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: J’s direct interest 60 J’s 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 ¼ 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: J’s direct interest 60 J’s 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: R’s indirect interest through X R’s indirect interest through Corporation Y (70% 20) 14 Total 74/100 ¼ 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 corporation’s 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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This note was uploaded on 07/26/2011 for the course TAX 772 taught by Professor Ber during the Spring '11 term at Hartford.

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

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