The RATE Coalition has been lobbying for a lower corporate tax rate and has released a new report pointing out that there is a growing bipartisan consensus in Washington to lower the rate from its current high of 35 percent.

The House-passed a budget resolution for 2012, which calls for cutting the federal corporate income tax rate to 25 percent. The Obama administration recently released a plan for lowering the corporate tax rate to 28 percent. In the Senate, Senators Ron Wyden, D-Ore., and Dan Coats, R-Ind., have introduced the Bipartisan Tax Fairness & Simplification Act of 2011, which would lower the corporate rate to 24 percent.

Various deficit commissions, including the Alan Simpson and Erskine Bowles commission and Pete Domenici and Alice Rivlin commission have also called for lowering the corporate tax rate, along with the Economic Recovery Advisory Board chaired by Paul Volcker.

  “The U.S. currently has the highest statutory corporate tax rate (just under 40 percent including average state and the maximum federal rate) among developed countries,” said the RATE Coalition report, written by Robert Rizzi and Jonathan Sallet. “Competing nations such as Canada, the United Kingdom, and Japan have lowered their rates in order to attract business activity, but the U.S. has lagged behind. Lowering the federal corporate income tax rate is thus a step towards macro-economic stability and in the direction of sustainable economic growth.”

RATE Coalition co-chair James P. Pinkerton acknowledged that while many corporations pay less than the statutory top rate of 35 percent, their effective tax rate is still high compared to other countries.

“Every economist says if you move measure statutory to statutory or effective to effective, the U.S. is the highest,” he said. “You can always find outriders who are paying nothing. The bulk of corporate America is paying somewhere in the mid-20s as an effective rate. Obviously the current system incentivizes companies to do as much as possible overseas and keep it there. That’s not good for the economy or growth.”

Pinkerton points to a recent study by Ernst & Young that makes the point that the number of Fortune Global 500 companies headquartered in the United States has fallen, with some moving to China. “It’s clear that the U.S. is losing market share among the top companies,” he said. “A lot of that has to do with this disadvantageous tax climate here in the United States. The American economy would do better with a lower corporate rate. That’s the position of most of the political leaders in Washington.”

I have a client that is a foreign individual, they have a corporation here in the United States. Large sums of money flows into the corporation and they feel they can take the money anytime they want. So they withdraw funds and send it to their homeland over seas.

 Now some of this money they take out covers expenses they have in doing business. But if there is no receipts to cover the funds being taken out it becomes a taxable dividend to the one taking it out if he/she is a stockholder. So when you take cash out of a company make sure it is going to cover your costs of operations, there are receipts to cover the withdraw of funds.

 What is a stock dividend? Dividends are payments by a company to its shareholders. However, rather than paying in cash, the company may distribute additional shares to its shareholders. Critically by doing so it increases the amount of issued shares. However, if a cash is given to the shareholder it is a different story.

 If you are a Foreign individual and sole shareholder of your corporation then you need to corporation needs to file an 1042-S and report and pay taxes on the dividend. Remember, even though you think that cash is yours sitting in the corporate bank account the way you handle it will be taxable to you as a shareholder.

 Running or operating a corporation is not as easy as cash comes in - give it to me. You have to take these funds into consideration, how you handle it, how the cash is used and documented, and how it will be taxable to you as an individual receiving a dividend or as a corporation. The IRS if they audit you will force you to take this dividend if you did not spend the funds on business expenses and have no documentation to support the expense.

 If you have any questions please contact our office at: 818.547.0497 Ext 3

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