DEDUCTIONS - General: Deductions = all ordinary and necessary expenses paid or incurred in carrying on any trade or business + Special

Deductions Section 162 o Biz expenses 162 o Losses 165 (biz losses, incl. casualty losses, deductible w/o limitations 165a) o Depreciation 168 o Other deduction rules Biz bad debts- Fully deductible 166 Charitable deduction limitation 10% 170 o Limitations 465 at-risk limitations apply only to closely held C corp 542a2: corps where five or fewer individuals own directly or indirectly more than 50% of the stock during the last half of the taxable yr 469 passive loss limitations apply only to closely held C corp and personal service corp a closely held C corp may deduct passive losses against net active biz income but not against portfolio income (i.e. dividends, interest, capital gains) Corp capital gains taxed at the same rate as ordinary income- capital losses deductible to the extent of capital gains Excess carried back for 3 yrs and forward for 5 yrs 1211, 1212 Corp s/h not eligible for 1202 exclusion for capital gains from certain small biz stock Loss disallowance rule- Deductions and loss limits on transactions between C Corp and more-than-50% owner per 267. 267: cannot book a loss for selling an asset to my own company o Losses from sales or exchanges of property btw a s/h and a morethan-50%-owned corp may not be deducted Ownership for this purpose is determined after application of attribution rules Forced matching rule- 267a2- an accrual method corp may not deduct payments (compensation, interest or rent) made to a cash method owneremployee until the recipient incl. the amount in income o Owner-employee: who owns directly or indirectly 50% or more of the payor corp o Except that, in the case of personal service corp, the forced matching rules apply to payments to any owner-employee, regardless of percentage ownership Select corp deduction provisions o Section 162(m) $1 mill executive comp limit for public C corps o Section 243 Dividend Deduction - 70%, 80%, or 100% Corp s/h may deduct 70% of dividends received from other domestic corps Reducing the effective corp tax rate on dividends from 35% to 10.5% or from 34% to 10.2% May deduct 80% if it owns 20% or more of the stock (by vote and value) of the payor corp

Dividends paid by one corp to another member of its affiliated group qualify for a 100% dividends received deduction Section 199 Domestic Production Deduction - % of lesser of taxable income or qualified production income. Corps, C corp, partnerships, LLC 6% 2007-09, 9% after 09. Key limitation: cap of 50% of w-2 wages. Wages and certain elective deferrals, such as contributions to 401k plans and other types of retirement plans Key definitions related to qualified production income from FSC and DISC regs. Qualified production income = domestic production gross receipts LESS the sum of (cost of goods sold allocable to such receipts + other allocable deductions, expenses, and losses + a ratable portion of the deductions, expenses or losses not directly allocable to such gross receipts) Domestic production gross receipts: gross receipts derived from specified production activities conducted within US o Production: defined broadlyo Incl: leases, rentals, licenses, and dispositions of qualifying production property (tangible personal property, computer software, sound recordings) manufactured, produced, grown or extracted within US, natural resources (electricity, natural gas), construction, engineering or architectural services for US projects o NOT incl: sale of food and beverages prepared by taxpayer at a retail establishment, transmission of or distribution of electricity, natural gas, potable water With repeal of Extraterritorial income (ETI) rules, real winners are manufactures who sell in U.S. Note: 199 basically a credit Allowed for purposes of both the regular and alternative minimum taxes 3rd taxation on the same money avoided- c corp parent pays the tax on the dividends; C sub corp pays the corporate level

TRANSACTIONS BTW S/H AND C CORP 1. Deductions and loss limits on transactions between C Corp and more-than-50% owner per 267. a. Loss disallowance rule- Losses from sales or exchanges of property btw a s/h and a more-than-50%-owned corp may not be deducted i. Ownership for this purpose is determined after application of attribution rules b. Forced matching rule- 267a2- an accrual method corp may not deduct payments (compensation, interest or rent) made to a cash method owner-employee until the recipient incl. the amount in income i. Owner-employee: who owns directly or indirectly 50% or more of the payor corp ii. Except that, in the case of personal service corp, the forced matching rules apply to payments to any owner-employee, regardless of percentage ownership 2. Formation?