A business entity wholly owned by a state or any political subdivision thereof. Certain foreign business entities. Other business entities, such as publicly traded partnerships, may be treated as corporations under other sections of the Internal Revenue Code. The election is made by filing Form 8832, Entity Classification Election, with the tax return in the first year for which the election is made. If the entity is classified as a corporation under Regulations, the entity must file as a corporation.
Some states have their own rules that classify entities for tax purposes.
For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. The corporation conducts business, realizes net income or loss on the business activity, pays taxes, and distributes the profits to its shareholders. This creates a double tax effect. Income is taxed to the corporation as earned, and taxed again to the shareholders as dividends when distributed. The corporation does not get a tax deduction when it distributes dividends to its shareholders.