ch04 - H Chapter Four H CORPORATE DISTRIBUTIONS: STOCK...

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Unformatted text preview: H Chapter Four H CORPORATE DISTRIBUTIONS: STOCK REDEMPTIONS AND PARTIAL LIQUIDATIONS SOLUTIONS TO RESEARCH PROBLEMS RESEARCH PROBLEMS 4-33 Ms. J, an individual, owns 74 percent of the shares of the stock of D Corporation as computed below. Ownership Shares Direct 60 Indirect: Partnership X (20% 20) 4 Partnership Y (70% 20) 14 Total 78/100 = 78% Under 318(a)(2)(B), stock owned by a partnership is deemed to be owned proportionately by its partners regardless of the partners interest in the partnership. (See p. 4-8.) 5- Partnership X owns 94 percent of the stock of D Corporation. Under the owner to entity attribution rules of 318(a)(3), stock owned by those having an interest in an entity is generally attributed in full to the entity. In addition, under 318(a)(5), the stock owned by partnership Y that is attributable to J under 318(a)(2) (70% 20 = 14) is deemed to be actually owned by J and thus may be reattributed to Partnership X under 318(a)(3). Note that 318(a)(5) permits attribution under 318(a)(2) to be followed by an attribution under 318(a)(3). Ownership Shares Direct 20 Indirect: Js direct interest 60 Js indirect interest through Partnership Y (70% 20) 14 Total 94/100 = 94% Partnership Y owns 84 percent of the stock of D Corporation. Under the owner to entity attribution rules of 318(a)(3), stock owned by those having an interest in an entity is generally attributed to the entity in full. In addition, under 318(a)(5), the stock owned by partnership X that is attributable to J under 318(a)(2) (20% 20 4) is deemed to be actually owned by J and thus may be reattributed to Partnership Y under 318(a)(3). Note that 318(a)(5) permits attribution under 318(a)(2) to be followed by an attribution under 318(a)(3). Ownership Shares Direct 20 Indirect: Js direct interest 60 Js indirect interest through Partnership X (20% 20) 4 Total 84/100 = 84% 4-1 4-34 Mr. R, an individual, owns 74 percent of the shares of the stock of C Corporation as computed below. Ownership Shares Direct 20 Indirect: Rs indirect interest through X Rs indirect interest through Corporation Y (70% 20) 14 Total 74/100 74% Under 318(a)(2)(C) stock owned by a corporation is deemed to be owned proportionately only by shareholders owning at least 50 percent of the corporations stock. Consequently, because Mr. R owns 70 percent of the Y stock he owns his proportionate share of what Y owns, 14 percent (70% 20%). Mr. R owns none of what X owns because he owns only 20 percent of X. 5- X Corporation owns 20 percent of the stock of C Corporation. Under the owner to entity attribution rules of 318(a)(3), stock owned by those having an interest in an entity is generally attributed in full to the entity. Stock owned by a shareholder is attributed to the corporation only if the shareholder owns either directly or indirectly at least 50 percent of the corporation. Because Mr. R owns only 20 percent of X, none of his direct or indirect interest in C is attributable to X.X, none of his direct or indirect interest in C is attributable to X....
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ch04 - H Chapter Four H CORPORATE DISTRIBUTIONS: STOCK...

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