ITT we discuss Corporate Tax Forum

[brotherdarkness]

It's finals season. We tackled FIT; let's do this.

My CB: Schwarz & Lathrope, Fundamentals of Corporate Taxation (8th ed. 2012)

[brotherdarkness]

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[wiz]

Checking in. We don't have a CB, and I don't really know what's going on in Corp Tax, so I'm not sure how useful I will be. But I guess I could be useful for making you feel really smart.

I'm assuming you know the answer, so can you run through it so I can see if I can follow along? Looks like a a 301/305(b) distribution problem to me.

[crit_racer]

gunning for this class.

305a doesn't apply to a corp distributing another corp's stock, so this is def. a dividend of prop

corp has to recognize gain on distribution of prop. I can't tell from your hypo if the stock distributed to EACH SH has $100 FMV or if all the stock distributted between the two has a FMV of 100. If the former, then the corp will recognize 40 gain to x and 60 gain to y. If the latter, it recognizes no gain?

If it recognizes gain, that gain is added to current E&P for purposes of determining how much will be a dividend to SHs. If the corp recognized gain, then it has to add $100 to E&P, so $195 will be treated as dividend to SHs. The remaining 5 would be reduction of basis. Not sure how to determine which SH reduces his basis and by how much...

Appreciated property, you reduce E&P by FMV (depreciated property you reduce by basis). SO, here the E&P would end up being reduced by like 100/200 depending on how much the FMV was of all the stock distributed


Anywhere close? I have some holes to fill in but is that coneptually right??

[crit_racer]

also, this class...fuck

[Johann]

gunning for this class.

305a doesn't apply to a corp distributing another corp's stock, so this is def. a dividend of prop

corp has to recognize gain on distribution of prop. I can't tell from your hypo if the stock distributed to EACH SH has $100 FMV or if all the stock distributted between the two has a FMV of 100. If the former, then the corp will recognize 40 gain to x and 60 gain to y. If the latter, it recognizes no gain?

If it recognizes gain, that gain is added to current E&P for purposes of determining how much will be a dividend to SHs. If the corp recognized gain, then it has to add $100 to E&P, so $195 will be treated as dividend to SHs. The remaining 5 would be reduction of basis. Not sure how to determine which SH reduces his basis and by how much...

Appreciated property, you reduce E&P by FMV (depreciated property you reduce by basis). SO, here the E&P would end up being reduced by like 100/200 depending on how much the FMV was of all the stock distributed


Anywhere close? I have some holes to fill in but is that coneptually right??

Distribution was 200 and each SH got 100 so each SH pro rata portion of E&P is 195*[100/200] so $97.50. Reduce each SH's basis by $2.50. Each SH pays 20% tax on $97.50. Corp's E&P at the end is $0. $95+100 gain in stock -195. I think that fills in the rest, but you're on the right track.

[soj]

corp/p tax is hard but i think you eventually get it (at least enough to survive the exam) once you grind through it with supplements and practice problems. it takes longer to get there, tho. might be just me.

[3|ink]

I really wished I had used a supplement for corporate tax. Practice problems would have made a world of difference.

[wiz]

corp/p tax is hard but i think you eventually get it (at least enough to survive the exam) once you grind through it with supplements and practice problems. it takes longer to get there, tho. might be just me.

Supplements = spend time with the E&E? Or did you use something else?

[crit_racer]

gunning for this class.

305a doesn't apply to a corp distributing another corp's stock, so this is def. a dividend of prop

corp has to recognize gain on distribution of prop. I can't tell from your hypo if the stock distributed to EACH SH has $100 FMV or if all the stock distributted between the two has a FMV of 100. If the former, then the corp will recognize 40 gain to x and 60 gain to y. If the latter, it recognizes no gain?

If it recognizes gain, that gain is added to current E&P for purposes of determining how much will be a dividend to SHs. If the corp recognized gain, then it has to add $100 to E&P, so $195 will be treated as dividend to SHs. The remaining 5 would be reduction of basis. Not sure how to determine which SH reduces his basis and by how much...

Appreciated property, you reduce E&P by FMV (depreciated property you reduce by basis). SO, here the E&P would end up being reduced by like 100/200 depending on how much the FMV was of all the stock distributed


Anywhere close? I have some holes to fill in but is that coneptually right??

Distribution was 200 and each SH got 100 so each SH pro rata portion of E&P is 195*[100/200] so $97.50. Reduce each SH's basis by $2.50. Each SH pays 20% tax on $97.50. Corp's E&P at the end is $0. $95+100 gain in stock -195. I think that fills in the rest, but you're on the right track.

ah okay so you just divide that $5 basis reduction evenly b/w the two b/c they are receiving equal FMV property. Doesn't matter how much stock they had in distributing company.

I think E&E is pretty good. The book we're using is fucking awful. the black letter outline is also rly good. Def. recommend supplements

[Johann]

Correct, doesn't matter what ownership is. Current E&P is allocated based on pro rata portion of distribution. If one SH gets $50 of cash and the other gets $100 of cash, E&P would be allocated 1/3 and 2/3 respectively. But most of the time, distributions are based on ownership, so they will track each other.

[soj]

corp/p tax is hard but i think you eventually get it (at least enough to survive the exam) once you grind through it with supplements and practice problems. it takes longer to get there, tho. might be just me.

Supplements = spend time with the E&E? Or did you use something else?

i should clarify that i only took p tax. suffering corp inc tax now with y'all. obviously don't know shit about corp inc tax. for p tax i used repetti/lyons. not a lot of problems but quite good.

[wiz]

corp/p tax is hard but i think you eventually get it (at least enough to survive the exam) once you grind through it with supplements and practice problems. it takes longer to get there, tho. might be just me.

Supplements = spend time with the E&E? Or did you use something else?

i should clarify that i only took p tax. suffering corp inc tax now with y'all. obviously don't know shit about corp inc tax. for p tax i used repetti/lyons. not a lot of problems but quite good.

Haha kthx. I don't think the poasters above us are suffering too much. They're saying very smart people things.

Hopefully this forces me to get my shit together (in like a week or two).

[crit_racer]

I'll post some other questions from my CB next time
I'm at a real comp. right now I'm suffering through 304/318/302 redemptions. Hate attribution.

[brotherdarkness]

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[wiz]

T Corp is the sole shareholder of TSub Corp. T Corp has a $10 basis in its TSub Corp stock. TSub Corp's sole asset is worth $100, subject to a liability of $40, and has a basis of $30 in TSub Corp's hands. TSub Corp adopts a plan of complete liquidation in 2010 and distributes the asset to T Corp "in kind" pursuant to this plan in 12/2010. In 2011 T Corp negotiates a sale of the asset to P Corp for total consideration of $100 ($60 cash and $40 debt assumption). The sale closes in 2011.

(a) Describe the consequences to the parties.
(b) Suppose instead that T Corp owned only 80% of TSub Corp's shares, and the other 20% were owned by M Corp (an unrelated shareholder). In the liquidation, T Corp and M Corp receive undivided 80% and 20% interests in the property, in each case subject to an allocable share of the liability. How do the consequences change?

[crit_racer]

T Corp is the sole shareholder of TSub Corp. T Corp has a $10 basis in its TSub Corp stock. TSub Corp's sole asset is worth $100, subject to a liability of $40, and has a basis of $30 in TSub Corp's hands. TSub Corp adopts a plan of complete liquidation in 2010 and distributes the asset to T Corp "in kind" pursuant to this plan in 12/2010. In 2011 T Corp negotiates a sale of the asset to P Corp for total consideration of $100 ($60 cash and $40 debt assumption). The sale closes in 2011.

(a) Describe the consequences to the parties.
(b) Suppose instead that T Corp owned only 80% of TSub Corp's shares, and the other 20% were owned by M Corp (an unrelated shareholder). In the liquidation, T Corp and M Corp receive undivided 80% and 20% interests in the property, in each case subject to an allocable share of the liability. How do the consequences change?

a) no gain or loss to T or TSub b/c it's a liquidation of a sub under 337/332. T takes Tsub's $30 basis under 334. Sale by T to P is $70. I don't think it's 1231 b/c the asset (presumably used in a T/B) hasn't been held for more than a year? So OI? Not sure here (about any of this...had to look at E&E for this...)

b) I don't think the consequences to T change b/c 80% satisfies the 1504 test. T's basis is $24? The part of the distribution to M has to go under 331, so gain/loss to both parties depending on M's stock basis. I have no idea how the liability comes into play in 331...anyone?

[Johann]

Very similar facts from problems I've already done. Strapped on time to go through your scenario but let me know about any questions re this:

1.Blossom Co. owns a single asset, a rental apartment building that it has owned since 1990. The building has a fair market value of $100, subject to a mortgage liability of $40. Blossom Co.’s adjusted basis for this property is $30. All of Blossom Co’s stock is owned by Anna, an individual, whose basis in her Blossom Co. stock is $10. Blossom Co. has $20 of current earnings and profits, uses the cash method of accounting and reports on a calendar year basis. All of Blossom Co.’s income is taxed at a marginal federal income tax rate of 35%.
In the following problems, state the amount of realized and recognized gain or loss to the parties.

b. Blossom Co. adopts a plan of complete liquidation in 2007 and distributes the property to Anna “in kind” pursuant to this plan in December of 2007. In 2008, Anna negotiates a sale of the property to Strawberry Corp. for $60 in cash with Strawberry Corp. taking the property subject to the mortgage; the sale closes in 2008.

Ans: Blossom’s distribution is treated as a sale or exchange. § 336(a). Blossom recognizes $70 gain ($100 AR - $30 AB). Blossom pays $24.50 of tax. This corporate tax liability passes to Anna if Blossom does not pay it. § 6901(a), (h).
Anna’s distribution is treated as a sale or exchange. § 331(a). Anna’s amount realized is $35.50 because she takes on the $40 mortgage and $24.50 tax liability. Anna recognizes $25.50 in capital gain ($35.50 AR - $10 AB). § 331(a). Anna pays $5.10 of tax. § 1(h), (i). Anna has a basis in the property of $100. § 334(a).
Anna sells to Strawberry and recognizes $0 gain ($100 AR - $100 AB). § 1001(a).
Strawberry has a basis in the property of $100. § 1012(a); Crane.

UNIT 5B
Prescott Corp. is the sole shareholder of Kipling Corp. Prescott Corp.’s basis in its Kipling Corp. stock is $10. Kipling Corp owns only one asset, rental property, which it has owned since 1990, with a gross market value of $100, and which is subject to a mortgage liability of $40. Kipling Corp.’s adjusted basis in this property is $30.
On January 21, 2009, Kipling Corp. adopts a plan of complete liquidation and distributes its property to Prescott Corp. “in kind” pursuant to this plan in December of 2009. In 2010, Prescott Corp. negotiates a sale of the property to another corporation, Jessie Corp, for $100 ($60 in cash with Jessie Corp. taking subject to the mortgage). The sale closes in 2010 as well.

1. Without getting into the numbers, how, in principle, would your answer change if Prescott Corp. owned only 80% of Kipling Corp., and the other 20% was owned by unrelated Agatha Corp., such that, in liquidation, Prescott Corp. and Agatha Corp. receive undivided 80% and 20% interests in the property, in each case subject to a pro-rata share of the liability?

The transaction would be bifurcated into the Prescott – Kipling liquidation and the Agatha – Kipling liquidation. Reg. 1.332-5. Prescott would still get treatment under § 332 so that no gain or loss is recognized with respect to the 80% distribution, and Prescott would inherit Kipling’s basis in the distributed property. §§ 332, 334(b)(1). Kipling would not recognize gain or loss on the distribution to Prescott. § 337(a). Regarding the 20% distribution, Agatha does not get § 332 treatment. Reg. 1.332-5. Agatha would likely get § 331 treatment. § 331. § 336 applies to Kipling regarding Agatha’s 20% distribution. Reg. 1.332-5. Agatha then would be able to recognize loss, but Kipling is not able to on the distribution. §§ 331(a), 336(d)(3).

[brotherdarkness]

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[crit_racer]

If a corporation redeems some of a shareholder's stock but the shareholder doesn't qualify for exchange treatment, what is the effect on basis? Does basis stay the same but become allocated over fewer shares, or does basis change?

if the redemption is treated as a distribution, then yeah his basis is now spread over less shares.

If he got rid of all his shares but still doesn't qualify for exchange treatment (due to attribution of shares held by dad/corporation/whatever), then the basis he did have in his shares is added to the basis of shares attributed to him (my book calls this the mystery of disappearing basis)

[3|ink]

Just looked back at my corporate tax outline from last year. I really went all-out with it. This may be useful. There's nothing in there about 338 elections because my professor said they are so irrelevant nowadays that it wouldn't be on the exam.

[brotherdarkness]

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[crit_racer]

Just looked back at my corporate tax outline from last year. I really went all-out with it. This may be useful. There's nothing in there about 338 elections because my professor said they are so irrelevant nowadays that it wouldn't be on the exam.

yea thanks man. This is super helpful...i dont have an outline for this class and couldnt find one in any of the outline banks. We covered 338 even tho its stupid. It's great when your book is like "this statute has become largely irrelevant now, but here's some really hard questions on it"

[brotherdarkness]

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[crit_racer]

Can someone tell me if I'm analyzing this correctly?

Facts

A corporation has $1,200 in current E&P and $0 in accumulated E&P, has three equal shareholders (each holds 100 out of 300 outstanding shares), and the corporation distributes 100 shares of preferred stock (a 1:1 distribution of preferred on common). The shareholders had a basis of $1,000 in their common stock and, after the distribution, the common stock and preferred stock were each worth $10/share. This would mean that the shareholders allocate basis 50/50, allocating $500 to the common stock and $500 to the preferred stock.

Two years later, one of those shareholders decides to sell the preferred stock to an unrelated third party for $1,400.

Question: What are the tax consequences to the shareholder who sells his stock to the unrelated third party and tot the corporation that distributed the stock to the shareholder

Analysis


A corporation makes a distribution of preferred stock on common stock and the corporation had E&P at the time of the distribution, that preferred stock will be deemed §306 stock.

The amount received by the shareholder upon a sale to an unrelated third party will be treated as a dividend to the extent that the earlier distribution of the preferred stock would have been a dividend had the corporation distributed cash in an equal amount to the FMV of the stock at the time of the distribution. Had the corporation distributed cash in lieu of stock, each shareholder would have received a dividend of $400 when the stock was distributed because of the total E&P of $1,200 divvied up amongst the three equal shareholders receiving equal amounts of stock. The shareholder therefore has a $400 dividend. The shareholder has a $100 recovery of basis (the last $100 of basis on the preferred stock). The remaining $700 confuses me. It either first reduces the shareholder's basis in the common stock from $500 to $0 and then gives rise to $200 in capital gain, or doesn't affect the shareholder's basis in the common stock and the full $700 is capital gain.

TYIA

I'm still a bit rusty on 306 stuff, but I think this is basically right.

It's def 306 stock b/c qualifies for 305a

When the 306 is disposed of in a SALE, you look to pro rata E&P at time of distribution (as opposed to if it is redeemed by corp, then look to current E&P)

So, yeah, 400 of this is ordinary income b/c that's his ratable share of E&P. The other 1,000 I think kills his basis in the preferred shares and then the other 500 would be capital gain?

I'm confused where you're getting 700 from, though. I take it as 400 is dividend, and that leaves another 1k to deal w/. My answer (could ttotally be wrong) would be that reduce preferred basis to 0 and have 500 CG. I don't think you would ever mess w/ his basis in the common stock, but I could be wrong.

When you say he has $100 left of preferred basis, I think you reduced his original preferred basis by the amount treated as a dividend, but I don't think that's right. I think his preferred basis is still 500 since it was treated as a dividend