ch11 - H Chapter Eleven H S CORPORATIONS SOLUTIONS TO...

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Unformatted text preview: H Chapter Eleven H S CORPORATIONS SOLUTIONS TO RESEARCH PROBLEMS RESEARCH PROBLEMS 11-55 When Micros becomes a wholly owned subsidiary of L Inc., there will be a choice of the tax structure. Micros will not be an S corporation in its own right, since L Inc. is not eligible to hold shares in an S corporation. Thus, Micros may be a C corporation. Alternatively, Micros may be operated as a QSub. 5- Operation of Micros as a C corporation is quite straightforward. Micro will need to file Form 1120 annually. Any distribution to L Inc. would be a dividend and thus nondeductible to Micro. The dividend would be taxable income to L Inc. and would pass through to L Inc.s shareholders. Note that this dividend is not per se passive investment income. 1362(d)(3)(E), Reg. 1.1362-8. Operation of Micros as a C corporation would have some advantages. circuits have held that this arrangement does not give basis to the shareholders for deduction of losses from the corporation. The rationale given be many of these decisions is that the shareholder has not made an actual economic outlay. Cases with this holding include: 5- Raynor , 50 TC 762 (1968). 5- Williams, Charles M. , 41 TCM 844 (1981). 5- Brown, Frederick G. , 42 TCM 1460 (1981). 5- Perry, William H. , 47 TC 159 (1966), affd 68-1 USTC 9297 (8th Cri); 5- Borg, Joe E. , 50 TC 257 (1968); 5- Neal, Estate of, v. U.S. , 70-1 USTC 9036 (DC Cal.), 5- Blum , 59 TC 436 (1972); 5- Cole , 32 TCM 313 (1973); 5- Smalley , 32 TCM 373 (1973); 5- Wheat v. U.S. , 73-1 USTC 9221 (S. Dist. Tex.); 5- Mirow, Richard R. , 34 TCM 628 (1975), 5- Duke, Albert D. , 35 TCM 229 (1976), 5- Brown, J.W. , 38 TCM 886 (1979)) 5- Calcutt , 84 TC 716 (1985); and, 5- Harrington v. U.S. , 85-1 USTC 9336 (Dist. Del.), 5- Leavittt, Estate of Daniel , 90 TC 206 (1988), 5- Calcutt , 91 TC 14 (1989). 5- Schneiderman , TCM 1987-551. 5- Erwin, III , 56 TCM 1343 (1989). 5- Fear , 57 TCM 306 (1989). 5- Roesch , 57 TCM 64 (1989). 5- Ellis , 57 TCM 677 (1989). 5- Suisman , 58 TCM 751 (1989) (Negligence penalty imposed). 5- Uri, Lawrence R., Jr. , 56 TCM 1217 (1989). 5- Russell, Dennis K. , 59 TCM 217 (1990) (Negligence penalty imposed). 5- Nigh , TCM 1990-349. 5- Keech , 65 TCM 1986, TC Memo 1993-71. 5- Walter , TC Memo 1993-306. 5- Sper1 , TC Memo 1993-515. 5- Shaver , TC Memo 1993-619. 5- Allen , TC Memo 1993-612, 66 TCM 1690. 5- Doe , TC Memo 1993-543, 66 TCM 1376. 5- Reser , TC Memo 1995-572, 70 TCM 1472. 5- Spencer , 110 T.C. No. 7 (1997). 5- Sleiman , TC Memo 1997-530. 5- Salem , TC Memo 1998-63. 5- Also, see Rev. Rul. 81-187, 1981-2 CB 167. This ruling emphasizes actual economic outlay by the shareholders directly to the corporation in question....
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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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ch11 - H Chapter Eleven H S CORPORATIONS SOLUTIONS TO...

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