Corporation The rules you must use to determine whether your business is taxedas a corporation changed for businesses formed after 1996. However, ifyour business was formed before 1997 and taxed as a corporation underthe old rules, it will generally continue to be taxed as acorporation. Businesses formed after 1996.The following businesses formed after 1996 are taxed ascorporations. A business formed under a federal or state law that refersto it as a corporation, body corporate, or body politic. A business formed under a state law that refers to it as ajoint-stock company or joint-stock association. An insurance company. Certain banks. A business wholly owned by a state or localgovernment. A business specifically required to be taxed as acorporation by the Internal Revenue Code (for example, certainpublicly traded partnerships). Certain foreign businesses. Any other business that elects to be taxed as a corporationby filing Form 8832. For more information, see the instructions for Form 8832,Entity Classification Election. Corporate tax.Corporate profits are normally taxed to the corporation. When theprofits are distributed as dividends, the dividends are taxed to theshareholders. In figuring its taxable income, a farm corporation generally takesthe same deductions that a noncorporate farmer would claim on ScheduleF (Form 1040). Corporations are also entitled to special deductions. Forming a corporation.A corporation is formed by a transfer of money, property, or bothby prospective shareholders in exchange for capital stock in thecorporation. If money is exchanged for stock, no gain or loss is realized by theshareholder or corporation. The stock received by the shareholder hasa basis equal to the money transferred to the corporation by theshareholder. If property is exchanged for stock, it may be either a taxable ornontaxable exchange. Form 1120 and Form 1120-A.Unless exempt under section 501 of the Internal Revenue Code, alldomestic corporations (including corporations in bankruptcy) must filean income tax return whether or not they have taxable income. Acorporation must generally file Form 1120 to report its income, gains,losses, deductions, credits, and to figure its income tax liability.However, a corporation may file Form 1120-A if its grossreceipts, total income, and total assets are each under $500,000 andit meets certain other requirements. For more information, see theinstructions for Forms 1120 and 1120-A. More information.For more information on corporations, see Publication 542.