AC 750 Chapter 18

AC 750 Chapter 18 - Non-taxable Double Taxation Chapter 18...

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Chapter 18 Corporate Distributions: Dividends & Redemptions Return on Capital vs. Return of Capital Payment for Services Surrendering Stock Double Taxation Non-taxable Payment Dividend Cash Property Stock ? ? ? ? ? ? ? ? Liquidation
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AC 750 - Chapter 18 2 Corporate Distributions 1.  § 301 distributions: distributions of property (including cash)      No  stock is surrendered.  May be a dividend or return of capital. 2. Distributions of stock and stock rights of the distributing        corporation 3.  Redemption: distributions to a shareholder in exchange for stock.     The corporation  continues to operate. 4.  Redemption: distributions to a shareholder in exchange for stock the corporation  terminates a part of its business; partial liquidation 5.  Redemption: distributions to a shareholder in exchange for stock the corporation  ceases its business; complete liquidation 6.  Spin-offs, split-offs, and split-ups: distributions of stock of one or more subsidiaries  as part of a corporate division
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AC 750 - Chapter 18 3 Is Stock Surrendered?? No  -  dividend return of capital capital gain Yes  -  Redemption (sale or dividend treatment) Partial Liquidation (sale treatment) Complete Liquidation (sale treatment)
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AC 750 - Chapter 18 4 § 301 Distributions Distributions of Property  - everything including cash (except  stock of  or rights to purchase stock of the distributing  corporation) Applies to distributions to shareholders in their capacity as a shareholder  (NOT  as an employee, creditor or lessor) Shareholder must include a dividend as income to the extent that it is paid out  of corporate earnings.  Other wise, it is considered a tax-free return of capital.   The non-dividend portion reduces the basis of the stock.  Any distribution that  exceeds basis is treated as gain from the sale of stock.
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AC 750 - Chapter 18 5 Earnings & Profits NOT RETAINED EARNINGS!!!! Defined implicitly as “economic income” Segregated into current and accumulated  Current taxable income or loss +/-  adjustments                               Current Earnings & Profits         
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AC 750 - Chapter 18 6 Current vs. Accumulated E&P Four Possibilities : Current Accumulated 1)      +           + 2)      -           + 3)      +           - 4)      -           -
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AC 750 - Chapter 18 7
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