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View-attachment - Chapter C:4 Corporate Nonliquidating Distributions Learning Objectives After studying this chapter the student should be able to

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C:IO4-1 Chapter C:4 Corporate Nonliquidating Distributions Learning Objectives After studying this chapter, the student should be able to: 1. Calculate current earnings and profits (E&P). 2. Understand the difference between current and accumulated E&P. 3. Determine the tax consequences of nonliquidating property distributions. 4. Determine the tax consequences of stock dividends and the issuance of stock rights. 5. Discern when a stock redemption should be treated as a sale and when it should be treated as a dividend. 6. Explain the tax treatment for preferred stock bailouts. 7. Determine when Sec. 304 applies to a stock sale and its consequences. Areas of Greater Significance Due to the reliance on E&P when calculating the adjusted current earnings portion of the corporate alternative minimum tax, greater emphasis should be placed on the calculation of E&P than just in the determination of when a distribution is a dividend. The tax consequences of property distributions and stock dividends and stock rights should also be emphasized. Areas of Lesser Significance In the interest of time, the instructor may determine that the following areas are best covered by student reading rather than class discussion: 1. Tax planning considerations (Avoiding unreasonable compensation, bootstrap acquisitions, and timing of distributions). 2. Compliance and procedural considerations (Corporate reporting of nondividend distributions, and agreement to terminate interest under Sec. 302(b)(3)). Additionally, preferred stock bailouts and stock redemptions by related corporations should not receive a great deal of emphasis.
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C:IO4-2 Problem Areas for Students The following areas may prove especially difficult for students: 1. The attribution rules for stock redemptions. 2. Stock redemptions by related corporations. 3. Calculation of E&P. Highlights of Recent Tax Law Changes As a result of the 2003 Act, qualified dividends received by a noncorporate shareholder through 2010 are subject to a maximum 15% rate. The long-term capital gains rate for noncorporate shareholders is also 15%. Section 311(b)(2) provides that when property is distributed subject to a liability, or the shareholder assumes a liability of the distributing corporation, the FMV of the property is at least equal to the amount of the liability. The basis of the property is equal to the amount of the liability. Teaching Tips 1. When explaining the effects of a particular transaction on earnings and profits (e.g., a distribution of appreciated property or the making of a stock redemption), it can be helpful to use “T” accounts to show the increases and decreases that occur to E&P. 2. Example C:4-16 provides an example illustrating the point made in the previous section relating to the distribution of property subject to a liability. p. C:4-10. 3.
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This note was uploaded on 05/26/2011 for the course ACC 497 taught by Professor Jones during the Spring '09 term at University of Phoenix.

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View-attachment - Chapter C:4 Corporate Nonliquidating Distributions Learning Objectives After studying this chapter the student should be able to

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