Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Taxation Expert

problem 1: X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share). No other stock is outstanding. Find out whether the securities describeed in the situations below are best characterized as debt or equity of X (support your answer with citations as essential).

a) X issues to the public for cash $1 million worth of “pure preferred” stock (nonvoting, nonparticipating, nonconvertible), callable in five years at par, paying a 12% cumulative dividend.

b) In return for a transfer of $1,250,000 cash, X issues an unsecured promissory note for $1,250,000 to Mr. Pang, a well-known local venture capitalist, payable in 6 years with interest keyed to X’s profitability. The note is subordinated to all other debt. X could not have borrowed this amount on these terms from a bank.

c) X issues to the public 1,000 notes for $1,000 each, maturing in 20 years, at which time the holder will be entitled to elect to receive either $600 cash or 50 shares of X common stock. Interest will be paid quarterly in an amount based on X’s common dividend, but not less than $60 per annum. The interest rate for nonconvertible unsubordinated debt in the market is 12%. The notes will be subordinated to all other debt.

problem 2: L has business assets worth $6,000,000, NOL carryovers of $1,000,000 expiring in 14 years, and NOL carryovers of $1,400,000 expiring in 15 years. 100% of L’s stock is worth $8,000,000. The long-term tax exempt rate is 5%. The current third party market interest rate is 6%. Commercial bank mortgage rates are 3%. 

a) What will the § 382 limitation be if an ownership change occurs with respect to L’s stock? Assuming sufficient taxable income, how long will it take to fully utilize the NOLs?

b) Same problems and facts as (a) above, except L has minimal assets and 100% of its stock is worth $2,000,000.

problem 3: A owns all of the stock of X with a basis of $200. A’s three sons own all of the stock of Y equally. X and Y each have 100 shares of common stock outstanding (worth $4 each) and E&P of $100, respectively. A sells one half of the X stock to Y for $200.

a) What is the amount and character of income or loss to A on this transaction?

No because it only applies to redemptions. 318 test IRC 302(a) does not qualify under family attribution.

b) Would your answer change if X, rather than A’s three sons, owned all of the stock of Y? Why or why not?

problem 4: All of the outstanding stock of X corporation is owned by Abby (30 shares, $30,000 basis), Bennett (30 shares, $30,000 basis), and Candice (40 shares, $40,000 basis), who are unrelated. X has an earnings and profits deficit for the current year of $10,000 and accumulated earnings and profits (excluding the current year deficit) of $220,000. X plans to completely liquidate in the current year.

a) What are the tax consequences to Abby if X distributes a piece of equipment used in X’s business with a fair market value of $25,000 to Abby in exchange for her stock as part of the complete liquidation of X. (Assume X will also make similar distributions to Bennett and Candice).

b) What are the tax consequences to X of the distribution to Abby? X’s basis in the equipment was $36,000. X bought the equipment new six years ago.

Taxation, Accounting

  • Category:- Taxation
  • Reference No.:- M96134

Have any Question? 


Related Questions in Taxation

Federal taxescongress has asked you to evaluate the

Federal Taxes Congress has asked you to evaluate the individual tax brackets in the federal tax code and make several recommendations to improve the fairness of the tax brackets. Using the Internet and Strayer Library, r ...

Assignmentaccess the latest annual report or form 10-k of a

Assignment Access the latest annual report, or Form 10-K, of a publicly-traded company of your choice using the company's website or www.sec.gov. You can usually access from a company's website by clicking on investor re ...

1 the weighted-average cost of capital is the return the

1. The weighted-average cost of capital is the return the company needs to earn after tax in order to satisfy all its security holders. True False Question 2. Why is debt financing said to include a tax shield for the co ...

Discussion forumnote the video has closed captioning to

DISCUSSION Forum Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu. We are going to examine substitute goods, h ...

Discussion questions worksheet1jeff and louis own an s

Discussion Questions Worksheet 1. Jeff and Louis own an S Corporation. Jeff and Louis own 50% of the corporation each. Jeff's S Corporation stock basis at the beginning of the year was $150,000. Louis' was $120,000. The ...

Preferred stock bailouts and personal holding company

Preferred Stock Bailouts and Personal Holding Company" Please respond to the following: From your analysis of Section 306 in the e-Activity. (,http://www.taxalmanac.org/index.php/Tax_Research_Resources, or use the Intern ...

Tax memo multi state and international taxyou are the tax

Tax Memo: Multi state and international tax You are the Tax Director in a FORTUNE 500 company. There is a new CFO and he comes to your office and asks the following: "I understand that there are ways to shift income betw ...

Intermediate accountinginstructionsplease follow these

Intermediate Accounting INSTRUCTIONS Please follow these instructions carefully: • Place your name at the top of each page of your solutions, using the "header function" in Word. • Present your work professionally. • No ...

Assigmn a letter to the board of directorsdecisions

Assigmn: A Letter to the Board of Directors Decisions involving capital expenditures often require managers to weight the costs and benefits of different options related to the same goal or project. For instance, decidin ...

Depreciation and nontaxablecompanies buy use and sell many

Depreciation and Nontaxable Companies buy, use, and sell many types of property as a part of business operations. The amount involved can be substantial as can be the tax implications. Based on your readings for the modu ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen