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Unformatted text preview: In a typical incorporation, Sec. 351 defers gain or loss recognition. In a typical liquidation, how many layers of income tax will be paid? No tax will be assessed. Corporate liquidations are normally tax-free. One layer of tax-only the shareholder will pay tax upon a corporate liquidation. One layer of tax-only the corporation will pay tax upon liquidation. Two layers of tax-both the corporation and the shareholder will pay tax upon a corporate liquidation. Answer: Two layers of tax-both the corporation and the shareholder will pay tax upon a corporate liquidation. Under the general provisions regarding complete liquidation, there will normally be two layers of tax. The corporation pays tax due to the sale or distribution of its appreciated assets during liquidation, and the shareholder will pay tax upon the receipt of assets in exchange for her stock. Only a qualifying liquidation of a wholly-owned subsidiary into a parent will be tax-free. A corporation undergoes a complete liquidation. Under the general liquidation provisions what will happen to its earnings and profits and other tax attributes such as net operating, capital loss and tax credit carryovers? The tax attributes disappear. The tax attributes are allocated to the majority shareholder. The tax attributes are allocated to shareholders in a pro rata manner, based on stock ownership. The liquidating corporation is provided with a tax refund determined by tax effecting the values of the carryovers. Answer: The tax attributes disappear. Earnings and profits and other tax attributes, such as the carryovers noted in the question, generally disappear when a corporation is liquidated. However, in the case of the liquidation of a controlled subsidiary into its parent corporation, the parent corporation succeeds to the tax attributes of the former subsidiary. Which of the following is not a tax motive for liquidating a corporation? The corporation's shareholders decide to cease operations. By liquidating the corporation and having its shareholders hold the assets in an unincorporated form, the marginal tax rate applied to earnings may be reduced. If the assets are producing tax losses, it may be advantageous for the shareholders to hold the assets in an unincorporated form and deduct the losses on their personal tax return. Avoidance of double taxation. Answer: The corporation's shareholders decide to cease operations Acme Corporation is liquidated and makes distributions to its shareholders comprised of: How much gain should Acme recognize?...
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This note was uploaded on 06/15/2011 for the course ECON 101 taught by Professor Anderson during the Spring '11 term at Owensboro Community and Technical College.
- Spring '11