Corporation

A separate legal and tax entity that can own property, earn income, owe taxes, and distribute money to shareholders.

C Corporation

A corporation generally subject to federal income tax at the corporate level.

S Corporation

A corporation whose income, deductions, gains, and losses generally pass through to its shareholders instead of being taxed like a regular C corporation.

Pass-through

A tax structure where income, deductions, gains, and losses generally flow through the entity to its owners.

Shareholder

A person or entity that owns stock in a corporation.

Stock

An ownership interest in a corporation.

Common Stock

Basic corporate ownership stock, usually carrying voting and economic rights.

Preferred Stock

Stock that generally has special economic rights, such as priority for dividends or liquidation.

Convertible Preferred Stock

Preferred stock that can be converted into another class of stock, usually common stock.

Debt

Money a corporation borrows and is legally obligated to repay.

Equity

An ownership interest in a corporation.

Debt vs. Equity

The distinction between money treated as a loan to the corporation and money treated as an ownership investment.

Dividend

A corporate distribution to shareholders that is treated as a dividend for tax purposes.

Distribution

Money, property, or stock transferred by a corporation to its shareholders.

Nondividend Distribution

A corporate distribution that is not treated as a dividend; it generally reduces the shareholder's stock basis first.

Earnings and Profits (E&P)

A tax-law measure used mainly to determine whether a corporate distribution is treated as a dividend.

Retained Earnings

Corporate profits kept inside the corporation instead of distributed to shareholders.

Double Taxation

Taxation of corporate income once at the corporate level and again when distributed to shareholders as dividends.

Tax Deferral

Postponing when a tax must be paid.

Tax Incidence

Who ultimately bears the economic burden of a tax.

Corporate-Shareholder Integration

A tax system designed to reduce or eliminate the effects of taxing corporate income at both the corporation and shareholder levels.

Capital Gain

Gain from the sale or exchange of a capital asset.

Capital Loss

Loss from the sale or exchange of a capital asset.

Capital Asset

Property generally held by a taxpayer that receives capital-gain or capital-loss treatment under the tax rules.

Basis

A taxpayer's tax investment in property, generally used to calculate gain, loss, and certain other tax consequences.

Adjusted Basis

Basis after required tax adjustments.

Gain

The amount by which the value received exceeds the taxpayer's adjusted basis.

Loss

The amount by which the taxpayer's adjusted basis exceeds the value received.

Recognized Gain or Loss

Gain or loss that tax law requires the taxpayer to include or deduct currently.

Nonrecognition

A tax rule that allows a transaction to occur without recognizing some or all of the gain or loss at that time.

Boot

Cash or other nonqualifying property received in a transaction that otherwise qualifies for nonrecognition.

Transferor

The person or entity transferring property.

Transferee

The person or entity receiving property.

Holding Period

The length of time a taxpayer has held an asset for tax purposes.

Appreciated Property

Property whose fair market value is greater than its adjusted basis.

Built-in Gain

Gain that exists inside property before a later taxable event because the property's value exceeds its basis.

Built-in Loss

Loss that exists inside property because the property's basis exceeds its value.

Liquidation

The process of winding up a corporation and distributing its remaining assets.

Complete Liquidation

A liquidation in which the corporation completely winds up and distributes its assets.

Redemption

A corporation's acquisition of its own stock from a shareholder.

Attribution

A tax rule that treats stock owned by certain related people or entities as owned by another taxpayer for a specific tax rule.

Family Attribution

Rules that can treat stock owned by certain family members as owned by another family member.

Entity Attribution

Rules that can attribute stock ownership between an entity and its owners.

Option Attribution

Rules that can treat stock subject to an option as owned for certain tax purposes.

Prorata Distribution

A distribution made to shareholders in proportion to their existing ownership interests.

Non-Prorata Distribution

A distribution that is not made in proportion to shareholders' ownership interests.

Deemed Distribution

A transaction treated as a distribution for tax purposes even though it may not look like a normal cash distribution.

Stock Dividend

A corporation distributes its own stock to shareholders instead of cash or other property.

Stock Rights

Rights giving shareholders an opportunity to acquire additional stock.

§306 Stock

Certain preferred stock received through a stock dividend or similar transaction that is subject to special anti-bailout rules.

Preferred Stock Bailout

A transaction using preferred stock to convert what would otherwise be dividend income into potentially more favorable sale proceeds.

Tax Shelter

A transaction or arrangement designed to reduce, avoid, or defer tax.

Economic Substance

Whether a transaction has a meaningful economic effect apart from its tax benefits.

Economic Substance Doctrine

A doctrine that can deny tax benefits to transactions lacking sufficient economic substance or a substantial non-tax purpose.

Business Purpose

A legitimate non-tax reason for entering into a transaction.

Substance Over Form

The principle that tax consequences can depend on the actual economic substance of a transaction rather than merely its legal form.

Step Transaction Doctrine

A doctrine that can treat a series of formally separate transactions as one transaction when they are really parts of a single plan.

Corporate Alter Ego

A situation where a corporation is treated as so closely connected to its owner that the corporation's separate identity may be challenged.

Accumulated Earnings Tax

A tax designed to discourage corporations from accumulating earnings beyond the reasonable needs of the business to avoid shareholder-level tax.

Personal Holding Company Tax

A special tax imposed on certain closely held corporations with primarily passive income and ownership characteristics.

Publicly Traded Partnership

A partnership whose interests are traded on an established securities market or are readily tradable; generally treated as a corporation for federal tax purposes unless an exception applies.

Taxable Year

The annual accounting period used to calculate taxable income.

Accounting Method

The method used to determine when income and deductions are recognized for tax purposes.

Related Taxpayers

Taxpayers with relationships that allow special allocation rules to apply to prevent artificial shifting of income or deductions.

Contributions to Capital

Property or money contributed to a corporation by its shareholders or others without receiving stock or equivalent consideration.

§1244 Stock

Certain qualifying small-business stock that can allow an individual to treat a qualifying loss as an ordinary loss, subject to statutory limits.

Qualified Small Business Stock (QSBS)

Certain qualifying stock of a qualified small business that may receive special gain-exclusion treatment when sold if statutory requirements are met.

Asset Acquisition

A transaction where a buyer purchases a corporation's assets rather than its stock.

Stock Acquisition

A transaction where a buyer purchases the stock of a corporation.

Purchase Price Allocation

Assigning the total purchase price among the assets acquired for tax purposes.

Intangible Asset

Nonphysical property such as patents, copyrights, trademarks, and certain other rights.

Goodwill

The value of a business's reputation, customer relationships, workforce, and other going-concern advantages that is not separately identified as another asset.

Amortization

Deducting the cost of certain property over a specified period rather than all at once.

Reorganization

A qualifying corporate transaction receiving special tax treatment under the reorganization provisions.

Merger

A transaction in which corporations combine, usually with one corporation surviving.

Recapitalization

A restructuring of a corporation's capital structure, such as exchanging one type of stock or security for another.

Continuity of Interest

A reorganization requirement generally involving continued ownership interest by former owners in the reorganized enterprise.

Continuity of Business Enterprise

A reorganization requirement generally requiring the acquiring corporation to continue the target's historic business or use a significant portion of its assets in a business.

Triangular Reorganization

A reorganization involving a parent corporation and a subsidiary corporation, usually structured so the subsidiary acquires or combines with another corporation.

Corporate Division

A transaction in which a corporation separates a business or assets into another corporation, potentially qualifying for special tax treatment.

Spin-Off

A corporate division in which shareholders receive stock in a separated corporation without generally receiving cash.

Device

A transaction or arrangement that appears designed mainly to distribute earnings or achieve an impermissible tax result rather than accomplish a genuine business separation.

Active Business

A real operating business meeting statutory requirements for purposes of certain corporate tax provisions.

Ownership Change

A change in corporate ownership that can trigger limitations on the use of certain tax attributes.

Owner Shift

A change in ownership percentages that can contribute to an ownership change.

Equity Structure Shift

Certain changes in the corporation's equity structure that can contribute to an ownership change.

Tax Attribute

A tax benefit or tax item that can potentially be carried to another tax year, such as an NOL.

Net Operating Loss (NOL)

A tax loss that may be carried to another tax year under applicable rules.

Public Group

A group of shareholders treated together under certain ownership-change rules involving publicly traded corporations.

Worthless Stock

Stock that has become completely worthless, potentially creating a tax loss subject to applicable rules.

QSub (Qualified Subchapter S Subsidiary)

A qualifying domestic subsidiary wholly owned by an S corporation that is generally treated as part of the parent S corporation for federal income tax purposes.

Election

A formal choice made under the tax law to use a particular tax treatment.

Revocation

The act of withdrawing a previously made tax election.

Termination

The ending of a tax status or election, either voluntarily or because statutory requirements are no longer met.

Passthrough Deduction

A deduction available to qualifying owners of certain pass-through businesses under §199A, subject to its rules and limitations.

Excess Net Passive Income

Certain passive investment income of an S corporation that can trigger a corporate-level tax when statutory conditions are met.

Built-in Gains Tax

A corporate-level tax that can apply when an S corporation disposes of certain appreciated assets that it held when it converted from C-corporation status, subject to statutory rules.

LIFO Recapture

A special tax rule that can require recognition of income related to inventory using the LIFO method when a corporation changes tax status or undergoes certain transactions.

Post-Termination Transition Period

A period after S-corporation status ends during which certain special S-corporation rules can continue to apply.

Special Look-Through Treatment

A rule that allows certain tax consequences to be determined by looking through an entity to its underlying owners, assets, or activities.