1. Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions: ordinary dividends, stock -redemptions, and complete liquidations.
2. Please complete the following paragraphs:
Ordinary dividend distributions require the distributing corporation to recognize ____________ (gain/loss/gains but no loss/loss but no gains) when distributing noncash property as a dividend.
The shareholder reports _____________________________________________when the distribution comes from earnings and profits (E&P).
Stock redemptions require the distributing corporation to recognize _______________________ (gain/loss/gains but no loss/loss but no gains) when distributing noncash property.
The shareholder reports ___________________________________________.
Complete liquidations require the distributing corporation to recognize _____________________ (gain/loss/gains but no loss/loss but no gains) when distributing noncash property unless one of a series of limited exceptions applies to loss recognition.
The shareholder reports ______________________________________.
3. Comparison of Dividends and Redemptions. Bailey is one of four equal unrelated. Shareholders of Checker Corporation. Bailey has held Checker stock for four years and. has a basis in her stock of $40,000. Checker has $280,000 of current and accumulated E&P and distributes $100,000 to Bailey.
a. What are the tax consequences to Checker and to Bailey if Bailey is an individual and the distribution is treated as a dividend?
b. In Part a, what would be the tax consequences if Bailey were a corporation?
c. What are the tax consequences to Checker and to Bailey (an individual) if Bailey surrenders all her stock in a redemption qualifying for sale treatment?
d. In part c, what would be the tax consequences if Bailey were a corporation?
e. Which treatment would Bailey prefer if Baily were an individual? Which treatment would Bailey Corporation Prefer?
(a)
• Bailey recognizes a dividend of $_________ subject to the ______% tax rate.
• Bailey ________ (will/will not) be entitled to an 80% dividends-received deduction.
• Checker Corporation _________ (increases/decreases) its E&P by $_________.
(b)
• If Bailey was a corporation it will record a dividend of $________.
• Bailey ________ (will/will not) be entitled to an 80% dividends-received deduction.
• Checker _________ (increases/decreases) its E&P by $__________.
(c)
• If Bailey is an individual, he will recognize a long-term capital ___________ (gain/loss) of $________.
• Checker _________ (increases/decreases) its E&P by $__________ because she surrendered 25% of the outstanding stock in a redemption qualifying as a sale.
(d)
• If Bailey is a corporation, it will recognize a long-term capital ___________ (gain/loss) of $________ per Section _________.
• Checker _________ (increases/decreases) its E&P by $__________.
(e) Please write in essay format.