C12-Chp-06-8-LTR 200105034-Liquid of Sub

C12-Chp-06-8-LTR 200105034-Liquid of Sub -...

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10fa86ab935e0aa9c6870eedb25e4cd759c0214b.doc. Page 1 of 2 Letter Ruling 200105034, October 27, 2000 Complete liquidation of subsidiaries; (Oct. 27, 2000) [Code Secs. 332 , 337 , 381 and 1361 ] Target 1 was incorporated in Year 1 as a State A corporation. Target 1 is engaged in Business and is a calender year taxpayer using the accrual method of accounting. On Date 1, Target 1 made an election in accordance with the provisions of §1362 of the Internal Revenue Code to be taxable as a Subchapter S corporation. Target 1 is no longer subject to the recognition period for certain built-in gains provided under §1374 . Target 2 was incorporated in Year 2 as a State B corporation. Since its inception, Target 2 has been taxable as a Subchapter S corporation. Target 2 is engaged in Business and is a calender year taxpayer using the accrual method of accounting. Target 1 and Target 2 are each closely held, and there is significant overlap in their shareholders. Target 1 and Target 2 each has outstanding two classes of voting common stock, consisting of y shares of Class A voting common and z shares of Class B voting common. The only difference between the two classes of stock is with respect to voting rights: the holders of the Class A common elect three members of the board of directors, while holders of the Class B common elect two members of the board. For valid business reasons the following trans - action is proposed : (i) The shareholders of Target 1 and Target 2 will incorporate Newco as a State A corporation. Newco will elect S corporation status in accordance with the provisions of §1362 , to be effective for its first taxable year. Newco will have two classes of authorized stock, Class A voting common and Class B voting common. Class A and Class B voting common will have identical rights to distribution and liquidation proceeds and differ only as to voting rights. §1.1361-1(l)(1) . (ii) Immediately after the incorporation of Newco described above, the shareholders of Target 1 and Target 2 will contribute all of their respective stock in Target 1 and Target 2 to Newco in exchange for stock of Newco. As a result, Target 1 and Target 2 will become wholly owned subsidiaries of Newco. (iii) Newco will elect to treat Target 1 and Target 2
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This note was uploaded on 03/09/2012 for the course ACCT 6120 taught by Professor Godfrey,h during the Spring '08 term at UNC Charlotte.

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C12-Chp-06-8-LTR 200105034-Liquid of Sub -...

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