Should dividends paid to corporations be taxed differently than dividends paid to individuals?

DB 4 topic 1

 

Should dividends paid to corporations be taxed differently than dividends paid to individuals? Why or why not?

Topic 2

·         Review the, “What would you do in this situation?” presented on pages 3–8 of your text. What is your opinion of the client’s request?

 

You are a CPA with a medium-size accounting firm. One of your corporate clients is an electrical contractor in New York City. The client is successful and had $10 million of sales last year. The contracts involve private and government electrical work. Among the corporation’s expenses are $400,000 of kickbacks paid to people working for general contractors who award electrical subcontracts to the corporation, and $100,000 of payments to individuals in the electricians’ union. Technically, these payments are illegal. However, your client says that everyone in this business needs to pay kickbacks to obtain contracts and to have enough electricians to finish the projects in a timely manner. He maintains that it is impossible to stay in business without making these payments. In preparing its tax return, your client wants you to deduct these expenses. What is your opinion concerning the client’s request?

For organizational expenditures paid or incurred after August 16, 2011, a corporation is deemed to have made the Sec. 248 election for the tax year the corporation begins business.13 A corporation also can apply the amortization provisions for expenditures made after October 22, 2004, provided the statute of limitations is still open for the particular year. If the corporation chooses to forgo the deemed election, it can elect to capitalize the expenditures (without amortization) on a timely filed tax return for the tax year the corporation begins business. Either election, to amortize or capitalize, is irrevocable and applies to all organizational expenditures of the corporation.

 

·         ¹³ Reg. Sec. 1.248-1(c) and 1(f).

 

Resource

• Prentice Hall’s Federal Taxation 2016 Corporations, Partnerships, Estates & Trusts  29^th edition  Thomas R Pope, Timothy J. Rupert, Kenneth E. Anderson