Chapter 4 corporate nonliquidating distributions
(Economic benefit doctrine applies.)Exception 5 (from previous slide) is taxable because the recipients of preferred stock dividends get an increase in their priority claims (vis-à-vis common shareholders) against corporate net assets in event of liquidation.(Again, the economic benefit doctrine applies.)Chapter 15, Exhibit 15b CCH Federal Taxation Comprehensive Topics What is the tax effect of stock dividends on the corporation and its shareholders? Effect of Operations on Owners—Comparison Among Entities An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Redemptions (Including Partial Liquidations)—Overview17. Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders18.A June 30, 20x2 sale results in a short-term holding period.)Chapter 15, Exhibit 4c CCH Federal Taxation Comprehensive Topics Rules for Identical, Nontaxable Stock Dividends: 1. June 30, 20x2 sale: ,000 long-term capital gain (6,000 – 2,000).
Long-term HP: The beginning holding period date is April 1, 20x1, the day AFTER receipt of the original stock.
,000 capital gain: = 10,000 sales price – 4,000 adjusted basis).2. (a) If it distributes cash or its own bonds to owners?
,000 AB = 12,000 x [(100 P/S shares x 80 per share] [16,000 8,000] 3. (b) If it distributes other property to its owners?
Effect of Taxable Stock Distributions on Shareholders 5. Effect of Complete Liquidations on Corporations Chapter 15, Exhibit Contents ACCH Federal Taxation Comprehensive Topics11. In a disguised sale, the partnership’s recognized gain or loss = (a) – (b), where:(a) = FMV of property dist’d.(b) = AB of property dist’d. Upon receipt: Stock dividends are taxable as ordinaryincome at their fair market value (FMV). Upon sale: Basis of taxable stock dividends = same amount as in (a) above; holding period begins on the day AFTER receipt (i.e., consistent with the general rule for holding period).
Effect of Nonstock Distributions on Entities—Comparison Among Entities 4. Redemptions (Including Partial Liquidations)—Example on Corporate Effect Chapter 15, Exhibit Contents BCCH Federal Taxation Comprehensive Topics C and S Corporations Partnerships Does an entity recognize gain or loss on the distribution of:i) Cash or its own bonds to owners? No Gains: Yes (compute gain in the same way as if the property were sold) Losses: No (except in complete liquidation)No No gain or loss, unless it is part of a disguised sale.