ABC Corp. owns 70% of the outstanding stock of XYZ Corp. Bob Smith owns the other 30% of XYZ stock. On September 1 of this year, ABC Corp. purchases all of Bob Smith's stock, making ABC the sole shareholder of XYZ Corp. The stock was purchased by ABC with cash. On October 5 of the same year, XYZ adopts a plan of liquidation and officially liquidates on November 1.
- What tax issues are associated with this transaction?
- What are the tax consequences for all parties involved?
- If you were the tax advisor for this transaction, would you structure the liquidation any differently?
- Support conclusions using applicable tax law.