. (For more on the other companies in the study see:Factbox [ID: nL1N0VF1X0]) HIGHEST RATE The U.S. statutory rate ishigh. Tack on an average of state and local corporate rates andit's 39.1 percent. No major country has a higher combined rate. Thenext highest are Japan at 37 percent and France at 34.4 percent.But the U.S. tax code is uniquely complex. Big companies useelaborate strategies to exploit loopholes to cut their tax costs,which they say shareholders expect them to do. ACCT 531 CorporationTaxation The gap between the statutory rate and what companiesreally pay is hard to measure because their tax returns are, ofcourse, confidential. Financial report data can furnish estimatesof effective rates, but there is no standard way to do this. Evenwhen measuring marginal effective tax rates, seen by tax experts asthe best test of business investment decisions, it's hard to knowthe true U.S. tax burdens of large corporations. Most lawmakersagree inversions are a problem because they erode the U.S.corporate tax base. Corporations today only provide about 10percent of U.S. government revenues, down from 30 percent in the1950s. In his 2016 budget last week, Democratic President BarackObama proposed steps to curb inversions and what his administrationsees as the incentives for doing them. The Republican-controlledCongress, however, is unlikely to agree with his proposed reforms,which may be dead-on-arrival. One of Obama's goals is tightening arule that makes business interest tax-deductible and helpscompanies shift profits out of the United States via interestpayments on loans from foreign affiliates. This is known asearnings stripping. Another is ending the "deferral" rule that sayscompanies don't have to pay income tax on active overseas profits,as long as those profits don't enter the United States. Companieshave about $2.1 trillion in profits abroad. Some came from foreignventures; some from earnings stripping, tax experts said. The thirdtarget is abusive "transfer pricing." This involves shiftingprofits out of the United States to lower-tax countries viacross-border, non-market-based payments among the worldwideaffiliates of multinationals. Cutting the 35-percent statutory ratewould not change any of these rules. And no politically realisticU.S. rate cut would be likely to level the playing field with, say,Ireland, which has a 12.5 percent statutory rate and is a populardestination for U.S. companies doing inversions, let alone taxhavens such as Bermuda, which charges no corporate income tax atall. "Until we address earnings stripping and the transfer ofintangible rights abroad, we're always going to have this incentivefor foreign companies to combine with U.S. companies and strip theU.S. corporate tax base,â said Rosenthal. (Reporting by KevinDrawbaugh; Editing by Amy Stevens and Martin Howell)

Do you think it's fair that companies not pay tax on foreignprofits? Draw analysis from the below article and provide anopinion if US corporations indeed are paying to much tax.

U.S. companies may not be fleeing due to high tax rate, Reutersanalysis shows

By Kevin Drawbaugh, Amy Stevens and Martin Howell February 10,2015 WASHINGTON (Reuters) -

When a series of big U.S. companies last year moved toreincorporate abroad in inversion deals, some Republican lawmakersand tax policy critics blamed the high U.S. corporate tax rate.Lowering it, they said, would keep companies from fleeing thecountry. But a Reuters analysis of the taxes being paid by the sixlargest companies known to be doing inversions in late 2014 andearly 2015 showed that, even before the deals, all were payingbelow the statutory U.S. federal corporate rate of 35 percent. Mostwere well below it. The average effective tax rate for the sixcompanies was 20.3 percent for 2011- 2013, Reuters found, using anestimation method reviewed by tax experts that was based on publicdata for U.S. profits and U.S. taxes. The Reuters analysis suggeststhat the surge in inversion transactions may not have had much todo with the statutory corporate income tax. Moreover, it showsWashington's current debate over business tax reform may be toofocused on the statutory rate, neglecting effective rates and theincentives that companies have to shift profits abroad. The sixcompanies analyzed were Medtronic Inc, Applied Materials Inc,Steris Corp, Mylan Inc, C&J Energy Services Inc and BurgerKing, which has been renamed Restaurant Brands International Inc.All six have recently completed or are in the midst of completinginversion-type deals, despite a Treasury Department crackdown inSeptember that slowed inversion deal-making. Inversions have beenaround for three decades, but they became more common in recentyears. Guided by tax lawyers and accountants, companies have donemore than 50 such deals since the 1980s; about half of them justsince 2008. The deals typically involve a U.S. company buying asmaller foreign rival, then taking on its nationality for taxpurposes, while many core operations remain in the United States.The six companies studied have themselves disclosed 2011-2013effective tax rates averaging 27.8 percent, or 7.5 percentagepoints higher than the Reuters calculation. The discrepancy withthe Reuters figure is likely because the companies' figures includenot just U.S. federal taxes, but all taxes, including state, localand foreign. In a project for Reuters, the Institute on Taxationand Economic Policy (ITEP), a tax policy think tank in Washington,looked at the six companies' data somewhat differently, strippingout certain accounting adjustments, and found an average effectivetax rate of 22.2 percent over the period. Tax inversion deals aremainly driven by efforts to shift profits out of the U.S. and toaccess overseas earnings at little or no cost in U.S. tax, taxspecialists said. "The issue is much broader than the U.S.corporate tax rate being high," said Steve Rosenthal, a seniorfellow at the Urban-Brookings Tax Policy Center, a centrist thinktank. To be sure, some other tax experts and activists say thestatutory rate is the key, not only to inversions, but to broadU.S. business competitiveness around the world. "You fix the rates,you fix it all," said Grover Norquist, a Republican activist andpresident of Americans for Tax Reform, which advocates for lowertaxes and smaller government. (For related graphic on statutorycorporate tax rates around the world, see: link.reuters.com/qak93wNO DIRECT CONNECTION A close look at of some of the six dealssuggests no direct connection with the 35-percent U.S statutoryrate. For instance, Pittsburgh-based pharmaceuticals company Mylanis buying the non-U.S. generic drug business of Chicago's AbbottLaboratories to create a combined company incorporated in theNetherlands and managed from Pennsylvania. The Netherlandsâstatutory rate is 25 percent. However, Mylan's global effective taxrates, as disclosed in the company's annual reports to investors,were 16.2 percent in 2013, 20.0 percent in 2012 and 17.7 percent in2011. ITEP pegged Mylan's U.S.-specific effective tax rate at 20.5percent on average for those same years, and the Reuters analysisfound it to be 19.7 percent. When Mylan announced the Abbott dealin July 2014, it said it expected it to bring many advantages and"to lower Mylan's tax rate to approximately 20-21 percent in thefirst full year, and to the high teens thereafter." A spokeswomanfor Mylan declined to comment and referred questions to paststatements. In another deal, Steris Corp, based near Cleveland, isbuying out the UK's Synergy Health Plc, with the combined companyto be managed from Ohio, but incorporated in Britain where thestatutory corporate tax rate is 21 percent. Reuters found a2011-2013 U.S.-specific average tax rate for Steris of 17.2percent; ITEP's calculation came to 16.6 percent. The company hasdisclosed global effective tax rates averaging 32.1 percent for thesame period. A Steris spokesman said the company expects itseffective tax rate beginning in 2016 to be about 25 percent. "Thistransaction is not being driven by tax rates,â he said. (For moreon the other companies in the study see: Factbox [ID: nL1N0VF1X0])HIGHEST RATE The U.S. statutory rate is high. Tack on an average ofstate and local corporate rates and it's 39.1 percent. No majorcountry has a higher combined rate. The next highest are Japan at37 percent and France at 34.4 percent. But the U.S. tax code isuniquely complex. Big companies use elaborate strategies to exploitloopholes to cut their tax costs, which they say shareholdersexpect them to do. ACCT 531 Corporation Taxation The gap betweenthe statutory rate and what companies really pay is hard to measurebecause their tax returns are, of course, confidential. Financialreport data can furnish estimates of effective rates, but there isno standard way to do this. Even when measuring marginal effectivetax rates, seen by tax experts as the best test of businessinvestment decisions, it's hard to know the true U.S. tax burdensof large corporations. Most lawmakers agree inversions are aproblem because they erode the U.S. corporate tax base.Corporations today only provide about 10 percent of U.S. governmentrevenues, down from 30 percent in the 1950s. In his 2016 budgetlast week, Democratic President Barack Obama proposed steps to curbinversions and what his administration sees as the incentives fordoing them. The Republican-controlled Congress, however, isunlikely to agree with his proposed reforms, which may bedead-on-arrival. One of Obama's goals is tightening a rule thatmakes business interest tax-deductible and helps companies shiftprofits out of the United States via interest payments on loansfrom foreign affiliates. This is known as earnings stripping.Another is ending the "deferral" rule that says companies don'thave to pay income tax on active overseas profits, as long as thoseprofits don't enter the United States. Companies have about $2.1trillion in profits abroad. Some came from foreign ventures; somefrom earnings stripping, tax experts said. The third target isabusive "transfer pricing." This involves shifting profits out ofthe United States to lower-tax countries via cross-border,non-market-based payments among the worldwide affiliates ofmultinationals. Cutting the 35-percent statutory rate would notchange any of these rules. And no politically realistic U.S. ratecut would be likely to level the playing field with, say, Ireland,which has a 12.5 percent statutory rate and is a populardestination for U.S. companies doing inversions, let alone taxhavens such as Bermuda, which charges no corporate income tax atall. "Until we address earnings stripping and the transfer ofintangible rights abroad, we're always going to have this incentivefor foreign companies to combine with U.S. companies and strip theU.S. corporate tax base,â said Rosenthal.

(Reporting by Kevin Drawbaugh; Editing by Amy Stevens and MartinHowell)

ACCT1021 Lecture Notes - Lecture 19: Internal Revenue Code, Double Taxation, C Corporation

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