Explain the nonrecognition rules of section 332

Explain the nonrecognition rules of section 332 - be...

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Explain the nonrecognition rules of section 332. The non recognition of section 332 applies only if the following three requirements are met: 80% of ownership, cancellation of stock, and timing. The parent corporation must own at least 80 Percent of the combined voting power and at least 80 percent of the total value of all the stock of the subsidiary corporation on the date that the plan of liquidation is adopted and at all times until the subsidiary’s liquidation is completed. The parent corporation must satisfy this ownership requirement directly The second requirement is that there must be a distribution in complete cancellation of all of the subsidiary’s stock pursuant to a plan of complete liquidation. A minimal amount of assets may
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Unformatted text preview: be retained by the subsidiary in order to protect its legal existence and preserve its corporate charter. There is a certain time period required for the liquidating distributions to occur. If all liquidating distributions are made within one taxable year of the subsidiary, no formal plan of liquidation needs to be used. However, if the liquidating distributions extend beyond one taxable year, a formal plan of liquidation must be adopted and all liquidating distributions must be made within three taxable years of the close of the taxable year in which the first distribution is made. If the liquidation is not achieved within the specified period of time the liquidation will not be accepted under code Sec 332....
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This note was uploaded on 03/05/2012 for the course INCOME TAX 4404 taught by Professor Bulie during the Spring '11 term at University of Minnesota Duluth.

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