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Presentation/PPT
27/08/2022
I. A. X Corporation has 100 shares of voting common stock outstanding. A owns 70 shares and B owns 30 shares. A and B are unrelated. Which of the following transactions would fall under I.R.C. § 302 (a) and why:
1. X Corporation acquires 32 shares from A.
2. X Corporation acquires 40 shares from A.
3. X Corporation acquires 51 shares from A, while acquiring 10 shares from B at the same time.
II. A. X Corporation has 100 shares of voting common stock outstanding. A owns 30 shares of X Corporation stock (use this ownership interest for all parts set forth below). In each of the following examples, what is the percentage ownership interest of A and his fellow shareholders taking into consideration I.R.C. § 318, and then determine which of the transactions set forth in each section could possibly fall under I.R.C. § 302 (a) and why?
1. 30 shares owned by W (A’s wife).
20 shares owned by D (A’s daughter).
10 shares owned by S (A’s son).
10 shares owned by G (S’s son).
a. X Corporation redeems 6 shares of D’s stock and 6 shares of G’s stock.
b. X Corporation redeems the 20 shares owned by D.
2. 20 shares owned by P.
50 shares owned by AP (a partnership owned 50% by A and 50% by P).
a. X Corporation redeems 15 shares of A’s stock and 15 shares of P’s stock.
b. X Corporation redeems all the shares owned by the AP partnership.
3. 28 shares owned by C.
42 shares owned by Z Corporation (a corporation owned 50% by A, 49% by C, and 1% by J, C’s brother).
a. X Corporation redeems 15 shares of A’s stock and 15 shares of C’s stock.
b. X Corporation redeems all of Z Corporation’s stock and 19 shares of C’s stock
III. A. X Corporation redeems a portion of its stock owned by one of its shareholders, Block. The corporation redeems Block’s shares by distributing to him a parcel of real property with a FMV of $40,000 and an adjusted basis to X Corporation of $10,000. What is the amount of gain, if any, recognized by X Corporation under the following circumstances:
1. The redemption fits within the provisions of I.R.C. § 302 (a) by reason of the application of Section 302 (b) (2).
2. The redemption does not fall under the provision of I.R.C. § 302 (a).
IV. A. X Corporation is owned by two unrelated individuals, A & B. X Corp. redeems all of A’s stock in a transaction falling within the purview of I.R.C. §302(a). X Corp. had earnings and profits equal to $80,000. The corporation has assets equal to $400,000 and liabilities equal to $280,000. A received $60,000 in exchange for his X Corporation stock. What is the proper amount, if any, of the reduction to X Corp.’s earnings and profits?
1. Would your answer change if the corporation’s assets were worth $340,000, and A received only $30,000 in exchange for his X Corporation stock? If so how?
V. A. X Corporation is a manufacturer of small appliances. X Corporation had two factories. A fire destroys one of the factories. The factory destroyed by the fire accounted for 20% of X Corporation’s gross revenue. 25% of X Corporation’s employees were employed at the factory and the net fair market value of the factory was 20% of X Corporation’s total net fair market value. X Corporation received insurance proceeds of $1,000,000. Rather than rebuilding the plant, X Corporation discharges its employees and distributes the $1,000,000 to Adams, its sole shareholder. Adams’ basis in his X Corporation stock is $200,000. X Corporation has earnings and profits of $2,000,000. What are the tax consequences to Adams?
1. Assume X Corporation had merely sold the factory rather than it being destroyed by a fire. How would that affect your answer to Part A?
B. X Corporation is engaged in various lines of business. On June 1, 2000, it distributes the assets of its retail shoe division to Adams, its sole shareholder. The retail shoe division represented 10% of the net fair market value of X Corporation and had been operated since 1975. It was the last division established by X Corporation. X Corporation continued to operate the other divisions following the distribution to Adams, its sole shareholder. The net fair market value of the assets of the retail shoe division was $1,000,000. Adams’ basis in his X Corporation stock was $2,000,000. The earnings and profits of X Corporation were $3,000,000. What are the tax consequences to Adams?
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