Discussion 1: "Preferred Stock Bailouts and Personal Holding Company"
Respond to the following:
• From your analysis of Section 306 in the e-Activity, differentiate between the tax treatment of earnings and profit on the distributing corporation of both a sale of Section 306 stock and redemption of Section 306 stock. Suggest the most important reasons for this differentiation in tax treatment. Discuss the methods that corporations may use to circumvent the restrictions.
e-Activity: Go to the Tax Almanac Website, or use the Internet to research Section 306 of the IRC, Treasury Regulations 1.306, and related judicial decisions. Focus on the differences between the tax treatment of earnings and profit on the distributing corporation of both a sale of Section 306 stock and redemption of Section 306 stock. Be prepared to discuss.
• Per the text, the personal holding company (PHC) tax penalizes taxpayers who enter into tax-motivated transactions designed to shelter passive income of closely held corporations from higher individual tax rates. Suppose you represent a professional athlete who is the majority owner of a corporation. The corporation has several personal service contracts with advertising agencies and endorsements for your client in addition to passive income. Propose a plan in which you mitigate the potential for the PHC tax on the client's corporation.
Discussion 2: "Corporate Liquidations, Taxable Acquisition Transactions, and Nontaxable Reorganizations"
Respond to the following:
• From the e-Activity, evaluate the appropriateness of the techniques used and the common issues pursued by the IRS in corporate liquidations and dissolutions. Create an argument to defend the client if the IRS pursues the assignment of income doctrine.
e-Activity: Go to the Tax Almanac Website, or use the Internet to research Section 336 of the IRC, Treasury Regulations 1.336, and related judicial decisions. Focus on the appropriateness of the techniques used and the common issues pursued by the IRS in corporate liquidations and dissolutions. Be prepared to discuss.
• IRC Section 338 allows a deemed sale election generating immediate taxation to the target corporation and a stepped-up or stepped-down basis to the price paid by the acquiring corporation for the target corporation stock plus liabilities on the deemed sale. Examine at least one benefit of a Section IRC 338 liquidation election for a target corporation. Create a scenario that would demonstrate a favorable IRC Section 338 liquidation election for a target corporation.