Corporate tax in the United States

Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% due to the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.

Some corporate transactions are not taxable. These include most formations and some types of mergers, acquisitions, and liquidations. Shareholders of a corporation are taxed on dividends distributed by the corporation. Corporations may be subject to foreign income taxes, and may be granted a foreign tax credit for such taxes.

Shareholders of most corporations are not taxed directly on corporate income, but must pay tax on dividends paid by the corporation. However, shareholders of S corporations and mutual funds are taxed currently on corporate income, and do not pay tax on dividends.

United States Corporate tax rate


Corporate Income Tax as a Share of GDP, 1946 - 2009
Corporate income tax as a share of GDP, 1946–2009.

Corporate income tax is imposed at the federal level[1] on all entities treated as corporations (see Entity classification below), and by 47 states and the District of Columbia. Certain localities also impose corporate income tax. Corporate income tax is imposed on all domestic corporations and on foreign corporations having income or activities within the jurisdiction. For federal purposes, an entity treated as a corporation and organized under the laws of any state is a domestic corporation.[2] For state purposes, entities organized in that state are treated as domestic, and entities organized outside that state are treated as foreign.[3]

Some types of corporations (S corporations, mutual funds, etc.) are not taxed at the corporate level, and their shareholders are taxed on the corporation's income as it is recognized.[4] Corporations which are not S Corporations are known as C corporations.

Before 2018, domestic corporations were taxed on their worldwide income at the federal and state levels.[5] The Tax Cuts and Jobs Act of 2017 changed this system so that subsidiaries are now taxed at the rate of the jurisdiction in which they are established. Corporate income tax is based on net taxable income as defined under federal or state law. Generally, taxable income for a corporation is gross income (business and possibly non-business receipts less cost of goods sold) less allowable tax deductions. Certain income, and some corporations, are subject to a tax exemption. Also, tax deductions for interest and certain other expenses paid to related parties are subject to limitations.

Corporations may choose their tax year. Generally, a tax year must be 12 months or 52/53 weeks long. The tax year need not conform to the financial reporting year, and need not coincide with the calendar year, provided books are kept for the selected tax year.[6] Corporations may change their tax year, which may require Internal Revenue Service consent.[7] Most state income taxes are determined on the same tax year as the federal tax year.

Groups of companies are permitted to file single returns for the members of a controlled group or unitary group, known as consolidated returns, at the federal level, and are allowed or required to do so by certain states. The consolidated return reports the members' combined taxable incomes and computes a combined tax. Where related parties do not file a consolidated return in a jurisdiction, they are subject to transfer pricing rules. Under these rules, tax authorities may adjust prices charged between related parties.

Effective Corporate Tax Rate OECD Countries, 2000-2005 Average
Effective corporate tax rate for OECD countries averaged between 2000 and 2005. The effective tax rate equals corporate taxes/corporate surplus.[10]

Shareholders of corporations are taxed separately upon the distribution of corporate earnings and profits as a dividend. Tax rates on dividends are at present lower than on ordinary income for both corporate and individual shareholders. To ensure that shareholders pay tax on dividends, two withholding tax provisions may apply: withholding tax on foreign shareholders, and “backup withholding” on certain domestic shareholders.

Corporations must file tax returns in all U.S. jurisdictions imposing an income tax. Such returns are a self-assessment of tax. Corporate income tax is payable in advance installments, or estimated payments, at the federal level and for many states.

Corporations may be subject to withholding tax obligations upon making certain varieties of payments to others, including wages and distributions treated as dividends. These obligations are generally not the tax of the corporation, but the system may impose penalties on the corporation or its officers or employees for failing to withhold and pay over such taxes.

State and local income taxes

State corporate tax rates in the United States

Nearly all of the states and some localities impose a tax on corporation income. The rules for determining this tax vary widely from state to state. Many of the states compute taxable income with reference to federal taxable income, with specific modifications. The states do not allow a tax deduction for income taxes, whether federal or state. Further, most states deny tax exemption for interest income that is tax exempt at the federal level.

Most states tax domestic and foreign corporations on taxable income derived from business activities apportioned to the state on a formulary basis. Many states apply a "throw back" concept to tax domestic corporations on income not taxed by other states. Tax treaties do not apply to state taxes.

Under the U.S. Constitution, states are prohibited from taxing income of a resident of another state unless the connection with the taxing state reach a certain level (called “nexus”).[11] Most states do not tax non-business income of out of state corporations. Since the tax must be fairly apportioned, the states and localities compute income of out of state corporations (including those in foreign countries) taxable in the state by applying formulary apportionment to the total business taxable income of the corporation. Many states use a formula based on ratios of property, payroll, and sales within the state to those items outside the state.


US Effective Corporate Tax Rate 1947-2011 v2
The U.S. federal effective corporate tax rate has become much lower than the nominal rate because of tax shelters such as tax havens.
Taxes revenue by source chart history
Tax revenue by source history

The first federal income tax was enacted in 1861, and expired in 1872, amid constitutional challenges. A corporate income tax was enacted in 1894, but a key aspect of it was shortly held unconstitutional. In 1909, Congress enacted an excise tax on corporations based on income. After ratification of the Sixteenth amendment to the U.S. Constitution, this became the corporate provisions of the federal income tax.[12] Amendments to various provisions affecting corporations have been in most or all revenue acts since. Corporate tax provisions are incorporated in Title 26 of the United States Code, known as the Internal Revenue Code. The present rate of tax on corporate income was adopted in the Tax Reform Act of 1986.[13]

In 2010, corporate tax revenue constituted about 9% of all federal revenues or 1.3% of GDP.[14]

Entity classification

Business entities may elect to be treated as corporations taxed at the entity and member levels or as "flow through" entities taxed only at the member level. However, entities organized as corporations under U.S. state laws and certain foreign entities are treated, per se, as corporations, with no optional election. The Internal Revenue Service issued the so-called “check-the-box” regulations in 1997 under which entities may make such choice by filing Form 8832. Absent such election, default classifications for domestic and foreign business entities, combined with voluntary entity elections to opt out of the default classifications (except in the case of “per se corporations” (as defined below)).[15] If an entity not treated as a corporation has more than one equity owner and at least one equity owner does not have limited liability (e.g., a general partner), it will be classified as a partnership (i.e., a pass-through), and if the entity has a single equity owner and the single owner does not have limited liability protection, it will be treated as a disregarded entity (i.e., a pass-through).

Some entities treated as corporations may make other elections that enable corporate income to be taxed only at the shareholder level, and not at the corporate level. Such entities are treated similarly to partnerships. The income of the entity is not taxed at the corporate level, and the members must pay tax on their share of the entity's income. These include:

  • S Corporations, all of whose shareholders must be U.S. citizens or resident individuals; other restrictions apply. The election requires the consent of all shareholders. If a corporation is not an S corporation from its formation, special rules apply to the taxation of income earned (or gains accrued) before the election.
  • Regulated investment companies (RICs), commonly referred to as mutual funds.
  • Real Estate Investment Trusts (REITs).

Taxable income

U.S. Federal Corporate Income Tax Receipts and Pre-Tax Profits
Federal corporate income tax receipts have declined relative to corporate profits.

Determinations of what is taxable and at what rate are made at the federal level based on U.S. tax law. Many but not all states incorporate federal law principles in their tax laws to some extent. Federal taxable income equals gross income[16] (gross receipts and other income less cost of goods sold) less tax deductions.[17] Gross income of a corporation and business deductions are determined in much the same manner as for individuals.[18] All income of a corporation is subject to the same federal tax rate. However, corporations may reduce other federal taxable income by a net capital loss[19] and certain deductions are more limited.[20] Certain deductions are available only to corporations. These include deductions for dividends received[21] and amortization of organization expenses.[22] Some states tax business income of a corporation differently than nonbusiness income.[23]

Principles for recognizing income and deductions may differ from financial accounting principles. Key areas of difference include differences in the timing of income or deduction, tax exemption for certain income, and disallowance or limitation of certain tax deductions.[24] IRS rules require that these differences be disclosed in considerable detail for non-small corporations on Schedule M-3 to Form 1120.

Flat Corporate Tax Rate

Federal tax rates

After the passage of the Tax Cuts and Jobs Act, on December 20, 2017, the corporate tax rate has been changed to a flat 21% starting January 1, 2018 (previously 35%).[25]

Taxable income ($) Tax rate[26]
$1 and beyond 21%

State income tax rates

The adjacent table lists the tax rates on corporate income applied by each state, but not by local governments within states. Because state and local taxes are deductible expenses for federal income tax purposes, the effective tax rate in each state is not a simple addition of federal and state tax rates.

Although a state may not levy a corporate income tax, they may impose other taxes that are similar. For example, Washington state does not have an income tax but levies a B&O (business and occupation tax) which is arguably a larger burden because the B&O tax is calculated as a percentage of revenue rather than a percentage of net income, like the corporate income tax. This means even loss-making enterprises are required to pay the tax.

Tax credits

Corporations, like other businesses, may be eligible for various tax credits which reduce federal, state or local income tax.[29] The largest of these by dollar volume is the federal foreign tax credit.[30][31] This credit is allowed to all taxpayers for income taxes paid to foreign countries. The credit is limited to that part of federal income tax before other credits generated by foreign source taxable income. The credit is intended to mitigate taxation of the same income to the same taxpayer by two or more countries, and has been a feature of the U.S. system since 1918. Other credits include credits for certain wage payments, credits for investments in certain types of assets including certain motor vehicles, credits for use of alternative fuels and off-highway vehicle use, natural resource related credits, and others. See, e.g., the Research & Experimentation Tax Credit.

Tax deferral

Deferred Corporate Foreign Earnings 2001-2010
Deferred U.S. corporate foreign earnings 2001–2010.

Deferral is one of the main features of the worldwide tax system that allows U.S. multinational companies to delay paying taxes on foreign profits. Under U.S. tax law, companies are not required to pay U.S. tax on their foreign subsidiaries’ profits for many years, even indefinitely until the earnings are returned to U.S. Therefore, it was one of the main reasons that U.S. corporations paid low taxes, even though the corporate tax rate in the U.S. was one of the highest rates (35%) in the world. Although, since January 1, 2018 the corporate tax rate has been changed to a flat 21%.

Deferral is beneficial for U.S. companies to raise the cost of capital relatively to their foreign-based competitors. Their foreign subsidiaries can reinvest their earnings without incurring additional tax that allows them to grow faster. It is also valuable to U.S. corporations with global operations, especially for corporations with income in low-tax countries. Some of the largest and most profitable U.S. corporations pay exceedingly low tax rates[32] through their use of subsidiaries in so-called tax haven countries. Eighty-three of the United States’s 100 biggest public companies have subsidiaries in countries that are listed as tax havens or financial privacy jurisdictions, according to the Government Accountability Office.[33]

However, tax deferral encourages U.S. companies to make job-creating investments offshore even if similar investments in the United States can be more profitable, absent tax considerations. Furthermore, companies try to use accounting techniques to record profits offshore by any way, even if they keep actual investment and jobs in the United States. This explains why U.S. corporations report their largest profits in low-tax countries like the Netherlands, Luxembourg, and Bermuda, though clearly that is not where most real economic activity occurs.[33]

Interest deduction limitations

A tax deduction is allowed at the federal, state and local levels for interest expense incurred by a corporation in carrying out its business activities. Where such interest is paid to related parties, such deduction may be limited.[35] The classification of instruments as debt on which interest is deductible or as equity with respect to which distributions are not deductible is highly complex and based on court-developed law. The courts have considered 26 factors in deciding whether an instrument is debt or equity, and no single factor predominates.[36]

Federal tax rules also limit the deduction of interest expense paid by corporations to foreign shareholders based on a complex calculation designed to limit the deduction to 50% of cash flow.[37] Some states have other limitations on related party payments of interest and royalties.

Largest tax deductions, credits, and deferrals
for corporations 2005–2009
Total amount
(billions of dollars)
Depreciation of equipment in excess of alternative depreciation system 71.3
Exclusion of interest on public purpose state and local government debt 38.3
Inventory property sales source rule exception 30.9
Expensing of research and experimental expenditures 28.5
Deferral of active income of controlled foreign corporations 25.8
Reduced rates for first $10,000,000 of corporate taxable income 23.7
Deduction for income attributable to domestic production activities 19.8
Tax credit for low-income housing 17.5
Exclusion of investment income on life insurance and annuity contracts 12.8
Tax credit for qualified research expenditures 10.7

Other corporate events

U.S. rules provide that certain corporate events are not taxable to corporations or shareholders. Significant restrictions and special rules often apply. The rules related to such transactions are quite complex, and exist primarily at the federal level. Many of the states follow federal tax treatment for such events.


The formation of a corporation by controlling corporate or non-corporate shareholder(s) is generally a nontaxable event.[39] Generally, in tax free formations the tax attributes of assets and liabilities are transferred to the new corporation along with such assets and liabilities.

Example: John and Mary are United States residents who operate a business. They decide to incorporate for business reasons. They transfer assets of the business to Newco, a newly formed Delaware corporation of which they are the sole shareholders, subject to accrued liabilities of the business, solely in exchange for common shares of Newco. This transfer should not generally cause gain or loss recognition for John, Mary, or Newco.[40] Newco assumes John and Mary's tax basis in the assets it acquires.[41] If on the other hand Newco also assumes a bank loan in excess of the basis of the assets transferred less the accrued liabilities, John and Mary will recognize taxable gain for such excess.[42]


Corporations may merge or acquire other corporations in a manner treated as nontaxable to either of the corporations and/or to their shareholders.[43] Generally, significant restrictions apply if tax free treatment is to be obtained. For example, Bigco acquires all of the shares of Smallco from Smallco shareholders in exchange solely for Bigco shares. This acquisition is not taxable to Smallco or its shareholders under U.S. tax law if certain requirements are met,[44] even if Smallco is then liquidated into or merged with Bigco.[45]


In addition, corporations may change key aspects of their legal identity, capitalization, or structure in a tax free manner. Examples of reorganizations that may be tax free include mergers, liquidations of subsidiaries, share for share exchanges, exchanges of shares for assets, changes in form or place of organization, and recapitalizations.[46]

Advance tax planning might mitigate tax risks resulting from a business reorganization or potentially enhance tax savings.[47]

Distribution of earnings

US Corporate Profits 1947-2011
U.S. corporate profits after taxes 1947–2011.[48]

Shareholders of corporations are subject to corporate or individual income tax when corporate earnings are distributed.[49] Such distribution of earnings is generally referred to as a dividend.

Dividends received by other corporations may be taxed at reduced rates, or exempt from taxation, if the dividends received deduction applies. Dividends received by individuals (if the dividend is a "qualified dividend") are taxed at reduced rates.[50] Exceptions to shareholder taxation apply to certain nonroutine distributions, including distributions in liquidation of an 80% subsidiary[51] or in complete termination of a shareholder's interest.[52]

If a corporation makes a distribution in a non-cash form, it must pay tax on any gain in value of the property distributed.[53]

The United States does not generally require withholding tax on the payment of dividends to shareholders. However, withholding tax is required if the shareholder is not a U.S. citizen or resident or U.S. corporation, or in some other circumstances (see Tax withholding in the United States).

Earnings and profits

U.S. corporations are permitted to distribute amounts in excess of earnings under the laws of most states under which they may be organized. A distribution by a corporation to shareholders is treated as a dividend to the extent of earnings and profits (E&P), a tax concept similar to retained earnings.[54] E&P is current taxable income, with significant adjustments, plus prior E&P reduced by distributions of E&P. Adjustments include depreciation differences under MACRS, add-back of most tax exempt income, and deduction of many non-deductible expenses (e.g., 50% of meals and entertainment).[55] Corporate distributions in excess of E&P are generally treated as a return of capital to the shareholders.[56]


The liquidation of a corporation is generally treated as an exchange of a capital asset under the Internal Revenue Code. If a shareholder bought stock for $300 and receives $500 worth of property from a corporation in a liquidation, that shareholder would recognize a capital gain of $200. An exception is when a parent corporation liquidates a subsidiary, which is tax-free so long as the parent owns more than 80% of the subsidiary. There are certain anti-abuse rules to avoid the engineering of losses in corporate liquidations.[57]

Foreign corporation branches

The United States taxes foreign (i.e., non-U.S.) corporations differently than domestic corporations.[58] Foreign corporations generally are taxed only on business income when the income is effectively connected with the conduct of a U.S. trade or business (i.e., in a branch). This tax is imposed at the same rate as the tax on business income of a resident corporation.[59]

The U.S. also imposes a branch profits tax on foreign corporations with a U.S. branch, to mimic the dividend withholding tax which would be payable if the business was conducted in a U.S. subsidiary corporation and profits were remitted to the foreign parent as dividends. The branch profits tax is imposed at the time profits are remitted or deemed remitted outside the U.S.[60]

In addition, foreign corporations are subject to withholding tax at 30% on dividends, interest, royalties, and certain other income. Tax treaties may reduce or eliminate this tax. This tax applies to a "dividend equivalent amount," which is the corporation's effectively connected earnings and profits for the year, less investments the corporation makes in its U.S. assets (money and adjusted bases of property connected with the conduct of a U.S. trade or business). The tax is imposed even if there is no distribution.

Consolidated returns

Corporations 80% or more owned by a common parent corporation may file a consolidated return for federal and some state income taxes.[61] These returns include all income, deductions, and credits of all members of the controlled group, generally expressed without intercompany eliminations. Some states allow or require a combined or consolidated return for U.S. members of a "unitary" group under common control and in related businesses. Certain transactions between group members may not be recognized until the occurrence of events for other members. For example, if Company A sells goods to sister Company B, the profit on the sale is deferred until Company B uses or sells the goods. All members of a consolidated group must use the same tax year.

Transfer pricing

Transactions between a corporation and related parties are subject to potential adjustment by tax authorities.[62] These adjustments may be applied to both U.S. and foreign related parties, and to individuals, corporations, partnerships, estates, and trusts.

Alternative taxes

The United States federal Alternative Minimum Tax was eliminated in 2018.

Corporations may also be subject to additional taxes in certain circumstances. These include taxes on excess accumulated undistributed earnings and personal holding companies[63] and restrictions on graduated rates for personal service corporations.[64]

Some states, such as New Jersey, impose alternative taxes based on measures other than taxable income. Among such measures are gross income, pipeline revenues, gross receipts, and various asset or capital measures. In addition, some states impose a tax on capital of corporations or on shares issued and outstanding. The U. S. state of Michigan previously taxed businesses on an alternative base that did not allow compensation of employees as a tax deduction and allowed full deduction of the cost of production assets upon acquisition.

Tax returns

US Corporation Income Tax Return 2011 form 1120
U.S. corporate income tax return form 1120.[65]

Corporations subject to U.S. tax must file federal and state income tax returns.[66] Different tax returns are required at the federal and some state levels for different types of corporations or corporations engaged in specialized businesses. The United States has 13 variations on the basic Form 1120 for S corporations, insurance companies, Domestic International Sales Corporations, foreign corporations, and other entities. The structure of the forms and the imbedded schedules vary by type of form.

United States federal corporate tax returns require both computation of taxable income from components thereof and reconciliation of taxable income to financial statement income. Corporations with assets exceeding $10 million must complete a detailed 3 page reconciliation on Schedule M-3 indicating which differences are permanent (i.e., do not reverse, such as disallowed expenses or tax exempt interest) and which are temporary (e.g., differences in when income or expense is recognized for book and tax purposes).

Some state corporate tax returns have significant imbedded or attached schedules related to features of the state's tax system that differ from the federal system.[67]

Preparation of non-simple corporate tax returns can be time consuming. For example, the U.S. Internal Revenue Service states that the average time needed to complete Form 1120-S, for privately held companies electing flow through status, is over 56 hours, not including recordkeeping time.[68]

Federal corporate tax returns for most types of corporations are due by the 15th day of the third month following the tax year (March 15 for calendar year).[69] State corporate tax return due dates vary, but most are due either on the same date or one month after the federal due date. Extensions of time to file are routinely granted.[70]

Penalties may be imposed at the federal and state levels for late filing or non-filing of corporate income tax returns.[71] In addition, other substantial penalties may apply with respect to failures related to returns and tax return computations.[72] Intentional failure to file or intentional filing of incorrect returns may result in criminal penalties to those involved.[73]

See also

Further reading

IRS Publication 542, Corporations

Standard tax texts

  • Willis, Eugene; Hoffman, William H. Jr., et al: South-Western Federal Taxation, published annually. 2013 edition (cited above as Willis|Hoffman) ISBN 978-1-133-18955-8.
  • Pratt, James W.; Kulsrud, William N., et al: Federal Taxation, updated periodically. 2013 edition ISBN 978-1-133-49623-6 (cited above as Pratt & Kulsrud).
  • Fox, Stephen C., Income Tax in the USA, published annually. 2013 edition ISBN 978-0-985-18231-1


  • Bittker, Boris I. and Eustice, James S.: Federal Income Taxation of Corporations and Shareholders: abridged paperback ISBN 978-0-7913-4101-8 or as a subscription service. Cited above as Bittker & Eustice.
  • Crestol, Jack; Hennessey, Kevin M.; and Yates, Richard F.: "Consolidated Tax Return : Principles, Practice, Planning, 1998 ISBN 978-0-7913-1629-0
  • Kahn & Lehman. Corporate Income Taxation
  • Healy, John C. and Schadewald, Michael S.: Multistate Corporate Tax Course 2010, CCH, ISBN 978-0-8080-2173-5 (also available as a multi-volume guide, ISBN 978-0-8080-2015-8)
  • Hoffman, et al.: Corporations, Partnerships, Estates and Trusts, ISBN 978-0-324-66021-0
  • Momburn, et al.: Mastering Corporate Tax, Carolina Academic Press, ISBN 978-1-59460-368-6
  • Keightley, Mark P. and Molly F. Sherlock: The Corporate Income Tax System: Overview and Options for Reform, Congressional Research Service, 2014.


  1. ^ Subtitle A of Title 26 of the United States Code, in particular 26 U.S.C. § 11, § 881, and § 882. For a thorough overview of federal income taxation of corporations, see Internal Revenue Service Publication 542, Corporations. See also Willis|Hoffman chapters 17-20, Pratt & Kulsrud chapters 19–21, Fox chapter 30 (each fully cited under Further reading). For purely corporate tax matters, the Bittker & Eustice treatise cited fully under Treatises is authoritative and has been cited by the Supreme Court.
  2. ^ 26 U.S.C. § 7701(a)(4). Note that a sham entity may be ignored. See Pratt & Kulsrud 2005 p. 19-4.
  3. ^ See, e.g., New York State Publication 20, Tax Guide for Business, page 8.
  4. ^ For 2006, the Internal Revenue Service reported that approximately 6 million corporate returns were filed, of which more than 4 million were S corporations. See 2006 Statistics on Income, Corporation Income Tax Returns.
  5. ^ Pratt & Kulsrud 2005 pp. 3–4.
  6. ^ 26 U.S.C. § 441. Also see IRS Publication 538 Accounting Methods and Periods.
  7. ^ 26 U.S.C. § 442.
  8. ^ Bartlett, Bruce (31 May 2011). "Are Taxes in the U.S. High or Low?". New York Times. Retrieved 19 September 2012.
  9. ^ OECD. "Revenue Statistics - OECD countries: Comparative tables".
  10. ^ "Treasury Conference on Business Taxation and Global Competitiveness" (PDF). US Treasury. 23 July 2007. p. 42.
  11. ^ The Supreme Court enunciated four tests for a state tax in Complete Auto Transit, Inc. v. Brady. Under that case, the out of state taxpayer must have a substantial connection (nexus) with the state, the tax must not discriminate against interstate commerce, the tax must be fairly apportioned, and there must be a fair relationship of the tax to services provided.
  12. ^ Bittker & Eustice section 1.01, Pratt & Hulsrud 2005 p.1-4, Willis|Hoffman p. 1-2 and 1-3.
  13. ^ For a more complete history, see Seidman's Legislative History of Income Tax Laws, 1938, reprinted 2003 as ISBN 1-58477-336-7.
  14. ^ David Kocieniewski (2 May 2011), "U.S. Business Has High Tax Rates but Pays Less" The New York Times
  15. ^ 26 CFR 301.7701-2 Archived June 12, 2011, at the Wayback Machine, 301.7701-3 Archived June 12, 2011, at the Wayback Machine, Bittker & Eustice chapter 2, and Fox chapter 31.
  16. ^ 26 USC 61.
  17. ^ 26 USC 63.
  18. ^ Willis|Hoffman 2009, p. 17-8 and -9.
  19. ^ "26 U.S. Code § 1211 - Limitation on capital losses". LII / Legal Information Institute.
  20. ^ For example, charitable contributions of a corporation are limited to 10% of taxable income under 26 USC 170(b)(2). For a comparison of how individuals and corporations are taxed, see Willis|Hoffman 2009 p. 17–36, 37.
  21. ^ 26 USC 243 and 26 USC 246, Bittker & Eustice section 5.05.
  22. ^ 26 USC 248, Bittker & Eustice section 5.06.
  23. ^ See, e.g., New York, supra, which bases taxable income on federal taxable income, with minor modification, but separately taxes 'income from subsidiary capital.'
  24. ^ Willis|Hoffman 2009 p. 4–5 et seq, Pratt & Kulsrud p. 5–13 et seq.
  25. ^ Bryan, Bob (2017-12-14). "Republicans have a final deal on their tax bill — here's what's in it". Business Insider. Retrieved 2018-02-05.
  26. ^ Form 1120 Instructions for 2016 page 17
  27. ^ "Archived copy". Archived from the original on 2011-05-01. Retrieved 2010-11-29.CS1 maint: Archived copy as title (link)
  28. ^ "Archived copy" (PDF). Archived from the original (PDF) on 2011-07-16. Retrieved 2011-06-12.CS1 maint: Archived copy as title (link) pg. 8
  29. ^ Pratt & Kulsrud 2005 p. 15-26 et seq, Willis|Hoffman 2009 chapter 12.
  30. ^ 26 USC 901, et seq.
  31. ^ For statistics related to federal taxes, see IRS Statistics on Income, available in .pdf and Excel formats for many years. Note that some statistics are based on counts of returns, and some are based on samples. For 2006 for all corporations, the total foreign tax credit for corporations was $78 billion, the general business credit $16 billion, and prior year AMT credit $7 billion, on total pre-credit taxes of $463 billion.
  32. ^ Jesse Drucker (October 21, 2010). "Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes". Bloomberg L.P. Retrieved March 15, 2013.
  33. ^ a b "Offshore Tax Deferral - Center for American Progress". 16 March 2011.
  34. ^ Levin, Carl (20 September 2012). "PSI Memo on Offshore Profit Shifting and the U.S. Tax Code". United States Senate Subcommittee on Investigations. p. 6. Archived from the original on 24 September 2012. Retrieved 22 September 2012.
  35. ^ Some limitations apply to all corporations, while some apply only to corporate payments to foreign related parties. See, e.g., 26 USC 163(j), 267, 385. Without such limitation, owners could structure financing of the corporation in a manner that would provide for a tax deduction for much of the profits, potentially without changing the tax on shareholders. For example, assume a corporation earns profits of 100 before interest and would normally distribute 50 to shareholder individuals. If the corporation is structured so that deductible interest of 50 is payable to the shareholders, it will cut its tax to half the amount due if it merely paid a dividend. Absent the recently enacted rate differential on dividends, the shareholders' tax would be the same in either case.
  36. ^ for [Tax Notes] article circa 1986.
  37. ^ 26 USC 163(j) and long-proposed regulations thereunder. See Bittker & Eustice section 4.04[8] for a brief outline.
  38. ^ JCX-49-11, Joint Committee on Taxation, September 22, 2011, pp 85.
  39. ^ 26 USC 351. Bittker & Eustice chapter 3, Willis|Hoffman 2009 chapter 17, Pratt & Kulsrud 2005 pp.19–30 et seq.
  40. ^ 26 USC 351.
  41. ^ 26 USC 362.
  42. ^ 26 USC 357 and 26 CFR 1.367-1(b) Example Archived 2011-06-12 at the Wayback Machine.
  43. ^ 26 USC 354-358 and 361-362.
  44. ^ See 26 USC 368(a)(1)(B) 26 USC 368
  45. ^ See generally USC 368(a)(1)(D) 26 USC 368
  46. ^ See, e.g., 26 USC 368 defining events qualifying for reorganization treatment, including certain acquisitions. Bittker & Eustice chapter 12. Willis|Hoffman p. 20-14 et seq.
  47. ^ Davis, Bruce; Bast, Donald; Sellers, Tracey. "Sales Taxes and Business Reorganizations: A Primer". Transaction Advisors. ISSN 2329-9134.
  48. ^ "US Corporate Profits after Taxes". Federal Reserve Board, St. Louis. Retrieved 6 October 2012.
  49. ^ See 26 USC 61(a)(7). See Bittker & Eustice chapter 8, Willis|Hoffman 2009 chapter 19, and Pratt & Kulsrud 2005 chapter 20 for a thorough discussion of non-liquidating distributions, including earnings and profits, and Bittker & eustice chapters 9 and 10 and Pratt & Kulsrud pp. 20–14 et seq for a discussion of redemptions and liquidating distributions.
  50. ^ See 26 USC 1(h)(11) for the reduced rate of tax for individuals, and 26 USC 243(a)(1)
  51. ^ "26 U.S. Code § 332 - Complete liquidations of subsidiaries". LII / Legal Information Institute.
  52. ^ 26 USC 302.
  53. ^ 26 US 311.
  54. ^ 26 USC 301. Dividend is defined at 26 USC 316. Bittker & Eustice section 8.03.
  55. ^ 26 USC 312.
  56. ^ 26 USC 301(c).
  57. ^ Taxation of corporate liquidations.
  58. ^ Contrast tax on domestic corporations under 26 USC 11 and 26 USC 63 with tax on foreign corporations under 26 USC 881-885. See Bittker & Eustice sections 15.01 to 15.04, Willis|Hoffman pp. 25–35.
  59. ^ See, e.g., 26 USC 882.
  60. ^ 26 USC 884. Bittker & Eustice section 15.04[2].
  61. ^ 26 USC 1501-1505 and extensive extensive regulations under 1.1502-1 et seq. See Crestol, et al cited below.
  62. ^ 26 USC 482 and extensive regulations thereunder.
  63. ^ 26 USC 531-565. See Bittker & Eustice, chapter 7.
  64. ^ 26 USC 11(b).
  65. ^ "U.S. Corporation Income Tax Return" (PDF). Internal Revenue Service. Retrieved 6 October 2012.
  66. ^ 26 USC 6012(a)(2). See individual states for requirements.
  67. ^ See, e.g., New Jersey's 17+ page Form CBT100 Archived 2009-11-22 at the Wayback Machine that incorporates limitations on related party interest and royalties, an alternative tax, 3 factor apportionment, depreciation adjustments, special taxes for professional corporations, and other features.
  68. ^ See page 38f Instructions for Form 1120-S.
  69. ^ "26 U.S. Code § 6072 - Time for filing income tax returns". LII / Legal Information Institute.
  70. ^ See, e.g., instructions to IRS Form 7004.
  71. ^ 26 USC 6651-6665.
  72. ^ See, e.g., 26 USC 6662 for penalties up to 40% of tax related to transfer pricing or valuation adjustments.
  73. ^ 26 USC 7201 et seq.
2016 Oregon Ballot Measure 97

Oregon Ballot Measure 97 was a ballot measure in the 2016 election in the U.S. state of Oregon. The initiative asked voters to determine whether or not to impose a 2.5 percent gross receipts tax on C corporations with Oregon sales exceeding $25 million. S corporations and benefit companies (companies that benefit society and the environment, as determined under state law) would be exempt from the tax. It was estimated the measure would raise $3 billion annually for the state, if passed.The nonpartisan Oregon Legislative Revenue Office determined that of the some 250,000 businesses registered in Oregon, 951 would be subject to the tax; of these, the hundred largest taxpayers would pay about two-thirds of the monies raised. The same report estimated that wholesale companies in Oregon would see their taxes grow by almost $600 million, a 583 percent increase. Taxes on Oregon retailers would increase by $535 million, a 766 percent jump. Health care firms operating in Oregon would experience a 1,211 percent increase in their taxes, adding almost $100 million per year to the cost of health care across the state.During the state's general election held in November 2016, Oregon voters defeated the measure 59 percent (opposed) to 41 percent.

C corporation

A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. federal income tax purposes. C corporations and S corporations both enjoy limited liability, but only C corporations are subject to corporate income taxation.

Cafeteria plan

A cafeteria plan is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria. Qualified cafeteria plans are excluded from gross income. To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans. The Internal Revenue Code explicitly excludes deferred compensation plans from qualifying as a cafeteria plan subject to a gross income exemption. Section 125 also provides two exceptions.If the cafeteria plan discriminates in favor of highly compensated employees, the highly compensated employees will be required to report their cafeteria plan benefits as income. The second exception is that if "the statutory nontaxable benefits provided to key employees exceed 25 percent of the aggregate of such benefits provided for all employees under the plan," then the key employees must report their cafeteria plan benefits as income. Effective January 1, 2011, eligible employers meeting contribution requirements and eligibility and participation requirements can establish a "simple" cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.

Corporate tax

A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels. The taxes may also be referred to as income tax or capital tax. Partnerships are generally not taxed at the entity level. A country's corporate tax may apply to:

corporations incorporated in the country,

corporations doing business in the country on income from that country,

foreign corporations who have a permanent establishment in the country, or

corporations deemed to be resident for tax purposes in the country.Company income subject to tax is often determined much like taxable income for individual taxpayers. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations, may not be taxed. Some types of entities may be exempt from tax.

Countries may tax corporations on its net profit and may also tax shareholders when the corporation pays a dividend. Where dividends are taxed, a corporation may be required to withhold tax before the dividend is distributed.

The tax incidence is uncertain.

Income tax audit

In the United States of America, an income tax audit is the examination of a business or individual tax return by the Internal Revenue Service (IRS) or state tax authority. The IRS and various state revenue departments use the terms audit, examination, review, and notice to describe various aspects of enforcement and administration of the tax laws.

Income tax in the United States

Income taxes in the United States are imposed by the federal, most state, and many local governments. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. An alternative tax applies at the federal and some state levels.

In the United States, the term "payroll tax" usually refers to FICA taxes that are paid to fund Social Security and Medicare, while "income tax" refers to taxes that are paid into state and federal general funds.

Most business expenses are deductible. Individuals may also deduct a personal allowance (exemption) and certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits.

Capital gains are taxable, and capital losses reduce taxable income to the extent of gains (plus, in certain cases, $3,000 or $1,500 of ordinary income). Individuals currently pay a lower rate of tax on capital gains and certain corporate dividends.

Taxpayers generally must self assess income tax by filing tax returns. Advance payments of tax are required in the form of withholding tax or estimated tax payments. Taxes are determined separately by each jurisdiction imposing tax. Due dates and other administrative procedures vary by jurisdiction. April 15 following the tax year is the last day for individuals to file tax returns for federal and many state and local returns. Tax as determined by the taxpayer may be adjusted by the taxing jurisdiction.

Independent contractor

An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required, during which time they may be subject to law of agency. Independent contractors are usually paid on a freelance basis. Contractors often work through a limited company or franchise, which they themselves own, or may work through an umbrella company.

In the United States, any company or organization engaged in a trade or business that pays more than $600 to an independent contractor in one year is required to report this to the Internal Revenue Service (IRS) as well as to the contractor, using Form 1099-MISC. This form is merely a report of the money paid; independent contractors do not have income taxes withheld like regular employees.

Statutory employee

A statutory employee is an independent contractor under American common law who is treated as an employee, by statute, for purposes of tax withholdings. For a standard independent contractor, an employer cannot withhold taxes. Statutory employees are also permitted to deduct work-related expenses on IRS Schedule C instead of Schedule A in the United States tax system. As a result, they are allowed a greater tax deduction for business expenses than standard employees, as Schedule C expenses are not subject to the 2% adjusted gross income threshold as seen with Schedule A.

Tax accounting in the United States

U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles.

Taxation of cooperative corporations in the United States

The taxation of cooperative corporations in the United States is subject to special rules under subchapter T of the Internal Revenue Code, different from both subchapter C and subchapter S corporations.

Time to Get Tough

Time to Get Tough: Making America #1 Again is a non-fiction book by Donald Trump. It was first published in hardcover format by Regnery Publishing in 2011. It was reissued under the new title Time to Get Tough: Make America Great Again! by the same publisher in 2015, to match Trump's 2016 election campaign slogan. Trump had previously published The America We Deserve (2000) as preparation for his attempt to run in the 2000 U.S. presidential campaign with a populist platform. Time to Get Tough in contrast served as his prelude to the 2012 U.S. presidential campaign, with a conservative platform.Trump makes his case for why he would be an effective leader of the United States and praises America, writing "We are the greatest country the world has ever known." Mixing personal stories in with his prescriptions for U.S. policy, Trump recounts lessons learned as host of The Celebrity Apprentice and his experience being satirized at the 2011 White House Correspondents' Association Dinner by President Obama and comedian Seth Meyers. On domestic policy issues, Trump recommends abolishing U.S. corporate tax and raising the retirement age. On foreign policy matters, he criticizes the negative impact of China and OPEC on the U.S. Trump praises Russian leader Vladimir Putin, saying "I respect Putin and the Russians". Time to Get Tough asserts business experience can be transposed into governmental success: experiences in global finance deals can be imported to successfully negotiate governmental agreements on an international level.Breitbart News contributors Wynton Hall and Peter Schweizer assisted with composing the book, along with writer Meredith McIver. The book debuted at spot 27 on The New York Times Best Seller list. A book review from On the Issues was critical, noting how Trump had flip-flopped on political views from his prior policy book, The America We Deserve. The New York Review of Books called the book's domestic policy writing style boring. Washington Post book critic Carlos Lozada criticized Trump for lambasting The New York Times on his campaign while simultaneously advertising the book as a New York Times Best Seller. Entertainment Weekly called the work a "diatribe against the Obama presidency, illegal immigration, and the people and media outlets who have dared to criticize him."

United States

The United States of America (USA), commonly known as the United States (U.S. or US) or America, is a country comprising 50 states, a federal district, five major self-governing territories, and various possessions. At 3.8 million square miles (9.8 million km2), the United States is the world's third or fourth largest country by total area and is slightly smaller than the entire continent of Europe's 3.9 million square miles (10.1 million km2). With a population of over 327 million people, the U.S. is the third most populous country. The capital is Washington, D.C., and the largest city by population is New York City. Forty-eight states and the capital's federal district are contiguous in North America between Canada and Mexico. The State of Alaska is in the northwest corner of North America, bordered by Canada to the east and across the Bering Strait from Russia to the west. The State of Hawaii is an archipelago in the mid-Pacific Ocean. The U.S. territories are scattered about the Pacific Ocean and the Caribbean Sea, stretching across nine official time zones. The extremely diverse geography, climate, and wildlife of the United States make it one of the world's 17 megadiverse countries.Paleo-Indians migrated from Siberia to the North American mainland at least 12,000 years ago. European colonization began in the 16th century. The United States emerged from the thirteen British colonies established along the East Coast. Numerous disputes between Great Britain and the colonies following the French and Indian War led to the American Revolution, which began in 1775, and the subsequent Declaration of Independence in 1776. The war ended in 1783 with the United States becoming the first country to gain independence from a European power. The current constitution was adopted in 1788, with the first ten amendments, collectively named the Bill of Rights, being ratified in 1791 to guarantee many fundamental civil liberties. The United States embarked on a vigorous expansion across North America throughout the 19th century, acquiring new territories, displacing Native American tribes, and gradually admitting new states until it spanned the continent by 1848.During the second half of the 19th century, the Civil War led to the abolition of slavery. By the end of the century, the United States had extended into the Pacific Ocean, and its economy, driven in large part by the Industrial Revolution, began to soar. The Spanish–American War and World War I confirmed the country's status as a global military power. The United States emerged from World War II as a global superpower, the first country to develop nuclear weapons, the only country to use them in warfare, and a permanent member of the United Nations Security Council. Sweeping civil rights legislation, notably the Civil Rights Act of 1964, the Voting Rights Act of 1965 and the Fair Housing Act of 1968, outlawed discrimination based on race or color. During the Cold War, the United States and the Soviet Union competed in the Space Race, culminating with the 1969 U.S. Moon landing. The end of the Cold War and the collapse of the Soviet Union in 1991 left the United States as the world's sole superpower.The United States is the world's oldest surviving federation. It is a federal republic and a representative democracy. The United States is a founding member of the United Nations, World Bank, International Monetary Fund, Organization of American States (OAS), and other international organizations. The United States is a highly developed country, with the world's largest economy by nominal GDP and second-largest economy by PPP, accounting for approximately a quarter of global GDP. The U.S. economy is largely post-industrial, characterized by the dominance of services and knowledge-based activities, although the manufacturing sector remains the second-largest in the world. The United States is the world's largest importer and the second largest exporter of goods, by value. Although its population is only 4.3% of the world total, the U.S. holds 31% of the total wealth in the world, the largest share of global wealth concentrated in a single country.Despite income and wealth disparities, the United States continues to rank very high in measures of socioeconomic performance, including average wage, human development, per capita GDP, and worker productivity. The United States is the foremost military power in the world, making up a third of global military spending, and is a leading political, cultural, and scientific force internationally.

Table of corporate income taxes
as a percentage of GDP
for the US and OECD countries, 2008[8][9]
Country Tax/GDP Country Tax/GDP
Norway 12.4 Switzerland 3.3
Australia 5.9 Netherlands 3.2
Luxembourg 5.1 Slovak Rep. 3.1
New Zealand 4.4 Sweden 3.0
Czech Rep. 4.2 France 2.9
South Korea 4.2 Ireland 2.8
Japan 3.9 Spain 2.8
Italy 3.7 Poland 2.7
Portugal 3.7 Hungary 2.6
Britain 3.6 Austria 2.5
Finland 3.5 Greece 2.5
Israel 3.5 Slovenia 2.5
OECD avg. 3.5 United States 2.0
Belgium 3.4 Germany 1.9
Canada 3.4 Iceland 1.9
Denmark 3.3 Turkey 1.8
State corporate income tax rates
in the United States in 2010[27]
State Tax Rate(s) Tax Bracket(s)
Alabama (a) 6.5% $0
Alaska 1%




Arizona 6.968% $0
Arkansas (h) 1%




California (g) 8.84% $0
Colorado 4.63% $0
Connecticut 7.5% $0
Delaware 8.7% $0
Florida (g) 5.5% $0
Georgia 6% $0
Hawaii 4.4%




Idaho 7.6% $0
Illinois 7.3% $0
Indiana 8.5% $0
Iowa 6%


Kansas [28] 3% $0
Kentucky 4%


Louisiana 4%


Maine (g) 3.5%


Maryland 8.25% $0
Massachusetts 8.8% $0
Michigan (b), (f), (g) 4.95% $0
Minnesota (g) 9.8% $0
Mississippi 3%


Missouri (i) 6.25% $0
Montana (j) 6.75% $0
Nebraska 5.58%


Nevada None None
New Hampshire (k) 8.5% $0
New Jersey (c), (g) 9% $0
New Mexico 4.8%


New York (a), (f), (g), (h) 7.1% $0
North Carolina 6.9% $0
North Dakota (j) 2.1%


Ohio (d), (f) 0.26% $0
Oklahoma 6% $0
Oregon (e) 6.6%


Pennsylvania (f), (g) 9.99% $0
Rhode Island 9% $0
South Carolina 5% $0
South Dakota None None
Tennessee 6.5% $0
Texas (l) Franchise Tax rate Franchise Tax rate
Utah (g) 5% $0
Vermont 6%


Virginia 6% $0
Washington (g) None None
West Virginia 8.5% $0
Wisconsin 7.9% 0
Wyoming None None
District of Columbia     9.975% $0

Notes: The rates above are for regular corporate taxes based on income (including those called franchise taxes) and exclude the effect of alternative taxes and minimum taxes. Most states have a minimum income or franchise tax. The above rates generally apply to entities treated as corporations other than S Corporations and financial institutions, which may be subject to different rates of tax. Tax rates are before credits and reductions for corporations operating in certain parts of the state.

(a) Excludes the effect of graduated tax rates based on level of income.

(b) The Michigan Business Tax applies to incorporated and unincorporated businesses, and is based on alternative measure of income that may not relate to net income.

(c) Businesses with an entire net income greater than $100K pay 9% in all taxable income, companies with entire net income greater than $50K and less than or equal to $100K pay 7.5% on all taxable income, and companies with entire net income less than or equal to $50K pay 6.5% on all taxable income.

(d) A tax on gross receipts, the commercial activity tax (CAT), was phased in from 2005 to 2008 while the corporate franchise tax (CFT, Ohio's corporate net income tax) was phased out. Beginning April 1, 2009, the CAT rate was fully phased in at 0.26%.

(e) The top income tax rate (7.9% on income over $250K) applies to tax years beginning on or after January 1, 2009, and before January 1, 2011.

(f) Excludes local corporate income tax.

(g) Excludes the effect of alternative tax bases, such as sales or assets.

(h) Other tax rates may apply to certain corporations.

(i) Missouri allows a deduction for federal income tax payments, reducing the effective state tax rate.

(j) A higher rate applies if the corporation elects "water's edge" apportionment.

(k) Also applies to unincorporated entities.

(l) While not called an income tax, Texas imposes a franchise tax at the higher of a tax based on capital or a graduated tax based on income.

United States companies with
deferred foreign cash balances
that are greater than $5 billion, 2012[34]
($ Billions)
Foreign Cash
 % Total Cash
Apple 110.2 74.0 67%
Microsoft 59.5 50.0 89%
General Electric 83.7 >41.9 >50%
Cisco 46.7 41.7 89%
Google 49.3 25.7 48%
Oracle 29.7 25.1 84%
Johnson & Johnson 24.5 24.5 100%
Pfizer 24.0 ~19.2 ~80%
Amgen 19.4 16.6 82%
Qualcomm 26.6 16.5 62%
Coca-Cola 15.8 >13.9 >88%
Dell 13.9 ~11.8 ~85%
Merck 19.5 >9.2 >47.2%
Medtronic 8.9 8.3 93%
Hewlett-Packard 8.1 ~8.1 ~100%
eBay 8.0 7.0 88%
Wal-Mart 6.6 5.6 85%

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