DEFINITION of IRS Publication 542

IRS Publication 542 is a document published by the Internal Revenue Service (IRS) that provides information on the general tax rules that domestic corporations must follow. IRS Publication 542 outlines the type of organizations that are taxed as corporations, the accounting methods typically used, the deductions allowed, and the tax tables to be used.

BREAKING DOWN IRS Publication 542

IRS publication 542 discusses the general tax laws that apply to ordinary domestic corporations. It explains the tax law in plain language so it will be easier to understand. However, the information given does not cover every situation and is not intended to replace the law or change its meaning. The publication is updated periodically to reflect new tax laws and rules. For instance, for tax years beginning after 2015, the due date for filing corporate returns generally is the 15th day of the 4th month after the end of the corporation's tax year. Special rules apply to corporations with tax years ending in June. The publication also has been updated recently to reflect that returns required to be filed after December 31, 2015, the minimum penalty for failure to file a return that is over 60 days late has increased to the smaller of the tax due or $205.

The publication discusses which types of organizations are taxed as organizations, where specifically the following businesses formed after the year 1996 are taxed as corporations:

  • A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic.
  • A business formed under a state law that refers to it as a joint-stock company or joint-stock association.
  • An insurance company.
  • Certain banks.
  • A business wholly owned by a state or local government.
  • A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example certain publicly traded partnerships).
  • Certain foreign businesses.
  • Any other business that elects to be taxed as a corporation (such as Limited Liability Companies - LLCs - or S-Corporations).

Corporations are treated differently than partnerships, in which gains and losses are passed through to partners, and S Corporations, where gains and losses are passed through to shareholders.

Shareholders in a corporation can receive income from the business itself in the form of dividends, which can be taxed both on the corporate level (prior to distribution) and on the individual level (when sent to shareholders). Corporations are still subject to the alternative minimum tax (AMT).