Discussion: "Taxation of Shareholder Benefits"
Please respond to the following:
· If a company experiences a complete loss of an office building as a result of a fire and receives a $2 million recovery payment from the insurance company:
o Explain the tax consequences if the company decides not to rebuild.
o Identify the tax consequences if the company distributes the $2 million to its two shareholders, assuming that no stock was exchanged in return.
o Under what conditions will the distribution meet the requirements to be treated as a partial liquidation and not a dividend?