Corporation Facts

Corporation Filing Deadline: By the 15th day of the 3rd month following the close of its tax year.

Extension Deadline and Form Number: Form 7004 extends the deadline 6 months. A second extension is not available.

Corporation Penalties:

• Underpayment of estimated tax penalty may apply.
• Late filing penalty is imposed in the amount of 5% of the unpaid balance per month, up to a maximum of 25% (in addition to any late payment penalties plus interest).
• Incorrect deposit penalty may apply for failure to deposit taxes at an authorized federal depository. 

Penalties may be waived for reasonable cause. To request a waiver of penalty, a statement showing reasonable cause must be filed with the Director of the service center where the corporation is required to file its return. The statement must contain a declaration that it was made under the penalties of perjury.

Corporation Tax Rates On Taxable Income: Personal Service Corporations may be subject to a flat 35% tax. Personal Holding Companies may be subject to a 39.6% tax on undistributed PHC income. Members of a controlled group of corporations must use the graduated tax rates as if they were combined into one corporation (see IRC §1551). A C corporation may also be subject to a 39.6% accumulated earnings tax on retained earnings. A C corporation may also be subject to a 20% alternative minimum tax.

1) A business organized under a federal or state law that identifies the entity as a corporation.
2) A joint stock company.
3) An insurance company.
4) Banks, if insured by the FDIC.
5) A business entity wholly owned by a state or any political subdivision thereof.
6) Certain foreign business entities. The rules shown above are effective for entities formed January 1, 1997, or later [Regulation §301.7701-2]. Other business entities, such as publicly traded partnerships, may be treated as corporations under other sections of the Internal Revenue Code.

"Check the Box Rules": Noncorporate entities, such as sole proprietorships and partnerships, may elect to be taxed as corporations. The election is made by filing Form 8832, Entity Classification Election, with the tax return in the first year for which the election is made. Note: Corporations cannot "elect out" of corporate tax treatment by filing Form 8832. If the entity is classified as a corporation under Regulations, the entity must file as a corporation.

A corporation formed under state law will generally shield owners from liability for the corporation’s actions. A corporation stockholder’s risk of loss is generally limited to the amount invested in the corporation stock owned. This is in contrast to sole proprietors or general partners in partnerships who are personally liable for the debts of the business. State laws determine limited liability status for an entity. A sole proprietor or a partnership cannot receive limited liability status simply by electing to be taxed as a corporation under the "check the box rules."

• Fraud.
• Bad faith.
• Failure to observe corporate formalities. 
• Needed to accomplish substantial justice.

A shareholder who owns 100% of the stock of a corporation is particularly susceptible to having the "corporate veil" pierced. Incorporating a business should never be considered a substitute for liability insurance.