Figures: tax year 2026
A qualifying liquidation of a solvent subsidiary into its corporate parent receives nonrecognition. The ownership threshold generally requires at least 80% of voting power and stock value, with applicable timing and completion conditions. Neither the parent nor subsidiary recognizes gain or loss on qualifying transfers to the parent.
The parent takes the subsidiary's carryover asset bases and inherits applicable tax attributes, including accumulated E&P. The parent's former subsidiary-stock basis disappears; it does not replace the subsidiary's asset bases. This exception uses a vote-and-value test, unlike the formation control test for each nonvoting class.
Estimated payments settle tax liability during the year without reducing taxable income or generating credits. Under the standard installment method, a corporation makes four payments, each generally 25% of its required annual payment. Paying enough only at year-end does not cure earlier installment underpayments.
For an ordinary calendar-year corporation, installments are due April 15, June 15, September 15 and December 15, subject to weekend and holiday adjustments.
Common mistakes
- Capping the whole benefit package. Larch’s covered-employee deduction is $1,000,000 + $20,000 + $30,000 = $1,050,000. Applying the cap to all costs would incorrectly allow only $1,000,000.
- Skipping the full-DRD loss test. In Example 5, the mistaken $21,450 cap produces $33,000 - $21,450 = $11,550 income instead of the supported $6,000 NOL.
- Using a pre-NOL charitable base. Alder’s incorrect ceiling would be $200,000 x 10% = $20,000. Its actual base includes the older NOL deduction: $200,000 - $20,000 = $180,000.
Bottom line
- Corporate taxable income includes taxable operating and investment income less allowable deductions; the regular corporate rate is 21%.
- Covered compensation at publicly held corporations generally faces a $1,000,000 employee-level cap, while qualifying benefits follow separate rules.
- Business-interest deductions require an exemption test and a separate adjusted-income base; disallowed corporate interest generally carries forward indefinitely.
- Qualifying domestic dividends generally receive a 50%, 65% or 100% DRD; the partial-deduction income cap is displaced when the full deduction creates or increases an NOL.
Exam shortcut
Start with the requested output: taxable income, loss generated, loss used, credit generated or credit used. Assign a separate line to each requested amount. Mark “publicly held” and “covered employee” together before capping compensation. Separate taxable remuneration from qualifying excluded benefits. Write three distinct bases beside charity, DRD and NOL. For an NOL carryforward in the facts, check its effect on the charitable base before finalizing deductions.
The full lesson (about 11,777 words, 79 min read) adds 19 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- V.B1
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