Subchapter C Part I - Distributions by Corporations Flashcards
Subpart A - Effect on Recipients
301-307
Distributions of Property (Dividends)
301
Amount of distribution is amount of money or FMV of property received by SH reduced by liab to which property is subject.
Amount distributed that is dividend is included in gross income.
Amount distributed that is not a dividend reduces basis in stock.
Amount in excess of basis treated as gain from sale or exchange.
Basis of property received equal to FMV.
Distributions in Redemption of Stock
302
Redemption treated as exchange if (1) Not essentially equivalent to a dividend; (2) Distribution is substantially disproportionate to the SH; (3) Redemption terminates SH’s interest; (4) Redemption is in partial liquidation to non-corp SH; or (5) Corporation is a Regulated Investment Company.
Substantially disproportionate if (1) SH owns less than 50% of shares after redemption; (2) Percentage of total outstanding VOTING stock owned by SH must be less than 80% of what was owned prior to redemption; (3) Percentage of total common stock owned by SH must be less than 80% of what was owned before redemption.
Family attribution doesn’t apply in termination case if distributee has no interest in the corporation except as a creditor after termination and for 10 years. This doesn’t apply if distributee had purpose of avoiding tax and stock redeemed was acquired within 10 years from a family member.
Partial liquidation occurs if distribution not essentially equivalent to a dividend and occurs within the taxable year or succeeding year. Safe harbor if distribution is attributable to discontinuation of a qualified trade or business actively conducted for 5 years.
Constructive ownership rules of 318 generally apply.
Distributions in Redemption of Stock to Pay Death Taxes
303
Redemption treated as sale/exchange up to amount of federal/state death taxes and allowable funeral/administrative expenses.
Value of redeemed stock must be included in determining federal gross estate.
Value of stock in gross estate must exceed roughly 35 percent of total gross estate.
Redemption must occur within 90 days of expiration of 3 year estate tax SoL
Other Rules
Redemption Through Use of Related Corporations
304
Distributions of Stock and Stock Rights
305
Distribution of stock generally not taxable.
Treated as 301 distribution if (1) SH has election to receive stock or property; (2) the distribution/series has the result of property received by some SH and increase in the share of corp assets or E&P by other SH; (3) the distribution/series results in some SH receiving preferred shares and other SH receiving common shares; (4) the distribution is with respect to preferred stock other than certain increases in conversion ratio; and (5) distribution is of convertible preferred stock unless it can be established effect will not be disproportionate distribution.
Dispositions of Certain Stock (Preferred Stock Bailouts)
306
Amount realized for 306 stock (non-redemption) treated as dividend to extent would have been dividend if it was cash dividend at time of distribution. Amount in excess reduces basis then treated as sale/exchange.
No loss may be recognized. Basis goes to whatever stock with respect to which 306 stock was received.
If 306 stock redeemed, entire amount realized treated as dividend in year of redemption.
No 36 treatment for transactions: (1) certain terminations of entire stock interest in corp; (2) complete liquidations; (3) G/L not recognized according to another provision; or (4) it can be established purpose of transactions was not tax avoidance.
Section 306 stock includes (1) stock other than common that is received tax-free from corp; (2) stock received in certain reorganizations; (3) stock the basis of which was determined in part by the basis of 306 stock; and (4) non-common stock received in certain 351 transactions.
Does not include stock that when distributed, would not have been a dividend if it had been cash (no E&P).
Basis of Stock and Stock Rights Acquired in Distributions
307
Subpart B - Effects on Corporation
311-312
Taxability of Corporation on Distribution
311
Corporation recognizes gain when distributing appreciated property in nonliquidating distribution.
If SH assumes liability in connection with distribution, FMV of property is treated as not less than amount of liability.
No gain if distribution is of Corporation’s own debt obligation.
No loss recognized on distribution of loss property.
Effect on Earnings and Profits
312
Upon dividend distribution, E&P decreased by amount of money and adjusted basis of other property or FMV if appreciated property.
Upon div distribution, E&P increased by gain on appreciated property.
E&P not reduced by as much if liability assumed by SH.
Similar rules for redemption except charge to E&P based on ratable share of accumulated E&P attributable to shares.
Subpart C - Definitions; Constructive Ownership of Stock
316-318
Dividend Defined
316
Dividend is any distribution to SH from Earnings & Profits
Property & Redemption Definitions
317
Property means money, securities, and other property except for stock in the distributing corporation.
Stock is redeemed if corporation acquires it from SH in exchange for property.
Constructive Ownership of Stock
318
Individual considered to own stock directly/indirectly of spouse, parents, children, and grandchildren.
Stock owned directly/indirectly by partnership or estate is considered owned proportionately by partners/beneficiaries.
Stock owned directly/indirectly by a trust considered owned proportionately by actuarial values of beneficiaries; grantor trusts treated as owned by grantor.
Stock owned directly/indirectly by a corporation considered owned proportionately by individual who owns 50% or more of that corporation’s stock.
Stock owned directly/indirectly by partnership or estate beneficiary is considered as owned by the partnership/estate.
Stock owned by a trust beneficiary (unless remote contingent) or grantor of grantor trust is treated as owned by trust.
Stock owned directly /indirectly by a 50% SH is treated as owned by the corporation.
Option to acquire stock treated as such stock.
Can’t chain family attribution.
