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Learning Objectives
1.
2.
3.
4.
5.
6.
7-2
Return of capital.
Capital gains.
7-4
Constructive Dividends
Unreasonable compensation
7-5
Overview of distributions:
7-6
7-7
7-8
7-9
Example 1
7-10
Example 2
7-11
7-12
Liabilities
Example 3
Cher Holder receives a property distribution from Sunny
Corporation with a fair value of $200. Cher assumes a
$100 mortgage attached to the property. Sunnys basis in
the property distributed is $100.
7-14
Example 4
Cher Holder receives a property distribution from Sunny
Corporation with a fair value of $200. Cher assumes a
$300 mortgage attached to the property. Sunnys basis in
the property distributed is $100.
7-15
Stock Dividends
7-16
Stock Redemptions
7-17
Stock Redemptions
7-18
Stock Redemptions
7-19
Stock Redemptions
Example 5
Tom owns 60 of the corporations 100 shares of voting
common stock.
1. What percentage ownership test(s) must be met for the
Tom to receive exchange treatment?
2. How many shares of stock must the corporation
redeem to have Tom treat the redemption as an
exchange?
7-20
Stock Redemptions
7-21
Stock Redemptions
7-22
Stock Redemptions
Example 6
Acme Inc. has AE&P at 1/1/14 of $100,000 and CE&P for 2014 is
$75,000. Acme redeems all of Bills stock on July 1 for $60,000. The
stock redeemed represents 25% of Acme stock. On December 31,
Acme pays its remaining shareholders dividends of $25,000. Bill
treats the redemption as an exchange.
What is the effect on Acmes AE&P and CE&P?
7-23
Partial Liquidations
7-24