PART VI: Federal Taxation of Entities (Area V)

This part covers the main federal tax regimes for entities. The chapters explain how taxable income differs from book income, how major entity forms are taxed, and how those differences affect the stronger exam answer in an entity scenario.

In This Part

• Chapter 18: Differences Between Book and Tax Income explains reconciliation issues that affect entity reporting.
• Chapter 19: C Corporations covers corporate tax treatment and entity-level consequences.
• Chapter 20: S Corporations covers pass-through treatment with corporate-form constraints.
• Chapter 21: Partnerships explains flow-through treatment, allocations, and basis-related effects.
• Chapter 22: Tax-Exempt Entities and Trusts covers specialized entities that still appear in REG scope.

How to Use This Part

• Read this part after the individual chapters so the broader tax framework is already established.
• Focus on which entity bears the tax and what items pass through to owners or beneficiaries.
• Return here when a REG miss turns on entity classification or book-versus-tax treatment.

In this section

• Chapter 18: Differences Between Book and Tax Income
  REG coverage of book-tax differences, M-1 and M-3 adjustments, and common corporate reconciliation errors.
  • Permanent vs. Temporary Differences (M-1, M-3 Schedules)
    A comprehensive guide to reconciling GAAP net income to taxable income, exploring permanent and temporary differences, and understanding the M-1 and M-3 schedules.
  • Adjustments for Charitable Contributions, Depreciation, NOLs
    Explore key book-to-tax differences for charitable contributions, depreciation methods, and net operating losses (NOLs). Learn how corporations reconcile these items on M-1 or M-3 schedules, understand multi-year carryovers, and master best practices to ensure compliance.
  • Reporting Requirements and Common Errors
    Learn the critical reporting requirements for reconciling book and tax income for entities, including frequently overlooked items like meals, fines, or life insurance proceeds, and discover best practices to avoid costly mistakes.
• Chapter 19: C Corporations
  REG C corporation coverage for taxable income, credits, shareholder transactions, losses, consolidation, and international concepts.
  • Computation of Taxable Income and Tax Liability
    A comprehensive exploration of how C corporations compute taxable income and tax liability under the Internal Revenue Code, including gross income, deductions, and Earnings & Profits (E&P) considerations.
  • Allowable Credits and Deductions
    Explore key corporate tax deductions and credits, including R&D and the foreign tax credit, and learn about typical credit ordering rules for C corporations.
  • Capital Structure and Transactions Between Corporation and Shareholders
    Explore how dividends, redemptions, stock basis adjustments, and debt vs. equity rules affect taxation for C corporations and their shareholders.
  • State and Local Tax Considerations, Nexus, Apportionment
    Explore how C corporations establish nexus, apply state apportionment formulas, navigate throwback rules, and comply with PL 86-272.
  • Net Operating and Capital Losses (Carryback/Carryforward)
    Learn the rules for carrying back and carrying forward net operating and capital losses for C corporations, including distinctions between pre-2018 and post-2017 losses, special elections, and practical examples.
  • Consolidated Returns: Eligibility, Elections, and Intercompany Transactions
    A comprehensive overview of consolidated filing procedures, group membership rules, and intercompany eliminations under U.S. federal tax law. Learn how affiliated groups elect, maintain, and optimize consolidated returns while navigating complex intercompany transactions.
  • International Tax Concepts (Foreign Branch vs. Subsidiary, GILTI, FDII, BEAT)
    Learn the key distinctions and strategies for operating internationally through a foreign branch or subsidiary, and delve into core U.S. international tax provisions like GILTI, FDII, and BEAT.
• Chapter 20: S Corporations
  REG S corporation coverage for eligibility, elections, basis, built-in gains, passive income, and distributions.
  • Ordinary Business Income (Loss) and Separately Stated Items
    Explore how S corporations handle ordinary income, separately stated items, Section 179 deductions, charitable contributions, and distributions, including real-life examples and best-practice strategies.
  • S Corporation Eligibility, Election Requirements, Revocation, and Termination
    Comprehensive coverage of S corporation eligibility and election procedures, avoidance of inadvertent terminations, and pathways to regain S corp status.
  • Shareholder Basis: Stock and Debt Adjustments
    Explore step-by-step basis adjustments for income, losses, distributions, and loan repayments in S corporations. Understand ordering rules, real-life examples, and best practices.
  • Built-In Gains Tax, Passive Investment Income, and AAA vs. E&P
    A comprehensive guide on the built-in gains tax, passive investment income rules, and navigating AAA vs. E&P balances in S corporations—all with practical insights and real-world examples.
  • Distributions (Liquidating vs. Nonliquidating)
    Explore how shareholders of S corporations manage stock basis in nonliquidating vs. final liquidating distributions, including practical examples, diagrams, and key strategies.
• Chapter 21: Partnerships
  REG partnership coverage for flow-through items, elections, basis, liabilities, partner transactions, and ownership changes.
  • Ordinary Business Income (Loss) and Separately Stated Items
    Explore the fundamentals of partnership taxation focusing on ordinary business income (loss) versus separately stated items, including practical examples of guaranteed payments, capital gains, and interest allocations.
  • Partnership and Partner Elections (Tax Year, Basis Adjustments)
    A comprehensive guide to partnership- vs. partner-level tax elections, including the selection of a tax year and Section 754 basis adjustments in U.S. partnerships.
  • Partner’s Basis Computations, Recourse & Nonrecourse Debt
    Explore comprehensive insights on partner’s outside basis computations in partnerships, focusing on how recourse and nonrecourse debt allocations affect a partner’s tax basis, referencing key Treasury Regulations.
  • Transactions Between a Partner and Partnership (Services, Sales, Property)
    Explore critical rules, practical scenarios, and tax consequences surrounding partner-partnership transactions, including disguised sales, compensatory partnership interests, and self-employment tax.
  • Ownership Changes and Allocation of Liabilities
    Explore partnership ownership changes, including new partner admissions, partial-year allocations, and Section 704(c) considerations. Learn how to properly allocate liabilities and maintain compliance with federal tax regulations.
• Chapter 22: Tax-Exempt Entities and Trusts
  REG coverage of exempt organizations, UBTI, trust types, DNI, and fiduciary tax allocation rules.
  • Qualifying as a Tax-Exempt Organization (501(c)(3))
    Explore how to form and maintain a 501(c)(3) tax-exempt organization, including the required organizing documents, filing obligations, and the operational tests imposed by the IRS.
  • Loss of Tax-Exempt Status and Ongoing Compliance
    Explore how tax-exempt organizations risk losing their status through noncompliant activities, such as excessive political involvement, lobbying, or private inurement, and discover strategies for maintaining ongoing compliance and safeguarding their exempt classification.
  • Unrelated Business Taxable Income (UBTI): Key Determinations, Exceptions, and Netting Rules
    A comprehensive guide to UBTI, covering its core definition, major exceptions, netting rules, and best practices for tax-exempt entities.
  • Types of Trusts (Simple, Complex, Grantor) and Their Taxation
    Discover the fundamentals of simple, complex, and grantor trusts, covering distributions, DNI, and key differences from estates.
  • Allocation of Income and Corpus; Distributable Net Income (DNI)
    Discover how fiduciary accounting income interacts with trust tax rules and beneficiary distributions, including classification of trust income vs. corpus and the pivotal concept of Distributable Net Income (DNI).