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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Department of the Treasury
Internal Revenue Service

Publication 542

(Rev. January 2024)
Cat. No. 15072O

Corporations

Contents
Future Developments . . . . . . . . . . . . . . . . . . . . . . . 2
Photographs of Missing Children . . . . . . . . . . . . . . 2
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Businesses Taxed as Corporations . . . . . . . . . . . . 2
Property Exchanged for Stock . . . . . . . . . . . . . . . . 3
Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . 4
Filing and Paying Income Taxes . . . . . . . . . . . . . . . 5
Income Tax Return . . . . . . . . . . . . . . . . . . . . . . . 5
Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Estimated Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. Real Property Interest . . . . . . . . . . . . . . . . . 7
Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . 7
Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . 8
Accounting Periods . . . . . . . . . . . . . . . . . . . . . . . . 8
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Income, Deductions, and Special Provisions . . . . . 9
Costs of Going Into Business . . . . . . . . . . . . . . . . 9
Related Persons . . . . . . . . . . . . . . . . . . . . . . . . . 9
Corporate Preference Items . . . . . . . . . . . . . . . . 10
Dividends-Received Deduction . . . . . . . . . . . . . 10
Extraordinary Dividends . . . . . . . . . . . . . . . . . . 11
Below-Market Loans . . . . . . . . . . . . . . . . . . . . . 11
Charitable Contributions . . . . . . . . . . . . . . . . . . 12
Capital Losses . . . . . . . . . . . . . . . . . . . . . . . . . 13
Net Operating Losses . . . . . . . . . . . . . . . . . . . . 14
At-Risk Limits . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Passive Activity Limits . . . . . . . . . . . . . . . . . . . . 15
Figuring Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Base Erosion Minimum Tax . . . . . . . . . . . . . . . . 15
Corporate Alternative Minimum Tax (CAMT) . . . . 15
Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Recapture Taxes . . . . . . . . . . . . . . . . . . . . . . . . 15
Accumulated Earnings Tax . . . . . . . . . . . . . . . . . . 15

Get forms and other information faster and easier at:
• IRS.gov (English)
• IRS.gov/Spanish (Español)
• IRS.gov/Chinese (中文)

• IRS.gov/Korean (한국어)
• IRS.gov/Russian (Pусский)
• IRS.gov/Vietnamese (Tiếng Việt)

Distributions to Shareholders . . . . . . . . . . . . . . . 16
Money or Property Distributions . . . . . . . . . . . . . 16
Distributions of Stock or Stock Rights . . . . . . . . . 16
Constructive Distributions . . . . . . . . . . . . . . . . . 17
Reporting Dividends and Other Distributions . . . . 17
How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . . 19
Other Useful Forms for Corporations . . . . . . . . . . 23
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Feb 9, 2024

Future Developments
For the latest information about developments related to
Pub. 542, such as legislation enacted after it was
published, go to IRS.gov/Pub542. For changes that may
affect the current tax year, see the Instructions for Form
1120 or the applicable instructions for the corporation’s
tax return.

What's New
New corporate alternative minimum tax. For tax years
beginning after 2022, the Inflation Reduction Act of 2022
amended section 55 of the Internal Revenue Code to impose a new corporate alternative minimum tax (CAMT)
based on the adjusted financial statement income (AFSI)
of an applicable corporation. See Corporate Alternative
Minimum Tax (CAMT), later.
Form 1120-W now historical. Form 1120-W, Estimated
Tax for Corporations, and the Instructions for Form
1120-W are now historical. The 2022 revisions were the
last revisions of both the form and its instructions. Prior
versions are available on IRS.gov.

Photographs of Missing
Children
The Internal Revenue Service is a proud partner with the
National Center for Missing & Exploited Children®
(NCMEC). Photographs of missing children selected by
the Center may appear in instructions on pages that would
otherwise be blank. You can help bring these children
home by looking at the photographs and calling
800-THE-LOST (800-843-5678) if you recognize a child.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will
consider your comments and suggestions as we revise
our tax forms, instructions, and publications. Do not send
tax questions, tax returns, or payments to the above address.
Getting answers to your tax questions. If you have
a tax question not answered by this publication or the How
To Get Tax Help section at the end of this publication, go
to the IRS Interactive Tax Assistant page at IRS.gov/
Help/ITA where you can find topics by using the search
feature or viewing the categories listed.
Getting tax forms, instructions, and publications.
Go to IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible.
Do not resubmit requests you’ve already sent us. You can
get forms and publications faster online.
Additional forms. A list of other forms and statements
that a corporation may need to file is included at the end
of this publication. Also, see the instructions for the corporation’s tax return for additional forms and statements that
may be required.

Useful Items

You may want to see:
Publication
510 Excise Taxes (Including Fuel Tax Credits and
Refunds)
510

538 Accounting Periods and Methods
538

544 Sales and Other Dispositions of Assets
544

Introduction

550 Investment Income and Expenses
550

925 Passive Activity and At-Risk Rules
925

This publication discusses the general tax laws that apply
to ordinary domestic corporations. It provides supplemental federal income tax information for corporations. It also
supplements the information provided in the Instructions
for Form 1120, U.S. Corporation Income Tax Return. However, the information given does not cover every situation
and is not intended to replace the law or change its meaning.
Comments and suggestions. We welcome your comments about this publication and suggestions for future
editions.
You can send us comments through IRS.gov/
FormComments. Or, you can write to:

946 How To Depreciate Property
946

Businesses Taxed as
Corporations
The rules used to determine whether a business is taxed
as a corporation changed for businesses formed after
1996.
Business formed before 1997. A business formed before 1997 and taxed as a corporation under the old rules
will generally continue to be taxed as a corporation.

Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
2

Publication 542 (1-2024)

Business formed after 1996. The following businesses
formed after 1996 are taxed as corporations.

• A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic.

Personal services. Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.

• A business formed under a state law that refers to it as

Employee-owners. A person is an employee-owner of
a personal service corporation if both of the following apply.

• An insurance company.
• Certain banks.
• A business wholly owned by a state or local govern-

1. That person is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if that person is an independent contractor for other purposes) on any day of the testing
period.

• A business specifically required to be taxed as a cor-

2. That person owns any stock in the corporation at any
time during the testing period.

a joint-stock company or joint-stock association.

ment.

poration by the Internal Revenue Code (for example,
certain publicly traded partnerships).

• Certain foreign businesses.
• Any other business that elects to be taxed as a corporation.

Limited liability company (LLC). An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity
separate from its owner by applying the rules in Treasury
Regulations section 301.7701-3. An LLC can elect to be
treated as an association taxable as a corporation by filing
Form 8832, Entity Classification Election. See the Instructions for Form 8832. For more information about LLCs,
see Pub. 3402, Taxation of Limited Liability Companies.
S corporations. Some corporations may meet the qualifications for electing to be S corporations. For information
on S corporations, see the Instructions for Form 1120-S.
Personal service corporations. A corporation is a personal service corporation if it meets all of the following requirements.
1. Its principal activity during the “testing period” is performing personal services (defined later). Generally,
the testing period for any tax year is the prior tax year.
If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on
the earlier of:
a. The last day of its tax year, or
b. The last day of the calendar year in which its tax
year begins.
2. Its employee-owners substantially perform the services in (1) above. This requirement is met if more than
20% of the corporation's compensation cost for its activities of performing personal services during the
testing period is for personal services performed by
employee-owners.
3. Its employee-owners own more than 10% of the fair
market value of its outstanding stock on the last day of
the testing period.

Publication 542 (1-2024)

Other rules. For other rules that apply to personal
service corporations, see Accounting Periods, later.
Closely held corporations. A corporation is closely held
if all of the following apply.
1. It is not a personal service corporation.
2. At any time during the last half of the tax year, more
than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. “Individual” includes certain trusts and private
foundations.
For rules for determining stock ownership, see section 544
of the Internal Revenue Code.
Other rules. For the at-risk rules that apply to closely
held corporations, see At-Risk Limits, later.

Property Exchanged for Stock
If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other
than nonqualified preferred stock), and immediately afterward you are in control of the corporation, the exchange is
usually not taxable. This rule applies both to individuals
and to groups who transfer property to a corporation. It
also applies whether the corporation is being formed or is
already operating. It does not apply in the following situations.

• The corporation is an investment company.
• You transfer the property in a bankruptcy or similar

proceeding in exchange for stock used to pay creditors.

• The stock is received in exchange for the corporation's
debt (other than a security) or for interest on the corporation's debt (including a security) that accrued
while you held the debt.

See Property Exchanged for Stock in chapter 2 of Pub.
544 for more information.

3

Both the corporation and any person involved in a
nontaxable exchange of property for stock must
CAUTION attach to their income tax returns for the year of
the exchange, the complete statement of all facts pertinent to the exchange required by Treasury Regulations
section 1.351-3.

!

Control of a corporation. To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote
and at least 80% of the outstanding shares of each class
of nonvoting stock.
Loss on exchange. If you have a loss from an exchange
and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Pub.
544.
Basis of stock or other property received. The basis
of the stock you receive is generally the adjusted basis of
the property you transfer. Increase this amount by any
amount treated as a dividend, plus any gain recognized
on the exchange. Decrease this amount by any cash you
received, the fair market value of any other property you
received, and any loss recognized on the exchange. Also
decrease this amount by the amount of any liability the
corporation or another party to the exchange assumed
from you, unless payment of the liability gives rise to a deduction when paid.
Further decreases may be required when the corporation or another party to the exchange assumes from you a
liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair
market value on the date of the exchange. This rule does
not apply if the entity assuming the liability acquired either
substantially all of the assets or the trade or business with
which the liability is associated.
The basis of any other property you receive is its fair
market value on the date of the trade.
Basis of property transferred. A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased
by any gain you recognized on the exchange. However,
the increase for the gain recognized may be limited. For
more information, see section 362 of the Internal Revenue
Code.
If property is transferred to a corporation subject to section 362(e)(2) of the Internal Revenue Code, the transferor
and the acquiring corporation may elect, under section
362(e)(2)(C), to reduce the transferor's basis in the stock
received instead of reducing the acquiring corporation's
basis in the property transferred. Once made, the election
is irrevocable. For more information, see section 362(e)(2)
and Treasury Regulations section 1.362-4. If an election is
made, a statement must be filed in accordance with Treasury Regulations section 1.362-4(d)(3).

4

Capital Contributions
This section explains the tax treatment of contributions
from shareholders and nonshareholders.
Paid-in capital. Generally, contributions to the capital of
a corporation, whether or not by shareholders, are paid-in
capital. These contributions are not taxable to the corporation. However, after December 22, 2017, the following
nonshareholder contributions to the capital of a corporation are not considered nontaxable paid-in capital.

• Any contribution in aid of construction or any other
contribution as a customer or potential customer.

• Any contribution by any civic group.
• Any contribution by any governmental entity. However,
see the special rule below.

For contributions made after December 31, 2020, a
special rule applies to contributions to the capital of water
and sewerage disposal utilities. Under the special rule,
any amount of money or property received after December 31, 2020, as a contribution in aid of construction or a
contribution to the capital of a regulated public utility that
provides water or sewerage disposal services is eligible
for exclusion from income under section 118 of the Internal Revenue Code.
Basis. The corporation's basis of property contributed to
capital by a shareholder is the same as the basis the
shareholder had in the property, increased by any gain the
shareholder recognized on the exchange. However, the increase for the gain recognized may be limited. For more
information, see Basis of property transferred above and
section 362 of the Internal Revenue Code.
The basis of property contributed to capital by a person
other than a shareholder is zero.
If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce
the basis of any property acquired with the contribution
during the 12-month period beginning on the day it received the contribution by the amount of the contribution.
If the amount contributed is more than the cost of the
property acquired, then reduce, but not below zero, the
basis of the other properties held by the corporation on
the last day of the 12-month period in the following order.
1. Depreciable property.
2. Amortizable property.
3. Property subject to cost depletion but not to percentage depletion.
4. All other remaining properties.
Reduce the basis of property in each category to zero
before going on to the next category.
There may be more than one piece of property in each
category. Base the reduction of the basis of each property
on the following ratio.

Publication 542 (1-2024)

Basis of each piece of property
Bases of all properties (within that category)

If the corporation wishes to make this adjustment in some
other way, it must get IRS approval. The corporation files a
request for approval with its income tax return for the tax
year in which it receives the contribution.

Filing and Paying Income
Taxes
The federal income tax is a pay-as-you-go tax. A corporation must generally make estimated tax payments as it
earns or receives income during its tax year. After the end
of the year, the corporation must file an income tax return.
This section will help you determine when and how to pay
and file corporate income taxes.
For certain corporations affected by federally de-

TIP clared disasters such as hurricanes, the due

dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. The IRS
may also forgive the interest and penalties on any underpaid tax for the length of any extension. For more information, visit IRS.gov/DisasterTaxRelief.

Income Tax Return
This section will help you determine when and how to report a corporation's income tax.
Who must file. Unless exempt under section 501 of the
Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in
bankruptcy) must file an income tax return whether or not
they have taxable income.

return must generally file by the 15th day of the 4th month
after the short period ends. A corporation that has dissolved must generally file by the 15th day of the 4th month
after the date it dissolved.
However, a corporation with a fiscal tax year ending
June 30 must file by the 15th day of the 3rd month after
the end of its tax year. A corporation with a short tax year
ending anytime in June will be treated as if the short period ended June 30 and must file by the 15th day of the
3rd month after the end of its tax year.
If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day.
Extension of time to file. File Form 7004, Application
for Automatic Extension of Time To File Certain Business
Income Tax, Information, and Other Returns, to request an
extension of time to file a corporation’s income tax return.
The IRS will grant the extension if the corporation completes the form properly, files it, and pays any tax due by
the original due date for the return.
Form 7004 does not extend the time for paying the tax
due on the return. Interest, and possibly penalties, will be
charged on any part of the final tax due not shown as a
balance due on Form 7004. The interest is figured from
the original due date of the return to the date of payment.
For more information, see the Instructions for Form
7004.
How to pay your taxes. A corporation must pay its tax
due in full no later than the due date for filing its tax return
(not including extensions).
Electronic Federal Tax Payment System (EFTPS).
Corporations must generally use EFTPS to make deposits
of all tax liabilities (including social security, Medicare,
withheld income, excise, and corporate income taxes). For
more information on EFTPS and enrollment, visit
www.eftps.gov.

Penalties

Which form to file. A domestic entity electing to be classified as an association taxable as a corporation must
generally file Form 1120, U.S. Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Certain organizations and entities must, or may elect to, file special returns.
For more information, see Special Returns for Certain Organizations in the Instructions for Form 1120.

Generally, if the corporation receives a notice
about interest and penalties after it files its return,
CAUTION send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria.
Do not attach an explanation when the corporation's return is filed. See the instructions for your income tax return.

Electronic filing. Corporations can generally electronically file (e-file) Form 1120 and certain related forms,
schedules, and attachments. However, for returns filed on
or after January 1, 2024, corporations that file 10 or more
returns are required to efile. However, these corporations
can request a waiver of the electronic filing requirements.
For more information on electronic filing, see the Instructions for Form 1120, or the applicable instructions for your
income tax return.

Late filing of return. A corporation that does not file its
tax return by the due date, including extensions, may be
penalized 5% of the unpaid tax for each month or part of a
month the return is late, up to a maximum of 25% of the
unpaid tax. If the corporation is charged a penalty for late
payment of tax (discussed next) for the same period of
time, the penalty for late filing is reduced by the amount of
the penalty for late payment. A minimum penalty applies
for a return that is over 60 days late. The minimum penalty
amount may be adjusted for inflation. See the Instructions
for Form 1120 (or the instructions for your applicable return) for the minimum penalty amount for the current tax
year. The penalty will not be imposed if the corporation

When to file. Generally, a corporation must file its income tax return by the 15th day of the 4th month after the
end of its tax year. A new corporation filing a short-period
Publication 542 (1-2024)

!

5

can show the failure to file on time was due to a reasonable cause.
Note. If the corporation is charged a penalty for late
payment of tax (discussed next) for the same period of
time, the penalty for late filing is reduced by the amount of
the penalty for late payment.
Late payment of tax. A corporation that does not pay
the tax when due may be penalized half of 1% of the unpaid tax for each month or part of a month the tax is not
paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the corporation can show that
the failure to pay on time was due to a reasonable cause.
Trust fund recovery penalty. If federal income, social
security, or Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the U.S. Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of
the unpaid trust fund tax. This penalty may apply to you if
these unpaid taxes cannot be immediately collected from
the business.
The trust fund recovery penalty may be imposed on all
persons who are determined by the IRS to be responsible
for collecting, accounting for, and paying these taxes, and
who acted willfully in not doing so.
A responsible person can be an officer or employee of
a corporation, an accountant, or a volunteer director/
trustee. A responsible person may also include one who
signs checks for the corporation or otherwise has authority
to cause the spending of business funds.
“Willfully” means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows
the required actions are not taking place or recklessly disregards obvious and known risks to the government’s right
to receive trust fund taxes.
For more information on withholding and paying these
taxes, see Pub. 15 (Circular E), Employer's Tax Guide.
Other penalties. Other penalties can be imposed for
negligence, substantial understatement of tax, reportable
transaction understatements, and fraud. See sections
6662, 6662A, and 6663 of the Internal Revenue Code.

Estimated Tax
Generally, a corporation must make installment payments
if it expects its estimated tax for the year to be $500 or
more. If the corporation does not pay the installments
when they are due, it could be subject to an underpayment penalty. This section will explain how to avoid this
penalty.
When to pay estimated tax. Installment payments are
due by the 15th day of the 4th, 6th, 9th, and 12th months
of the corporation's tax year.
Example 1. Your corporation's tax year ends December 31. Installment payments are due on April 15, June
15, September 15, and December 15.

6

Example 2. Your corporation's tax year ends June 30.
Installment payments are due on October 15, December
15, March 15, and June 15.
If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day.
How to figure each required installment. The Estimated Tax Worksheet, later, can be used to figure each required installment. Form 1120-W, Estimated Tax for Corporations, is now historical. Prior versions are available on
IRS.gov
You generally use one of the following two methods to
figure each required installment. You should use the
method that yields the smallest installment payments. In
these discussions, “return” generally refers to the corporation's original return. However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return.
Method 1. Each required installment is 25% of the income tax the corporation will show on its return for the current year.
Method 2. Each required installment is 25% of the income tax shown on the corporation's return for the previous year.
To use Method 2:
1. The corporation must have filed a return for the previous year,
2. The return must have been for a full 12 months, and
3. The return must have shown a positive tax liability (not
zero).
Also, if the corporation is a large corporation, it can use
Method 2 to figure the first installment only.
Large corporations. A large corporation is a corporation
that had, or whose predecessor had, taxable income of $1
million or more for any of the 3 tax years immediately preceding the current tax year, or if less, the number of years
the corporation has been in existence. For this purpose,
taxable income is modified to exclude net operating loss
and capital loss carrybacks or carryovers.
Annualized income installment method and/or adjusted seasonal installment method. If the corporation's
income is expected to vary during the year because, for
example, it operates its business on a seasonal basis, it
may be able to lower the amount of one or more required
installments by using the annualized income installment
method and/or the adjusted seasonal installment method.
For example, a ski shop, which receives most of its income during the winter months, may be able to benefit
from using one or both of these methods in figuring one or
more of its required installments. See sections 6655(e)(2)
and 6655(e)(3) of the Internal Revenue Code.
Refiguring required installments. If after the corporation figures and deposits its estimated tax it finds that its
tax liability for the year will be more or less than originally
estimated, it may have to refigure its required installments
to see if an underpayment penalty may apply. An
Publication 542 (1-2024)

immediate catch-up payment should be made to reduce
any penalty resulting from the underpayment of any earlier
installments.
Underpayment penalty. If the corporation does not pay
a required installment of estimated tax by its due date, it
may be subject to a penalty. The penalty is figured separately for each installment due date. Therefore, the corporation may owe a penalty for an earlier due date, even if it
paid enough tax later to make up the underpayment. This
is true even if the corporation is due a refund when its return is filed.
Form 2220. Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation
is subject to the penalty for underpayment of estimated
tax and to figure the amount of the penalty.
If the corporation is charged a penalty, the amount of
the penalty depends on the following three factors.
1. The amount of the underpayment.
2. The period during which the underpayment was due
and unpaid.
3. The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin.
A corporation generally does not have to file Form 2220
with its income tax return because the IRS will figure any
penalty and bill the corporation. However, even if the corporation does not owe a penalty, complete and attach the
form to the corporation's tax return if any of the following
apply.
1. The annualized income installment method was used
to figure any required installment.
2. The adjusted seasonal installment method was used
to figure any required installment.

3. The corporation is a large corporation figuring its first
required installment based on the prior year's tax.
How to pay estimated tax. A corporation is generally required to use EFTPS to pay its taxes. See Electronic Federal Tax Payment System (EFTPS), earlier.
Quick refund of overpayments. A corporation that has
overpaid its estimated tax for the tax year may be able to
apply for a quick refund. Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated
Tax, to apply for a quick refund of an overpayment of estimated tax. A corporation can apply for a quick refund if the
overpayment is:

• At least 10% of its expected tax liability, and
• At least $500.
Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax.
File Form 4466 after the end of the corporation’s tax
year, but before the corporation files its income tax return.
Do not file Form 4466 before the end of the corporation's
tax year. An extension of time to file the corporation's income tax return will not extend the time for filing Form
4466. The IRS will act on the form within 45 days from the
date you file it.

U.S. Real Property Interest
If a domestic corporation acquires a U.S. real property interest from a foreign person or firm, the corporation may
have to withhold tax on the amount it pays for the property.
The amount paid includes cash, the fair market value of
other property, and any assumed liability. If a domestic
corporation distributes a U.S. real property interest to a
foreign person or firm, it may have to withhold tax on the

Estimated Tax Worksheet

Keep for Your Records

Note. This worksheet may be used as a guide in figuring the required estimated tax installments.

1.

Enter the expected taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

Multiply line 1 by the maximum tax rate that is in effect for the applicable tax year. For example, in 2023 the maximum
rate is 21%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

3.

Tax credits. For information on tax credits the corporation can take, see the instructions for Form 1120, Schedule J,
Part I, lines 5a through 5e, or the instructions for the applicable lines and schedule of the corporation’s income tax
return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4.

Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5.

Other taxes. For information on other taxes the corporation may owe, see the instructions for Form 1120, Schedule J,
or the instructions for the applicable lines and schedule of the corporation's income tax return . . . . . . . . . . . . . . . . . .

5.

6.

Total tax. Add lines 4 and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7.

Enter any credit for federal tax paid on fuels and other refundable credits. For information on other refundable credits,
see the instructions for Form 1120, Schedule J, or the instructions for the applicable line of the corporation’s income tax
return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

8.

Subtract line 7 from line 6. If the result is less than $500, the corporation is not required to make estimated tax
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.

9.

Enter the tax shown on the corporation’s prior year’s tax return. If the tax is zero or the tax year was for less than 12
months, skip this line and enter the amount from line 8 on line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

10. Enter the smaller of line 8 or line 9. If the corporation is required to skip line 9, enter the amount from line 8 . . . . . . . .

10.

11. Required installments. Enter 25% of line 10. If the corporation uses the annualized income installment method, or
adjusted seasonal installment method, or is a large corporation, an additional computation may be needed . . . . . . .

11.

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1.

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fair market value of the property. A corporation that fails to
withhold may be liable for the tax and any penalties and
interest that apply. For more information, see section 1445
of the Internal Revenue Code; Pub. 515, Withholding of
Tax on Nonresident Aliens and Foreign Entities; Form
8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests; and Form
8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests.

Accounting Methods
An accounting method is a set of rules used to determine
when and how income and expenses are reported. Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books
and records. In all cases, the method used must clearly
show taxable income.
Generally, permissible methods include:

• Cash,
• Accrual, or
• Any other method authorized by the Internal Revenue
Code.

Accrual method. Generally, a corporation, other than a
qualified personal service corporation (as defined in section 448(d)(2) of the Internal Revenue Code), must use an
accrual method of accounting if it is not a small business
taxpayer (as defined in section 448(c) of the Internal Revenue Code). A corporation engaged in farming operations
must also use an accrual method, unless it qualifies as a
small business taxpayer.
Under an accrual method of accounting, you generally
report income in the year it is earned and deduct or capitalize expenses in the year incurred. The purpose of an
accrual method of accounting is to match income and expenses in the correct year.
See Pub. 538 for additional information and special
rules.
Expenses. Generally, an accrual basis taxpayer can
deduct accrued expenses in the tax year when:
1. All events that determine the liability have occurred,
2. The amount of the liability can be figured with reasonable accuracy, and
3. Economic performance takes place with respect to
the expense.
There are exceptions to the economic performance rule
for certain items, including recurring expenses. See section 461(h) of the Internal Revenue Code and the related
regulations for the rules for determining when economic
performance takes place.
Percentage of completion method. Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percent8

age of completion method described in section 460 of the
Internal Revenue Code.
Mark-to-market accounting method. Generally, dealers in securities must use the mark-to-market accounting
method described in section 475 of the Internal Revenue
Code. Under this method, any security held by a dealer as
inventory must be included in inventory at its fair market
value. Any security not held as inventory at the close of
the tax year is treated as sold at its fair market value on
the last business day of the tax year. Any gain or loss must
be taken into account in determining gross income. The
gain or loss taken into account is treated as ordinary gain
or loss.
Dealers in commodities and traders in securities and
commodities can elect to use the mark-to-market accounting method.
Change in accounting method. A corporation can
change its method of accounting used to report taxable income (for income as a whole or for the treatment of any
material item). The corporation must file Form 3115, Application for Change in Accounting Method. See the Instructions for Form 3115 and Pub. 538 for more information
and exceptions.
Section 481(a) adjustment. If the corporation's taxable income for the current tax year is figured under a
method of accounting different from the method used in
the preceding tax year, the corporation may have to make
an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from
being duplicated or omitted. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However,
exceptions to the general section 481(a) adjustment period may apply. Also, in some cases, a corporation can
elect to modify the section 481(a) adjustment period. The
corporation may have to complete the appropriate lines of
Form 3115 to make an election. See the Instructions for
Form 3115 for more information and exceptions.

Accounting Periods
A corporation must figure its taxable income on the basis
of a tax year. A tax year is the annual accounting period a
corporation uses to keep its records and report its income
and expenses. Generally, a corporation can use either a
calendar year or a fiscal year as its tax year. Unless special rules apply, a corporation generally adopts a tax year
by filing its first federal income tax return using that tax
year. For more information, see Pub. 538.
Personal service corporation. A personal service corporation must use a calendar year as its tax year unless:

• It elects to use a 52-53-week tax year that ends with

reference to the calendar year or tax year elected under section 444 of the Internal Revenue Code;

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• It can establish a business purpose for a different tax
year and obtains approval of the IRS (see the
Instructions for Form 1128 and Pub. 538); or

• It elects under section 444 to have a tax year other

than a calendar year. Use Form 8716, Election To
Have a Tax Year Other Than a Required Tax Year, to
make the election.

If a personal service corporation makes a section 444
election, its deduction for certain amounts paid to employee-owners may be limited. See Schedule H (Form
1120), Section 280H Limitations for a Personal Service
Corporation (PSC), to figure the maximum deduction.
Change of tax year. Generally, a corporation must get
the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a
Tax Year. However, under certain conditions, a corporation
can change its tax year without getting the consent. For
more information, see Form 1128 and Pub. 538.

Recordkeeping
A corporation should keep its records for as long as they
may be needed for the administration of any provision of
the Internal Revenue Code. Usually records that support
items of income, deductions, or credits on the return must
be kept for 3 years from the date the return is due or filed,
whichever is later. Keep records that verify the corporation's basis in property for as long as they are needed to
figure the basis of the original or replacement property.

Related Persons
A corporation that uses an accrual method of accounting
cannot deduct business expenses and interest owed to a
related person who uses the cash method of accounting
until the corporation makes the payment and the corresponding amount is includible in the related person's
gross income. Determine the relationship as of the end of
the tax year for which the expense or interest would otherwise be deductible. If a deduction is denied, the rule will
continue to apply even if the corporation's relationship with
the person ends before the expense or interest is includible in the gross income of that person. These rules also
deny the deduction of losses on the sale or exchange of
property between related persons.
Related persons. For purposes of this rule, the following
persons are related to a corporation.
1. Another corporation that is a member of the same
controlled group (as defined in section 267(f) of the
Internal Revenue Code).
2. An individual who owns, directly or indirectly, more
than 50% of the value of the outstanding stock of the
corporation.
3. A trust fiduciary, if the trust or the grantor of the trust
owns, directly or indirectly, more than 50% of the
value of the outstanding stock of the corporation.
4. An S corporation, if the same persons own more than
50% in value of the outstanding stock of each corporation.

The corporation should keep copies of all filed returns.
They help in preparing future and amended returns and in
the calculation of earnings and profits.

5. A partnership, if the same persons own more than
50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership.

Income, Deductions, and
Special Provisions

6. Any employee-owner, if the corporation is a personal
service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned
by the employee-owner.

Rules on income and deductions that apply to individuals
also apply, for the most part, to corporations. However, the
following special provisions apply only to corporations.

Ownership of stock. To determine whether an individual directly or indirectly owns any of the outstanding
stock of a corporation, the following apply.

Costs of Going Into Business
When you go into business, treat all eligible costs you incur to get your business started as capital expenses.
However, a corporation can elect to deduct a limited
amount of start-up or organizational costs. Any costs not
deducted can be amortized.
Start-up costs are costs for creating an active trade or
business or investigating the creation or acquisition of an
active trade or business. Organizational costs are the direct costs of creating the corporation.
For more information on deducting or amortizing
start-up and organizational costs, see the instructions for
your income tax return.
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1. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being
owned proportionately by or for its shareholders, partners, or beneficiaries.
2. An individual is treated as owning the stock owned,
directly or indirectly, by or for the individual's family.
Family includes only brothers and sisters (including
half brothers and half sisters), a spouse, ancestors,
and lineal descendants.
3. Any individual owning (other than by applying (2)
above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner.
4. To apply (1), (2), or (3) above, stock constructively
owned by a person under (1) is treated as actually
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owned by that person. But stock constructively owned
by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or
(3) to make another person the constructive owner of
that stock.
Reallocation of income and deductions. Where it is
necessary to clearly show income or prevent tax evasion,
the IRS can reallocate gross income, deductions, credits,
or allowances between two or more organizations, trades,
or businesses owned or controlled directly, or indirectly, by
the same interests.
Complete liquidations. The disallowance of losses from
the sale or exchange of property between related persons
does not apply to liquidating distributions.
More information. For more information about the related person rules, see Pub. 544.

Corporate Preference Items
A corporation must make special adjustments to certain
items before it takes them into account in determining its
taxable income. These items are known as “corporate
preference items” and they include the following.

• Gain on the disposition of section 1250 property.
For more information, see Section 1250 Property under Depreciation Recapture in chapter 3 of Pub. 544.

• Percentage depletion for iron ore and coal (including lignite).

Note. This deduction is not subject to the limit on deduction for dividends related to dividends from domestic
corporations, discussed below.
Dividends from domestic corporations. A corporation
can deduct, within certain limits, 50% of the dividends received if the corporation receiving the dividend owns less
than 20% of the corporation distributing the dividend. If
the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct
65% of the dividends received.
Ownership. For these rules, ownership is based on
the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) that the
receiving corporation owns.
Small business investment companies. Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations.
Dividends from regulated investment companies.
Regulated investment company dividends received are
subject to certain limits. Capital gain dividends received
from a regulated investment company do not qualify for
the deduction. For more information, see section 854 of
the Internal Revenue Code.
No deduction allowed for certain dividends. Corporations cannot take a deduction for dividends received from
the following entities.
1. A real estate investment trust (REIT).

• Amortization of pollution control facilities. For

2. A corporation exempt from tax under section 501 or
521 of the Internal Revenue Code either for the tax
year of the distribution or the preceding tax year.

• Mineral exploration and development costs.

3. A corporation whose stock was held less than 46 days
during the 91-day period beginning 45 days before the
stock became ex-dividend with respect to the dividend. “Ex-dividend” means the holder has no rights to
the dividend.

more information, see section 291(a)(4) of the Internal
Revenue Code.

For more information on corporate preference items, see
section 291 of the Internal Revenue Code.

Dividends-Received Deduction
A corporation can deduct a percentage of certain dividends received during its tax year. This section discusses
the general rules that apply. The deduction is figured on
Form 1120, Schedule C, or the applicable schedule of
your income tax return. For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return.
Dividends from foreign corporations. Generally, 100%
of the foreign-source portion of dividends (and items treated as dividends) from 10%-owned foreign corporations
may be deducted. The stock with respect to which such
dividends are received must meet a special 365-day holding period and does not include certain “hybrid” dividend
payments. See Form 1120, Schedule C (or the applicable
schedule of your income tax return), for details regarding
this deduction. Also see the Instructions for Form 1120 or
the instructions for your applicable income tax return.

10

4. A corporation whose dividends were received on any
share of preferred stock that are attributable to periods totaling more than 366 days if such stock was
held for less than 91 days during the 181-day period
that began 90 days before the ex-dividend date.
5. Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related property.
Dividends on deposits. Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. They do not
qualify for this deduction.
Limit on deduction for dividends. The total deduction
for dividends received or accrued is generally limited (in
the following order) to:

Publication 542 (1-2024)

1. 65% of the difference between taxable income and
the 100% deduction allowed for dividends received
from affiliated corporations, or by a small business investment company, for dividends received or accrued
from 20%-owned corporations; then
2. 50% of the difference between taxable income (reduced by total dividends received from 20%-owned
corporations) and the 100% deduction allowed for dividends received from affiliated corporations, or by a
small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations).
Figuring the limit. In figuring the limit, determine taxable income without the following items.
1. The net operating loss deduction.
2. The deduction under section 199A for income attributable to domestic production activities of specified agricultural or horticultural cooperatives.
3. The deduction allowed by sections 243(a)(1) and
245(a) of the Internal Revenue Code.
4. The deduction allowed by section 250 of the Internal
Revenue Code.
5. Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends,
later).
6. Any capital loss carryback to the tax year.
Effect of net operating loss. If a corporation has a
net operating loss (NOL) for a tax year, the limit of 65% (or
50%) of taxable income does not apply. To determine
whether a corporation has an NOL, figure the dividends-received deduction without the 65% (or 50%) of
taxable income limit.
Example 1. A corporation loses $75,000 from operations. It receives $100,000 in dividends from a
20%-owned corporation. Its taxable income is $25,000
($100,000 – $75,000) before the deduction for dividends
received. If it claims the full dividends-received deduction
of $65,000 ($100,000 × 65%) and combines it with an operations loss of $75,000, it will have an NOL of ($40,000).
Therefore, the 65% of taxable income limit does not apply.
The corporation can deduct the full $65,000.
Example 2. Assume the same facts as in Example 1,
except that the corporation only loses $30,000 from operations. Its taxable income is $70,000 before the deduction
for dividends received. After claiming the dividends-received deduction of $65,000 ($100,000 × 65%), its taxable income is $5,000. Because the corporation will not
have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 65% of its taxable income, or $45,500 ($70,000 ×
65%).

Extraordinary Dividends
If a corporation receives an extraordinary dividend on
stock held 2 years or less before the dividend announcement date, it must generally reduce its basis in the stock
by the nontaxed part of the dividend. The nontaxed part is
any dividends-received deduction allowable for the dividends.
Extraordinary dividend. An extraordinary dividend is
any dividend on stock that equals or exceeds a certain
percentage of the corporation's adjusted basis in the
stock. The percentages are:
1. 5% for stock preferred as to dividends, or
2. 10% for other stock.
Treat all dividends received that have ex-dividend dates
within an 85-consecutive-day period as one dividend.
Treat all dividends received that have ex-dividend dates
within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock.
Disqualified preferred stock. Any dividend on disqualified preferred stock is treated as an extraordinary dividend
regardless of the period of time the corporation held the
stock.
Disqualified preferred stock is any stock preferred as to
dividends if any of the following apply.
1. The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in
the future.
2. The issue price of the stock exceeds its liquidation
rights or stated redemption price.
3. The stock is otherwise structured to avoid the rules for
extraordinary dividends and to enable corporate
shareholders to reduce tax through a combination of
dividends-received deductions and loss on the disposition of the stock.
More information. For more information on extraordinary
dividends, see section 1059 of the Internal Revenue
Code.

Below-Market Loans
If a corporation receives a below-market loan and uses
the proceeds for its trade or business, it may be able to
deduct the forgone interest as well as any interest the corporation actually paid or accrued.
A below-market loan is a loan on which no interest is
charged or on which interest is charged at a rate below the
applicable federal rate. A below-market loan is generally
treated as an arm's-length transaction in which the borrower is considered as having received both the following.

• A loan in exchange for a note that requires payment of
interest at the applicable federal rate.

• An additional payment in an amount equal to the forgone interest.

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11

The borrower treats the additional payment as a gift, dividend, contribution to capital, payment of compensation, or
other payment, depending on the substance of the transaction.
Foregone interest. For any period, forgone interest is
equal to:
1. The interest that would be payable for that period if interest accrued on the loan at the applicable federal
rate and was payable annually on December 31, minus
2. Any interest actually payable on the loan for the period.
More information. For more information on below-market loans, including information on demand loans, gift
loans, and term loans, see section 7872 of the Internal
Revenue Code, the related regulations, and chapter 1 of
Pub. 550, Investment Income and Expenses.

Charitable Contributions
A corporation can claim a limited deduction for charitable
contributions made in cash or other property. The contribution is deductible if made to, or for the use of, a qualified
organization. For more information on qualified organizations, see Pub. 526, Charitable Contributions. Also, see
Tax-Exempt Organization Search at IRS.gov/Charities, the
online search tool for finding information on organizations
eligible to receive tax-deductible contributions.
Note. You cannot take a deduction if any of the net
earnings of an organization receiving contributions benefit
any private shareholder or individual.
Cash method corporation. A corporation using the
cash method of accounting deducts contributions in the
tax year paid.
Accrual method corporation. A corporation using an
accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors
authorizes them if it pays them by the due date for filing
the corporation’s tax return (not including extensions).
Make the choice by reporting the contribution on the corporation's return for the tax year. Attach a declaration stating that the board of directors adopted the resolution during the tax year. The declaration must include the date the
resolution was adopted.
Limitations on deduction. A corporation cannot deduct
charitable contributions that exceed 10% of its taxable income for the tax year. Figure taxable income for this purpose without the following.
1. The deduction for charitable contributions.
2. The dividends-received deduction.
3. The deduction allowed under section 249 of the Internal Revenue Code for bond premium.

12

4. Any deduction for income attributable to domestic
production activities of specified agricultural or horticultural cooperatives.
5. Any net operating loss carryback to the tax year.
6. Any capital loss carryback to the tax year.
Carryover of excess contributions. You can carry
over, within certain limits, to each of the subsequent 5
years any charitable contributions made during the current
year that exceed the 10% limit. You lose any excess not
used within that period. Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10%
limit). You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover.
Farmers, ranchers, or Native Corporations. Corporations that are farmers, ranchers, or Native Corporations,
see section 170(b)(2) of the Internal Revenue Code for
special rules that may affect the deduction limit.
Cash contributions. A corporation must maintain a record of any contribution of cash, check, or other monetary
contribution, regardless of the amount. The record can be
a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the
contribution. Keep the record of the contribution with the
other corporate records. Do not attach the records to the
corporation's return. For more information on cash contributions, see Pub. 526.
Gifts of $250 or more. Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee
organization. The acknowledgement should show the
amount of cash contributed, a description of the property
contributed (but not its value), and either gives a description and a good faith estimate of the value of any goods or
services provided in return for the contribution or states
that no goods or services were provided in return for the
contribution. The acknowledgement must be obtained by
the due date (including extensions) of the return, or, if earlier, the date the return was filed. Keep the acknowledgement with other corporate records. Do not attach the acknowledgement to the return.
Contributions of property other than cash. If a corporation (other than a closely held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing
the property and the method used to determine its fair
market value must be attached to the corporation's return.
In addition, the corporation should keep a record of:

• The approximate date and manner of acquisition of
the donated property, and

• The cost or other basis of the donated property held

by the donor for less than 12 months prior to contribution.
Publication 542 (1-2024)

Closely held and personal service corporations must
complete and attach Form 8283, Noncash Charitable
Contributions, to their returns if they claim a deduction of
more than $500 for noncash contributions. For all other
corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to
the corporation's return.
A corporation must obtain a qualified appraisal for all
deductions of property claimed in excess of $5,000. A
qualified appraisal is not required for the donation of cash,
publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant
intervening use or material improvement. The appraisal
should be maintained with other corporate records and
only attached to the corporation's return when the deduction claimed exceeds $500,000 ($20,000 for donated art
work).
See Form 8283 for more information.
Qualified conservation contributions. If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the
underlying property before and after the donation, and a
description of the conservation purpose for which the
property will be used. For more information, see section
170(h) of the Internal Revenue Code.
Contributions of used vehicles. A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. The deduction is limited, and
other special rules apply. For more information, see Pub.
526.
Reduction for contributions of certain property.
For a charitable contribution of property, the corporation
must reduce the contribution by the sum of:

• The ordinary income and short-term capital gain that

would have resulted if the property were sold at its fair
market value; and

• For certain contributions, the long-term capital gain

that would have resulted if the property were sold at its
fair market value.

The reduction for the long-term capital gain applies to:

• Contributions of tangible personal property for use by

an exempt organization for a purpose or function unrelated to the basis for its exemption;

• Contributions of any property to or for the use of cer-

tain private foundations except for stock for which market quotations are readily available; and

• Contributions of any patent, certain copyrights, trade-

of the donated inventory or property. This deduction may
be allowed for certain contributions of the following.

• Certain inventory and other property made to a donee
organization and used solely for the care of the ill, the
needy, and infants. Special rules apply to qualified
contributions of “apparently wholesome food” (see
section 170(e)(3)(C) of the Internal Revenue Code).

• Scientific property constructed by the corporation

(other than an S corporation, personal holding company, or personal service corporation) and donated no
later than 2 years after substantial completion of the
construction. The property must be donated to a qualified organization and its original use must be by the
donee for research, experimentation, or research
training within the United States in the area of physical
or biological science.

Contributions to organizations conducting lobbying
activities. Contributions made to an organization that
conducts lobbying activities are not deductible if:

• The lobbying activities relate to matters of direct financial interest to the donor's trade or business, and

• The principal purpose of the contribution was to avoid

federal income tax by obtaining a deduction for activities that would have been nondeductible under the
lobbying expense rules if conducted directly by the donor.

More information. For more information on charitable
contributions, including substantiation and recordkeeping
requirements, see section 170 of the Internal Revenue
Code, the related regulations, and Pub. 526.

Capital Losses
A corporation can deduct capital losses only up to the
amount of its capital gains. In other words, if a corporation
has an excess capital loss, it cannot deduct the loss in the
current tax year. Instead, it carries the loss to other tax
years and deducts it from any net capital gains that occur
in those years.
A capital loss is carried to other years in the following
order.
1. 3 years prior to the loss year.
2. 2 years prior to the loss year.
3. 1 year prior to the loss year.
4. Any loss remaining is carried forward for 5 years.

mark, trade name, trade secret, know-how, software
(that is a section 197 intangible), or similar property, or
applications or registrations of such property.

When you carry a net capital loss to another tax year, treat
it as a short-term loss. It does not retain its original identity
as long term or short term.

Larger deduction. A corporation (other than an S corporation) may be able to claim a deduction equal to the
lesser of (a) the basis of the donated inventory or property
plus half of the inventory’s or property's appreciation (gain
if the donated inventory or property was sold at fair market
value on the date of the donation), or (b) two times basis

Example. A calendar year corporation has a net
short-term capital gain of $3,000 and a net long-term capital loss of $9,000. The short-term gain offsets some of the
long-term loss, leaving a net capital loss of $6,000. The
corporation treats this $6,000 as a short-term loss when
carried back or forward.

Publication 542 (1-2024)

13

The corporation carries the $6,000 short-term loss
back 3 years. In year 1, the corporation had a net
short-term capital gain of $8,000 and a net long-term capital gain of $5,000. It subtracts the $6,000 short-term loss
first from the net short-term gain. This results in a net capital gain for year 1 of $7,000. This consists of a net
short-term capital gain of $2,000 ($8,000 − $6,000) and a
net long-term capital gain of $5,000.
S corporation status. A corporation may not carry a
capital loss from, or to, a year for which it is an S corporation.
Rules for carryover and carryback. When carrying a
capital loss from 1 year to another, the following rules apply.

2. A corporation must make different modifications to its
taxable income in the carryback or carryforward year
when figuring how much of the NOL is used and how
much is carried over to the next year.
3. A corporation uses different forms when claiming an
NOL deduction.
4. A corporation is not subject to section 461, which limits the amount of losses from the trades or businesses
of noncorporate taxpayers.
For more information, including how to figure the NOL
deduction for the current tax year and any carryback or
carryforward, see the Instructions for Form 1139, and the
instructions for the corporation's tax return.

• When figuring the current year's net capital loss, you

At-Risk Limits

• If you carry capital losses from 2 or more years to the

The at-risk rules limit your losses from most activities to
your amount at risk in the activity. The at-risk limits apply
to certain closely held corporations (other than S corporations).

cannot combine it with a capital loss carried from another year. In other words, you can carry capital losses
only to years that would otherwise have a total net
capital gain.

same year, deduct the loss from the earliest year first.

• You cannot use a capital loss carried from another

year to produce or increase a net operating loss in the
year to which you carry it back.

Refunds. When you carry back a capital loss to an earlier
tax year, refigure your tax for that year. If your corrected
tax is less than the tax you originally owed, use either
Form 1139, Corporate Application for Tentative Refund, or
Form 1120X, Amended U.S. Corporation Income Tax Return, to apply for a refund.
Form 1139. A corporation can get a refund faster by
using Form 1139. It cannot file Form 1139 before filing the
return for the corporation's capital loss year, but it must file
Form 1139 no later than 1 year after the year it sustains
the capital loss.
Form 1120X. If the corporation does not file Form
1139, it must file Form 1120X to apply for a refund. The
corporation must file the Form 1120X within 3 years of the
due date, including extensions, for filing the return for the
year in which it sustains the capital loss.

Net Operating Losses
A corporation generally figures and deducts a net operating loss (NOL) the same way an individual, estate, or trust
does. For more information on these general rules, including the sequencing rule for when the corporation carries
two of more NOLs to the same year, see Pub. 536, Net
Operating Losses (NOLs) for Individuals, Estates, and
Trusts.
A corporation's NOL generally differs from individual,
estate, and trust NOLs in the following ways.
1. A corporation can take different deductions when figuring an NOL.

14

The amount at risk generally equals:

• The money and the adjusted basis of property contributed by the taxpayer to the activity, and

• The money borrowed for the activity.
Closely held corporation. For the at-risk rules, a corporation is a closely held corporation if, at any time during
the last half of the tax year, more than 50% in value of its
outstanding stock is owned directly or indirectly by, or for,
five or fewer individuals.
To figure if more than 50% in value of the stock is
owned by five or fewer individuals, apply the following
rules.
1. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust is considered owned
proportionately by its shareholders, partners, or beneficiaries.
2. An individual is considered to own the stock owned,
directly or indirectly, by or for their family. Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal
descendants.
3. If a person holds an option to buy stock, they are considered to be the owner of that stock.
4. When applying (1) or (2) above, stock considered
owned by a person under (1) or (3) above is treated
as actually owned by that person. Stock considered
owned by an individual under (2) is not treated as
owned by the individual for again applying (2) to consider another the owner of that stock.
5. Stock that may be considered owned by an individual
under either (2) or (3) above is considered owned by
the individual under (3).
More information. For more information on the at-risk
limits, see Pub. 925, Passive Activity and At-Risk Rules.
Publication 542 (1-2024)

Passive Activity Limits
The passive activity rules generally limit your losses from
passive activities to your passive activity income. Generally, you are in a passive activity if you have a trade or
business activity in which you do not materially participate
during the tax year, or you have a rental activity.
The passive activity rules apply to personal service corporations and closely held corporations other than S corporations.
Corporations subject to the passive activity limitations
must complete Form 8810. For more information on the
passive activity limits, see the Instructions for Form 8810
and Pub. 925.

Figuring Tax
After you figure a corporation's taxable income, you figure
its tax. This section discusses the tax rates, credits, and
recapture taxes.

Tax Rates
Corporations, including qualified personal service corporations, figure their tax by multiplying taxable income by
21% (0.21). If the corporation is a member of a controlled
group, the corporation must also complete Schedule O
(Form 1120), Consent Plan and Apportionment Schedule
for a Controlled Group, to report the apportionment of certain tax benefits between the members of the group. See
Schedule O (Form 1120) and the Instructions for Schedule O (Form 1120) for more information.

Base Erosion Minimum Tax
If a corporation has gross receipts of at least $500 million
in any 1 of the 3 tax years preceding the current tax year, a
tax equal to the base erosion minimum tax amount for the
tax year may be imposed. This tax is reported using Form
8991. See the Instructions for Form 8991 for additional information.

Corporate Alternative Minimum Tax
(CAMT)
For tax years beginning after 2022, section 55 of the Internal Revenue Code imposes a new corporate alternative
minimum tax (CAMT) based on the adjusted financial
statement income of an applicable corporation. Unless a
filing exclusion applies, a corporation must use Form
4626, Alternative Minimum Tax—Corporations, to determine whether it is an applicable corporation, and if classified as an applicable corporation, to calculate CAMT. See
Form 4626 and the Instructions for Form 4626. Also, see
the Instructions for Form 1120 or the instructions for the
applicable corporation's tax return.
Note. For tax year 2023 for purposes of figuring any
penalty for underpayment of tax, applicable corporations
Publication 542 (1-2024)

may exclude the CAMT tax liability when calculating the
required annual tax payment on Form 2220. See the instructions for the 2023 Form 2220.

Credits
A corporation's tax liability is reduced by allowable credits.
The following list includes some of the credits available to
corporations.

• Foreign tax credit (see Form 1118).
• Any qualified electric vehicle passive activity credit

from prior years allowed for the current year from Form
8834. See Form 8810, Corporate Passive Activity
Loss and Credit Limitations, to see if a credit is allowed for the current year for personal service corporations and closely held corporations.

• General business credit (see Form 3800 and the Instructions for Form 3800).

• Credit for prior year minimum tax, if applicable (see
Form 8827).

• Bond credits (see Form 8912).
• Refundable credits. See the instructions for the corporation's income tax return for a list of refundable credits that may be allowed for the current tax year.

Recapture Taxes
A corporation's tax liability is increased if it recaptures
credits it has taken in prior years. The following list includes some credits a corporation may need to recapture.

• Investment credit (see the Instructions for Form 4255).
• Low-income housing credit (see the Instructions for
Form 8611).

• New markets credit (see the Instructions for Form
8874).

• Employer-provided childcare facilities and services
credit (see the Instructions for Form 8882).

• Indian employment credit (see the Instructions for

Form 8845).
See the Instructions for Form 3800 for additional credits
that may be subject to recapture. Also see the instructions
for the corporation's tax return.

Accumulated Earnings Tax
A corporation can accumulate its earnings for a possible
expansion or other bona fide business reasons. However,
if a corporation allows earnings to accumulate beyond the
reasonable needs of the business, it may be subject to an
accumulated earnings tax of 20%. If the accumulated
earnings tax applies, interest applies to the tax from the
date the corporate return was originally due, without extensions.
To determine if the corporation is subject to this tax, first
treat an accumulation of $250,000 or less generally as
15

within the reasonable needs of most businesses. Treat an
accumulation of $150,000 or less as within the reasonable
needs of a business whose principal function is performing services in the fields of accounting, actuarial science,
architecture, consulting, engineering, health (including
veterinary services), law, and the performing arts.
In determining if the corporation has accumulated earnings and profits beyond its reasonable needs, value the
listed and readily marketable securities owned by the corporation and purchased with its earnings and profits at net
liquidation value, not at cost.
Reasonable needs of the business include the following.

• Specific, definite, and feasible plans for use of the
earnings accumulation in the business.

• The amount necessary to redeem the corporation's

stock included in a deceased shareholder's gross estate, if the amount does not exceed the reasonably anticipated total estate and inheritance taxes and funeral
and administration expenses incurred by the shareholder's estate.

The absence of a bona fide business reason for a corporation's accumulated earnings may be indicated by
many different circumstances, such as a lack of regular
distributions to its shareholders or withdrawals by the
shareholders classified as personal loans. However, actual moves to expand the business generally qualify as a
bona fide use of the accumulations.
The fact that a corporation has an unreasonable accumulation of earnings is sufficient to establish liability for
the accumulated earnings tax unless the corporation can
show the earnings were not accumulated to allow its individual shareholders to avoid income tax.

Distributions to Shareholders
This section discusses corporate distributions of money,
stock, or other property to a shareholder with respect to
the shareholder's ownership of stock. However, this section does not discuss the special rules that apply to the
following distributions. See the applicable sections of the
Internal Revenue Code.

• Distributions in redemption of stock (section 302).
• Distributions in complete liquidation of the corporation
(sections 331 through 346).

• Distributions in corporate organizations (section 351).
Also, see Property Exchanged for Stock, earlier.

• Distributions in corporate reorganizations (sections
354 through 368).

• Certain distributions to 20% corporate shareholders
(section 301(e)).

16

Money or Property Distributions
Most distributions are in money, but they may also be in
stock or other property. For this purpose, “property” generally does not include stock in the corporation or rights to
acquire this stock. However, see Distributions of Stock or
Stock Rights, later.
A corporation generally does not recognize a gain or
loss on the distributions covered by the rules in this section. However, see Gain from property distributions, later.
Amount distributed. The amount of a distribution is generally the amount of any money paid to the shareholder
plus the fair market value (FMV) of any property transferred to the shareholder. However, this amount is reduced
(but not below zero) by the following liabilities.

• Any liability of the corporation the shareholder assumes in connection with the distribution.

• Any liability to which the property is subject immediately before, and immediately after, the distribution.

The FMV of any property distributed to a shareholder becomes the shareholder's basis in that property.
Gain from property distributions. A corporation will
recognize a gain on the distribution of property to a shareholder if the FMV of the property is more than its adjusted
basis. This is generally the same treatment the corporation would receive if the property were sold. However, for
this purpose, the FMV of the property is the greater of the
following amounts.

• The actual FMV.
• The amount of any liabilities the shareholder assumed
in connection with the distribution of the property.

If the property was depreciable or amortizable, the corporation may have to treat all or part of the gain as ordinary income from depreciation recapture. For more information on depreciation recapture and the sale of business
property, see Pub. 544.

Distributions of Stock or Stock Rights
Distributions by a corporation of its own stock are commonly known as “stock dividends.” Stock rights (also
known as “stock options”) are distributions by a corporation of rights to acquire its stock. Distributions of stock dividends and stock rights are generally tax free to shareholders. However, if any of the following apply to their
distribution, stock and stock rights are treated as property,
as discussed under Money or Property Distributions, earlier.
1. Any shareholder has the choice to receive cash or
other property instead of stock or stock rights.
2. The distribution gives cash or other property to some
shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits
to other shareholders.

Publication 542 (1-2024)

3. The distribution is in convertible preferred stock and
has the same result as in (2).
4. The distribution gives preferred stock to some common stock shareholders and gives common stock to
other common stock shareholders.

Unreasonable rents. If a corporation rents property from
a shareholder and the rent is unreasonably more than the
shareholder would charge to a stranger for use of the
same property, the excessive part of the rent may be treated as a distribution to the shareholder.

5. The distribution is on preferred stock. (An increase in
the conversion ratio of convertible preferred stock
made solely to take into account a stock dividend,
stock split, or similar event that would otherwise result
in reducing the conversion right is not a distribution on
preferred stock.)

Unreasonable salaries. If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed
by the shareholder-employee, the excessive part of the
salary may be treated as a distribution to the shareholder-employee.

The term “stock” includes rights to acquire stock and the
term “shareholder” includes a holder of rights or convertible securities.

Reporting Dividends and Other
Distributions

Constructive stock distributions. You must treat certain transactions that increase a shareholder's proportionate interest in the earnings and profits or assets of a corporation as if they were distributions of stock or stock
rights. These constructive distributions are treated as
property if they have the same result as a distribution described in (2), (3), (4), or (5) above. Constructive distributions are described later.
This treatment applies to a change in your stock's conversion ratio or redemption price, a difference between
your stock's redemption price and issue price, a redemption that is not treated as a sale or exchange of your stock,
and any other transaction having a similar effect on a
shareholder's interest in the corporation.

A corporate distribution to a shareholder is generally treated as a distribution of earnings and profits. Any part of a
distribution from either current or accumulated earnings
and profits is reported to the shareholder as a dividend.
Any part of a distribution that is not from earnings and
profits is applied against and reduces the adjusted basis
of the stock in the hands of the shareholder. To the extent
the balance is more than the adjusted basis of the stock,
the shareholder has a gain (usually a capital gain) from
the sale or exchange of property.
For information on shareholder reporting of corporate
distributions, see Pub. 550.

Expenses of issuing a stock dividend. You cannot deduct the expenses of issuing a stock dividend. These expenses include printing, postage, cost of advice sheets,
fees paid to transfer agents, and fees for listing on stock
exchanges. The corporation must capitalize these costs.

Constructive Distributions
The following sections discuss transactions that may be
treated as distributions.
Below-market loans. If a corporation gives a shareholder a loan on which no interest is charged or on which
interest is charged at a rate below the applicable federal
rate, the interest not charged may be treated as a distribution to the shareholder. For more information, see Below-Market Loans, earlier.
Corporation cancels shareholder's debt. If a corporation cancels a shareholder's debt without repayment by
the shareholder, the amount canceled is treated as a distribution to the shareholder.
Transfers of property to shareholders for less than
FMV. A sale or exchange of property by a corporation to a
shareholder may be treated as a distribution to the shareholder. For a shareholder who is not a corporation, if the
FMV of the property on the date of the sale or exchange
exceeds the price paid by the shareholder, the excess is
treated as a distribution to the shareholder.
Publication 542 (1-2024)

Form 1099-DIV. File Form 1099-DIV, Dividends and Distributions, with the IRS for each shareholder to whom the
corporation has paid dividends and other distributions on
stock of $10 or more during a calendar year. A corporation
must generally send Forms 1099-DIV to the IRS with Form
1096, Annual Summary and Transmittal of U.S. Information Returns, by February 28 (March 31 if filing electronically) of the year following the year of the distribution. For
more information, see the General Instructions for Certain
Information Returns (Forms 1096, 1097, 1098, 1099,
3921, 3922, 5498, and W-2G).
Generally, the corporation must furnish Forms
1099-DIV to shareholders by January 31 of the year following the close of the calendar year during which it made
the distributions. However, the corporation may furnish the
Form 1099-DIV to shareholders after November 30 of the
year of the distributions if it has made its final distributions
for the year. The corporation may furnish the Form
1099-DIV to shareholders anytime after April 30 of the
year of the distributions if it gives the Form 1099-DIV with
the final distributions for the calendar year.
If any regular due date falls on a Saturday, Sunday, or
legal holiday, file by the next business day. A business day
is any day that is not a Saturday, Sunday, or legal holiday.
Backup withholding. Dividends may be subject to
backup withholding. For more information on backup withholding, see the General Instructions for Certain Information Returns.
Form 5452. File Form 5452, Corporate Report of Nondividend Distributions, if nondividend distributions were
made to shareholders.
17

A calendar tax year corporation must file Form 5452
with its income tax return for the tax year in which the nondividend distributions were made. A fiscal tax year corporation must file Form 5452 with its income tax return due
for the first fiscal year ending after the calendar year in
which the nondividend distributions were made.
Current year earnings and profits. If a corporation's
earnings and profits for the year (figured as of the close of
the year without reduction for any distributions made during the year) are more than the total amount of distributions made during the year, all distributions made during
the year are treated as distributions of current year earnings and profits. If the total amount of distributions is more
than the earnings and profits for the year, see Accumulated earnings and profits, later.
Example. You are the only shareholder of a corporation that uses the calendar year as its tax year. In January,
you use the worksheet in the Form 5452 instructions to figure your corporation's current year earnings and profits for
the previous year. During the year, the corporation made
four $1,000 distributions to you. At the end of the year (before subtracting distributions made during the year), the
corporation had $10,000 of current year earnings and
profits.
Since the corporation's current year earnings and profits ($10,000) were more than the amount of the distributions it made during the year ($4,000), all of the distributions are treated as distributions of current year earnings
and profits.
The corporation must issue a Form 1099-DIV to you to
report the $4,000 distributed to you during the previous
year as dividends. The corporation must use Form 1096 to
report this information to the IRS. The corporation does
not deduct these dividends on its income tax return.

year earnings and profits figured in (2) as a distribution of accumulated earnings and profits.
4. If accumulated earnings and profits are reduced to
zero, the remaining part of each distribution is applied
against and reduces the adjusted basis of the stock in
the hands of the shareholders. To the extent that the
balance is more than the adjusted basis of the stock,
it is treated as a gain from the sale or exchange of
property.
Example. You are the only shareholder of a corporation that uses the calendar year as its tax year. In January,
you use the worksheet in the Form 5452 instructions to figure your corporation's current year earnings and profits for
the previous year. At the beginning of the year, the corporation's accumulated earnings and profits balance was
$20,000. During the year, the corporation made four
$4,000 distributions to you ($4,000 × 4 = $16,000). At the
end of the year (before subtracting distributions made during the year), the corporation had $10,000 of current year
earnings and profits.
Since the corporation's current year earnings and profits ($10,000) were less than the distributions it made during the year ($16,000), part of each distribution is treated
as a distribution of accumulated earnings and profits.
Treat the distributions as follows.
1. Divide the current year earnings and profits ($10,000)
by the total amount of distributions made during the
year ($16,000). The result is 0.625.
2. Multiply each $4,000 distribution by the 0.625 figured
in (1) to get the amount ($2,500) of each distribution
treated as a distribution of current year earnings and
profits.
3. The remaining $1,500 of each distribution is treated
as a distribution from accumulated earnings and profits. The corporation distributed $6,000 ($1,500 × 4) of
accumulated earnings and profits.

Accumulated earnings and profits. If a corporation's
current year earnings and profits (figured as of the close of
the year without reduction for any distributions made during the year) are less than the total distributions made during the year, part or all of each distribution is treated as a
distribution of accumulated earnings and profits. Accumulated earnings and profits are earnings and profits the corporation accumulated before the current year.
If the total amount of distributions is less than current
year earnings and profits, see Current year earnings and
profits above.

The remaining $14,000 ($20,000 − $6,000) of accumulated earnings and profits is available for use in the following
year.
The corporation must issue a Form 1099-DIV to you to
report the $16,000 distributed to you during the previous
year as dividends. The corporation must use Form 1096 to
report this information to the IRS. The corporation does
not deduct these dividends on its income tax return.

Used with current year earnings and profits. If the
corporation has current year earnings and profits, figure
the use of accumulated and current earnings and profits
as follows.

Used without current year earnings and profits. If
the corporation has no current year earnings and profits,
figure the use of accumulated earnings and profits as follows.

1. Divide the current year earnings and profits by the total distributions made during the year.

1. If the current year earnings and profits balance is negative, prorate the negative balance to the date of each
distribution made during the year.

2. Multiply each distribution by the percentage figured in
(1) to get the amount treated as a distribution of current year earnings and profits.
3. Start with the first distribution and treat the part of
each distribution greater than the allocated current
18

2. Figure the available accumulated earnings and profits
balance on the date of each distribution by subtracting the prorated amount of current year earnings and
profits from the accumulated balance.

Publication 542 (1-2024)

3. Treat each distribution as a distribution of these adjusted accumulated earnings and profits.
4. If adjusted accumulated earnings and profits are reduced to zero, the remaining distributions are applied
against and reduce the adjusted basis of the stock in
the hands of the shareholders. To the extent that the
balance is more than the adjusted basis of the stock,
it is treated as a gain from the sale or exchange of
property.
Example. You are the only shareholder of a corporation that uses the calendar year as its tax year. In January,
you use the worksheet in the Form 5452 instructions to figure your corporation's current year earnings and profits for
the previous year. At the beginning of the year, the corporation's accumulated earnings and profits balance was
$20,000. During the year, the corporation made four
$4,000 distributions to you on March 31, June 30, September 30, and December 31. At the end of the year (before subtracting distributions made during the year), the
corporation had a negative $10,000 current year earnings
and profits balance.
Since the corporation had no current year earnings and
profits, all of the distributions are treated as distributions of
accumulated earnings and profits. Treat the distributions
as follows.

The corporation must issue a Form 1099-DIV to you to
report $12,000 of the $16,000 distributed to you during the
previous year as dividends. The corporation must use
Form 1096 to report this information to the IRS. The corporation does not deduct these dividends on its income
tax return. However, the corporation must attach Form
5452 to this return to report the nondividend distribution.
For more information about figuring earnings and

TIP profits, see the Worksheet for Figuring Current

Year Earnings and Profits in the Form 5452 instructions.

How To Get Tax Help
If you have questions about a tax issue; need help preparing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Using online tools to help prepare your return. Go to
IRS.gov/Tools for the following.

• The Online EIN Application (IRS.gov/EIN) helps you
get an employer identification number (EIN) at no
cost.

1. Prorate the negative current year earnings and profits
balance to the date of each distribution made during
the year. The negative $10,000 can be spread evenly
by prorating a negative $2,500 to each distribution.

• The Tax Calendar (TAX.gov/calendar) helps you track

2. The following table shows how to figure the available
accumulated earnings and profits balance on the date
of each distribution.

(IRS.gov/fatca-ffilist) makes it easier to find out if a
Foreign Financial Institution has registered with
FATCA.

$20,000
($2,500)
$17,500
($4,000)

June 30 Distribution
Accumulated earnings and profits . . . . . . . . . . . . . .
Prorated current year earnings and profits . . . . . . . . .
Accumulated earnings and profits available . . . . . . . .
Amount of distribution treated as a dividend . . . . . . .

Publication 542 (1-2024)

Getting answers to your tax questions. On
IRS.gov, you can get up-to-date information on
current events and changes in tax law.

• IRS.gov/Help: A variety of tools to help you get an-

$7,000
($2,500)
$4,500
($4,000)

• IRS.gov/Forms: Find forms, instructions, and publica-

swers to some of the most common tax questions.

• IRS.gov/ITA: The Interactive Tax Assistant, a tool that
will ask you questions and, based on your input, provide answers on a number of tax law topics.

tions. You will find details on the most recent tax
changes and hundreds of interactive links to help you
find answers to your questions.

• You may also be able to access tax information in your

December 31 Distribution
Accumulated earnings and profits . . . . . . . . . . . . . .
Prorated current year earnings and profits . . . . . . . . .
Accumulated earnings and profits available . . . . . . . .
Amount of distribution treated as a dividend . . . . . . .
Nondividend amount (reduction of stock basis or gain
from sale/exchange of property) . . . . . . . . . . . . . . .
Year-end accumulated earnings and profits . . . . . . . .

EFTPS) is a free tax payment system that allows you
to pay your federal taxes online or by phone with
EFTPS.

$13,500
($2,500)
$11,000
($4,000)

September 30 Distribution
Accumulated earnings and profits . . . . . . . . . . . . . .
Prorated current year earnings and profits . . . . . . . . .
Accumulated earnings and profits available . . . . . . . .
Amount of distribution treated as a dividend . . . . . . .

• The FATCA FFI List Search and Download Tool

• The Electronic Federal Tax Payment System (IRS.gov/

March 31 Distribution
Accumulated earnings and profits . . . . . . . . . . . . . .
Prorated current year earnings and profits . . . . . . . . .
Accumulated earnings and profits available . . . . . . . .
Amount of distribution treated as a dividend . . . . . . .

important business tax dates and deadlines right from
your desktop.

$500
($2,500)
($2,000)
$0
$4,000
($2,000)

e-filing software.

Need someone to prepare your tax return? There are
various types of tax return preparers, including tax preparers, enrolled agents, certified public accountants (CPAs),
attorneys, and many others who don’t have professional
credentials. If you choose to have someone prepare your
19

tax return, choose that preparer wisely. A paid tax preparer is:

• Primarily responsible for the overall substantive accuracy of your return,

• Required to sign the return, and
• Required to include their preparer tax identification
number (PTIN).

Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
CAUTION information required for the preparer to accurately
prepare your return. Anyone paid to prepare tax returns for
others should have a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov.

!

Employers can register to use Business Services Online. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure
online W-2 filing options to CPAs, accountants, enrolled
agents, and individuals who process Form W-2, Wage
and Tax Statement, and Form W-2c, Corrected Wage and
Tax Statement.
IRS social media. Go to IRS.gov/SocialMedia to see the
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our
highest priority. We use these tools to share public information with you. Don’t post your taxpayer identification
number (TIN) or other confidential information on social
media sites. Always protect your identity when using any
social networking site.
The following IRS YouTube channels provide short, informative videos on various tax-related topics in English,
Spanish, and ASL.

• Youtube.com/irsvideos.
• Youtube.com/irsvideosmultilingua.
• Youtube.com/irsvideosASL.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.

future accessibility products and services available in alternative media formats (for example, braille, large print,
audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.
Note. Form 9000, Alternative Media Preference, or
Form 9000(SP) allows you to elect to receive certain types
of written correspondence in the following formats.

• Standard Print.
• Large Print.
• Braille.
• Audio (MP3).
• Plain Text File (TXT).
• Braille Ready File (BRF).
Disasters. Go to IRS.gov/DisasterRelief to review the
available disaster tax relief.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms, instructions, and publications you may need. Or, you can go to
IRS.gov/OrderForms to place an order.
Getting tax publications and instructions in eBook
format. You can also download and view popular tax
publications and instructions on mobile devices as
eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for
iPad. Our eBooks haven’t been tested on other dedicated
eBook readers, and eBook functionality may not operate
as intended.
Reporting and resolving your tax-related identity
theft issues.

• Tax-related identity theft happens when someone

steals your personal information to commit tax fraud.
Your taxes can be affected if your TIN is used to file a
fraudulent return or to claim a refund or credit.

• The IRS doesn’t initiate contact with taxpayers by

email, text messages, telephone calls, or social media
channels to request personal or financial information.
This includes requests for personal identification numbers (PINs), passwords, or similar information for
credit cards, banks, or other financial accounts.

Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
your native language.

• Go to IRS.gov/IdentityTheft, the IRS Identity Theft

Free Over-the-Phone Interpreter (OPI) Service. The
IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE return site. OPI Service is accessible in
more than 350 languages.

Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not

Central webpage, for information on identity theft and
data security protection for taxpayers, tax professionals, and businesses. If your TIN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and
20

Publication 542 (1-2024)

accepted. Go to IRS.gov/Payments for information on how
to make a payment using any of the following options.

• IRS Direct Pay: Pay your tax bill or estimated tax pay-

ment directly from your checking or savings account at
no cost to you.

• Debit or Credit Card, or Digital Wallet: Choose an ap-

proved payment processor to pay online or by phone.

• Electronic Funds Withdrawal: Schedule a payment

when filing your federal taxes using tax return preparation software or through a tax professional.

• Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required.

• Check or Money Order: Mail your payment to the address listed on the notice or instructions.

• Cash: You may be able to pay your taxes with cash at
a participating retail store.

• Same-Day Wire: You may be able to do same-day

wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.

• Apply for an online payment agreement (IRS.gov/

OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive immediate notification of whether your agreement has
been approved.

• Use the Offer in Compromise Pre-Qualifier to see if

you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC.

Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.
Contacting your local IRS office. Keep in mind, many
questions can be answered on IRS.gov without visiting an
IRS TAC. Go to IRS.gov/LetUsHelp for the topics people
ask about most. If you still need help, IRS TACs provide
tax help when a tax issue can’t be handled online or by
phone. All TACs now provide service by appointment, so
you’ll know in advance that you can get the service you
need without long wait times. Before you visit, go to
IRS.gov/TACLocator to find the nearest TAC and to check
hours, available services, and appointment options. Or, on
the IRS2Go app, under the Stay Connected tab, choose
the Contact Us option and click on “Local Offices.”

Publication 542 (1-2024)

The Taxpayer Advocate Service (TAS)
Is Here To Help You
What Is TAS?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. Their job is
to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
of Rights.

How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
these rights mean to you and how they apply. These are
your rights. Know them. Use them.

What Can TAS Do for You?
TAS can help you resolve problems that you can’t resolve
with the IRS. And their service is free. If you qualify for
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
you if:

• Your problem is causing financial difficulty for you,
your family, or your business;

• You face (or your business is facing) an immediate
threat of adverse action; or

• You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.

How Can You Reach TAS?
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your advocate's number:

• Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
• Download Pub. 1546, The Taxpayer Advocate Service
Is Your Voice at the IRS, available at IRS.gov/pub/irspdf/p1546.pdf;

• Call the IRS toll free at 800-TAX-FORM

(800-829-3676) to order a copy of Pub. 1546;

• Check your local directory; or
• Call TAS toll free at 877-777-4778.
How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
report it to them at IRS.gov/SAMS.

21

Low Income Taxpayer Clinics (LITCs)
LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need to
resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, LITCs can
provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or

22

a small fee for eligible taxpayers. To find an LITC near you,
go to TaxpayerAdvocate.IRS.gov/about-us/Low-IncomeTaxpayer-Clinics-LITC or see IRS Pub. 4134, Low Income
Taxpayer Clinic List.

Publication 542 (1-2024)

Other Useful Forms for Corporations
Other Useful Forms
Form

Use this form to—

W-2 and W-3—Wage and Tax Statement; and
Transmittal of Wage and Tax Statements

Report wages, tips, and other compensation, and withheld income, social
security, and Medicare taxes for employees.

W-2G—Certain Gambling Winnings

Report gambling winnings from horse racing, dog racing, jai alai, lotteries,
keno, bingo, slot machines, sweepstakes, wagering pools, etc.

926—Return by a U.S. Transferor of Property to a
Foreign Corporation

Report certain transfers to foreign corporations under section 6038B.

940—Employer's Annual Federal Unemployment
(FUTA) Tax Return

Report and pay FUTA tax if the corporation either:
1. Paid wages of $1,500 or more in any calendar quarter during the
calendar year (or the preceding calendar year), or
2. Had one or more employees working for the corporation for at least
some part of a day in any 20 different weeks during the calendar year (or
the preceding calendar year).

941—Employer's QUARTERLY Federal Tax Return

Report quarterly income tax withheld on wages and employer and employee
social security and Medicare taxes.

943—Employer's Annual Federal Tax Return for
Agricultural Employees

Report income tax withheld and employer and employee social security and
Medicare tax on farmworkers.

944—Employer's ANNUAL Federal Tax Return

File annual Form 944 instead of filing quarterly Forms 941, if the IRS notified
you in writing.

945—Annual Return of Withheld Federal Income Tax Report income tax withheld from nonpayroll payments, including pensions,
annuities, individual retirement arrangements (IRAs), gambling winnings, and
backup withholding.
952—Consent To Extend the Time To Assess Tax
Under Section 332(b)

Extend the period of assessment of all income taxes of the receiving
corporation on the complete liquidation of a subsidiary under section 332.

965-B—Corporate and Real Estate Investment Trust This form must be completed by a taxpayer for every tax year for which the
(REIT) Report of Net 965 Tax Liability and Electing
taxpayer has any net 965 tax liability outstanding and not fully paid at any
REIT Report of 965 Amounts
point during the tax year. See the Instructions for Form 965-B.
966—Corporate Dissolution or Liquidation

Report the adoption of a resolution or plan to dissolve the corporation or
liquidate any of its stock.

1042 and 1042-S—Annual Withholding Tax Return
for U.S. Source Income of Foreign Persons; and
Foreign Person's U.S. Source Income Subject to
Withholding

Report withheld tax on payments or distributions made to nonresident alien
individuals, foreign partnerships, or foreign corporations to the extent these
payments or distributions constitute gross income from sources within the
United States that is not effectively connected with a U.S. trade or business.
In addition, a publicly traded partnership is required to withhold on
distributions of effectively connected income to its foreign partners. See Pub.
515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

1042-T—Annual Summary and Transmittal of Forms Transmit paper Forms 1042-S to the IRS.
1042-S
1096—Annual Summary and Transmittal of U.S.
Information Returns

Publication 542 (1-2024)

Transmit paper Forms 1098, 1099, 5498, and W-2G to the IRS.

23

Other Useful Forms
Form

Use this form to—

1097-BTC, 1098, 1098-C, 1098-E, 1098-F, 1098-T, Report the following:
1099-A, B, C, CAP, G, H, DIV, INT, K, LTC, MISC,
• Tax credits to bond holders;
NEC, OID, PATR, Q, R, S, SA, 3921, and 3922.
• Mortgage interest;
• Contributions of certain motor vehicles, boats, and airplanes;
• Student loan interest;
Important: Every corporation must file Forms
• Fines, penalties, and other amounts;
1099-MISC (or 1099-NEC for nonemployee
• Certain tuition payments;
compensation) if, in the course of its trade or
• Acquisitions or abandonments of secured property;
business, it makes payments of rents, services,
• Proceeds from broker and barter exchange transactions;
commissions, or other fixed or determinable income
• Cancellation of debts;
(see section 6041) totaling $600 or more to any one
• Changes in corporate control and capital structure;
person during the calendar year.
• Certain government payments;
• Advance payments of health coverage insurance premiums;
Also use these returns to report amounts received
• Dividends and distributions;
as a nominee for another person. For more details,
• Interest payments;
see the General Instructions for Certain Information
• Merchant card and third-party network payments;
Returns (1097, 1098, 1099, 3921, 3922, 5498, and
• Payments of long-term care and accelerated death benefits;
W-2G).
• Miscellaneous income payments to certain fishing boat crew members,
to providers of health and medical services, of rent or royalties, of
nonemployee compensation, etc.;
• Original issue discount;
• Distributions received from cooperatives;
• Distributions from certain qualified education programs;
• Distributions from pensions, annuities, retirement or profit-sharing plans,
IRAs, insurance contracts, etc.;
• Proceeds from real estate transactions;
• Distributions from an HSA, Archer MSA, or Medicare Advantage MSA;
• Exercise of incentive stock options; and
• Transfer of stock acquired through employee stock purchase plans.
1122—Authorization and Consent of Subsidiary
Corporation To Be Included in a Consolidated
Income Tax Return

Include a subsidiary in a consolidated return. Attach this form to the parent's
consolidated return. Attach a separate Form 1122 for each subsidiary being
included in the consolidated return.

1138—Extension of Time for Payment of Taxes by a
Corporation Expecting a Net Loss Carryback

Request an extension of time for payment of tax for the immediately
preceding tax year if the corporation expects a net operating loss for the
current year.

3520—Annual Return To Report Transactions With
Foreign Trusts and Receipt of Certain Foreign Gifts

Report ownership of and certain transactions with foreign trusts, including
receipt of certain large gifts. See Schedule N (Form 1120), Question 5.

3520-A—Annual Information Return of Foreign Trust Report information about the foreign trust, its U.S. beneficiaries, and any U.S.
With a U.S. Owner
person who is treated as an owner of any portion of the foreign trust.
5471—Information Return of U.S. Persons With
Respect to Certain Foreign Corporations

Satisfy the reporting requirements of sections 6038 and 6046, and the related
regulations, as well as report amounts related to section 965. Form 5471 and
the related schedules are used by certain U.S. persons who are officers,
directors, or shareholders in certain foreign corporations. See the Instructions
for Form 5471.

5498—IRA Contribution Information

Report contributions (including rollover contributions) to any IRA, including a
SEP, SIMPLE, or Roth IRA, and to report Roth IRA conversions, IRA
recharacterizations, and the fair market value (FMV) of the account.

5498-ESA—Coverdell ESA Contribution Information Report contributions (including rollover contributions) to a Coverdell
education savings account (ESA).
5498-SA—HSA, Archer MSA, or Medicare
Advantage MSA Information

Report contributions and rollovers to an HSA or Archer MSA and the FMV of
an HSA, Archer MSA, or Medicare Advantage MSA. For more information,
see the general and specific instructions for Forms 1098, 1099, 5498, and
W-2G.

5713—International Boycott Report

Report operations in, or related to, a “boycotting” country, government,
company, or national of a country and to figure the loss of certain tax benefits.

24

Publication 542 (1-2024)

Other Useful Forms
Form

Use this form to—

8023—Elections Under Section 338 for
Corporations Making Qualified Stock Purchases

Make elections under section 338 for a “target” corporation if the purchasing
corporation has made a qualified stock purchase of the target corporation.

8027—Employer's Annual Information Return of Tip
Income and Allocated Tips

Report receipts from large food or beverage operations, tips reported by
employees, and allocated tips.

8275—Disclosure Statement

Disclose items or positions, except those contrary to a regulation, that are not
otherwise adequately disclosed on a tax return. The disclosure is made to
avoid the parts of the accuracy-related penalty imposed for disregard of rules
or substantial understatement of tax. Also use Form 8275 for disclosures
relating to preparer penalties for understatements due to unrealistic positions
or disregard of rules.

8275-R—Regulation Disclosure Statement

Disclose any item on a tax return for which a position has been taken that is
contrary to Treasury regulations.

8281—Information Return for Publicly Offered
Original Issue Discount Instruments

Report the issuance of public offerings of debt instruments (obligations).

8300—Report of Cash Payments Over $10,000
Received in a Trade or Business

Report the receipt, in the course of a trade or business, of more than $10,000
in cash or foreign currency in one transaction or a series of related
transactions.

8594—Asset Acquisition Statement Under Section
1060

Report a sale of assets that make up a trade or business if goodwill or going
concern value attaches, or could attach, to such assets and if the buyer's
basis is determined only by the amount paid for the assets. Both the seller
and buyer must use this form.

8806—Information Return for Acquisition of Control
or Substantial Change in Capital Structure

Report an acquisition of control or a substantial change in the capital
structure of a domestic corporation.

8842—Election To Use Different Annualization
Periods for Corporate Estimated Tax

Elect one of the annualization periods in section 6655(e)(2) for figuring
estimated tax payments under the annualized income installment method.

8849—Claim for Refund of Excise Taxes

Claim a refund of certain excise taxes.

8858—Information Return of U.S. Persons With
Satisfy reporting requirements that apply if the corporation directly or
Respect to Foreign Disregarded Entities (FDEs) and indirectly owns a foreign disregarded entity or a foreign branch. A separate
Foreign Branches (FBs)
Form 8858 is required for each foreign branch or foreign disregarded entity.
See the Instructions for Form 8858.

Publication 542 (1-2024)

25

Other Useful Forms
Form

Use this form to—

8865—Return of U.S. Person With Respect to
Certain Foreign Partnerships

Report an interest in a foreign partnership. A domestic corporation may have
to file Form 8865 if it:
1. Controlled a foreign partnership (owned more than a 50% direct or
indirect interest in the partnership).
2. Owned at least a 10% direct or indirect interest in a foreign partnership
while U.S. persons controlled that partnership.
3. Had an acquisition, disposition, or change in proportional interest of a
foreign partnership that:
a. Increased its direct interest to at least 10% or reduced its direct
interest of at least 10% to less than 10%, or
b. Changed its direct interest by at least a 10% interest.
4. Contributed property to a foreign partnership in exchange for a
partnership interest if:
a. Immediately after the contribution, the corporation directly or
indirectly owned at least a 10% interest in the foreign partnership, or
b. The FMV of the property the corporation contributed to the foreign
partnership in exchange for a partnership interest exceeds $100,000
when added to other contributions of property made to the foreign
partnership during the preceding 12-month period.
The domestic corporation may also have to file Form 8865 to report certain
dispositions by a foreign partnership of property it previously contributed to
that partnership if it was a partner at the time of the disposition. For more
details, including penalties for failing to file Form 8865, see the Instructions
for Form 8865.

8873—Extraterritorial Income Exclusion

Figure the amount of extraterritorial income excluded from gross income for
the tax year (generally repealed for post-2004 income). See the Instructions
for Form 8873.

8876—Excise Tax on Structured Settlement
Factoring Transactions

Report and pay the 40% excise tax imposed under section 5891.

8883—Asset Allocation Statement Under Section
338

Report information about transactions involving the deemed sale of corporate
assets under section 338.

8886—Reportable Transaction Disclosure Statement Disclose information for each reportable transaction in which the corporation
participated. Attach Form 8886 to the corporation's income tax return for each
tax year in which it participated in a reportable transaction. The corporation
may have to pay a penalty if it is required to file Form 8886 and does not do
so. Other penalties may also apply. For more details, see the Instructions for
Form 8886.
8918—Material Advisor Disclosure Statement

Disclose certain information about a reportable transaction to the IRS.
Material advisors who file Form 8918 will receive a reportable transaction
number from the IRS. This number must be provided to all taxpayers and
material advisors for whom the material advisor acts as a material advisor.
Other reporting requirements apply. See the Instructions for Form 8918.

8990—Limitation on Business Interest Expense
Under Section 163(j)

Figure the amount of business interest expense the corporation can deduct
and the amount to carry forward to the next year. See the Instructions for
Form 8990.

8991—Tax on Base Erosion Pay

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Ab86a034ccc065025. Public record. Not legal advice.