Preferred
Stock Bailouts" Please respond to the following:
Section 306 of the IRC was enacted by Congress to
prevent tax avoidance by distributing certain stock to a shareholder in a
nontaxable stock dividend. Section 306 prevents shareholders from using a
preferred stock bailout to convert ordinary income into a capital gain. Analyze
the key provisions of Section 306 of the IRC, and outline a tax- planning
strategy geared toward redeeming preferred stock with sale or
exchange treatment as an alternative to Section 306.
From your analysis of Section 306 in the e-Activity,
differentiate between the tax treatment of earnings and profit on the
distributing corporation of both a sale of Section 306 stock and redemption of
Section 306 stock. Suggest the most important reasons for this differentiation
in tax treatment.
Week
3 Discussion 2
"Personal Holding Company" Please respond
to the following:
Per the text, the personal holding company (PHC) tax
penalizes taxpayers that enter into tax-motivated transactions designed to
shelter passive income of closely held corporations from higher individual tax
rates. Suppose you represent a professional athlete who is the majority owner
of a corporation. The corporation has several personal service contracts with
advertising agencies and endorsements for your client in addition to passive
income. Propose a plan in which you eliminate the potential for the PHC tax on
the client’s corporation.
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