Problem1
- Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions: ordinary dividends, stock redemptions, and complete liquidations. Include some discussion as to how corporate E&P is affected.
Problem 2
Nash is one of three equal unrelated shareholders of MacLeod Corporation. Nash has held MacLeod stock for four years and has a basis in his stock of $50,000. MacLeod has $300,000 of current and accumulated E&P and distributes $100,000 to Nash.
a. What are the tax consequences to MacLeod and to Nash if Nash is an individual and the distribution is treated as a dividend?
b. In Part a, what would be the tax consequences if Nash were a corporation?
c. What are the tax consequences to MacLeod and to Nash (an individual) if Nash surrenders all his stock in a redemption qualifying for sale treatment?
d. In Part c, what would be the tax consequences if Nash were a corporation?
e. Which treatment would Nash prefer if Nash were an individual? Which treatment would Nash Corporation prefer? Why?