STU9 Flashcards
When a company distributes a dividend in the form of land to its sole shareholder and the land has a fair market value greater than the adjusted basis. Assume that the corporation has sufficient earnings and profits and ignore the potential tax effect of any taxes on the distribution, what is the net effect of the transaction on earnings and profits (E&P)?
When appreciated property is distributed, the corporation recognizes a gain equal to the excess of the FMV of the property over the adjusted basis. The E&P are increased by the recognized gain and decreased by the FMV of the property distributed.
When property with an adjusted basis less than the fair market value is transferred in exchange for 80% of the transferors only class of stock and other property, what is the amount of basis in the property?
Sec. 358(a)(1) provides that, in a Sec. 351 exchange, the basis of the stock received by the transferors (shareholders) is the basis of the property transferred decreased by the fair market value of other property (except money) received and the amount of any money received. The basis is increased by the sum of the amount treated as a dividend plus the amount of gain recognized by the taxpayer.
Assuming that all or substantially all of the transferors assets are acquired and that transferor distributes the stock, securities, and other property it receives, as well as the other property it has retained, as part of the reorganization. Does the transferor recognize a gain?
In a qualifying reorganization, the transferor corporation recognizes no gain if the assets other than stock or securities received are distributed immediately to its shareholders or creditors.
What is an example of how gain recognized is not equal to boot?
When property other than stock is received in a Sec. 351 transfer, any gain is recognized to the extent of the lesser of the realized gain or the amount of other property received [Sec. 351(b)].
In figuring the amount of a distribution by a corporation to its shareholders, how is the term “property” defined?
Under Sec. 317(a), “property” is defined as money, securities, and any other property except stock or stock rights of the distributing corporation.
A distribution of stock or rights to acquire stock in the distributing corporation is not included in the recipient’s gross income unless
Usually, a shareholder does not include a distribution of stock or rights to acquire stock in gross income unless it is (1) a distribution in lieu of money, (2) a disproportionate distribution, (3) a distribution on preferred stock, (4) a distribution of convertible preferred stock, or (5) a distribution of common and preferred stock, resulting in receipt of preferred stock by some shareholders and common stock by other shareholders.
When a shareholder has the option of receiving either stock rights or cash, is the distribution included in gross income?
When a shareholder has the option of receiving either stock rights or cash, the entire amount of the distribution received by the shareholder will be treated as a taxable dividend under Sec. 305(b)(1). Sec. 316(a) defines a dividend as a distribution made from current and accumulated earnings and profits. The amount by which the distribution exceeds current and accumulated earnings and profits shall be treated as a return of capital and will reduce the shareholder’s basis in the stock.
How is the maximum number of shares that can be owned after a redemption determined to qualify as a sale or an exchange?
Sec. 302 determines whether a redemption is considered a distribution equivalent to a dividend or payment for the stock eligible for capital gain or loss treatment. Under Sec. 302(b)(2), a substantially disproportionate redemption qualifies for capital gain or loss treatment. For a redemption to be substantially disproportionate, the shareholder must own less than 50% of all outstanding voting stock immediately after the redemption, and his or her total percentage of ownership must be less than 80% of his or her ownership percentage immediately before the redemption.
