Corporate Tax - Streng 2001

Corporate Tax - Streng 2001 - Corporate Tax Streng Spring...

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Corporate Tax – Streng – Spring 2001 Non-Liquidating Distributions Dividends, §301 Dividend = distribution sourced from accumulated E&P or current E&P “nimble dividend” rule = dividends are taken first out of current E&P without regard to any accumulated E&P losses E&P = look for economic reality of performance, not taxable income Depreciation claimed in excess of straight line method equals $ for $ increase in E&P Distributions of Property, appreciated property and corp’s obligations, §311 Fiction: treat as if corp sold to 3dP and gave $$ to SH; this determines corp’s gain E&P = current E&P + extent of gain realized on distribution – principal amount of obligation distributed to SH or if OID obligation then by issue price + amt of liability assumed by SH Amt distributed to SH = cash + fmv of property – liabilities assumed by SH; §301(b) If dividend, SH is taxed as ord income to extent of E&P, then basis recovery, then gain SH’s basis in distributed property = fmv Finally, reduce corp’s E&P by fmv if appreciated property being distributed otherwise by AB; §311(d) Constructive dividend Triggers: Excessive compensation, personal expense reimbursements, excessive rent, excessive interest, bargain sales, and interest-free loans = disguised dividend distributions Triangular Dividend A bargain sale from X to Y (2 related corps controlled by SH “A”), §482 Amount of increase OF WHAT??? is a distribution from X to SH “A” (upstream dividend) Contribution by A to capital of Y Dividend to A to extent of E&P first from X then from Y Dividends Received Deduction (DRD) Rules Corp SHs are allowed to deduct 70% of dividends received from other corps, §243 Limits on §243 DRD Holding period requirements: must hold stock for >45days or >90 days for certain preferred stock. Extraordinary dividends = Corp held stock less than 2 years and dividend is >10%AB (5% for preferred stock), §1059 (comes up again in partial liquidation) Look for dividends stripping by Corp SH: when Corp SH purchases stock shortly before dividend distribution Still an extraordinary dividend if held longer than 24 months but not before the dividend announcement Substance A distrib. contrib. X Y Form A X
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Corp must reduce basis in underlying stock by amount of non-taxed portion of dividend; any amount of non-taxed portion in excess of basis = gain Debt financed stock, §246A reduction of DRD when portfolio stock is debt financed “portfolio stock” = any stock unless SH owns either (1) 50% of total voting power and value, or (2) at least 20% of total voting power and value and < 5 SHs own at least 50%. I.e. SH is controlling or part of controlling group DRD % = (% debt financed) x .70; e.g. 50% debt financed = (50)x.70=35% DRD Use of Dividends in Bootstrap Sales bootstrap sale = use of corp E&P as part of purchase price of shares from SHs Look for 80% parent selling sub and trying to ditch unwanted assets – look for DRD
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Corporate Tax - Streng 2001 - Corporate Tax Streng Spring...

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