Liquidating distribution foreign corporation

Under current law, the top rate on corporate income is 35%; meanwhile, the top rate on dividend income is 23.8%.As you might imagine, this can lead to painful consequences when doing business as a C corporation. As advisors, we keep an army of axioms always at the ready to be used in response to client queries.Under Section 301 of the Code, a dividend is included in the gross income of the shareholder of the corporation making the distribution, to the extent of the distributing corporation’s E&P.If the fair market value of the property distributed by the corporation exceeds the E&P of the distributing corporation, the excess fair market value of the property is treated as a reduction in the shareholder’s basis in the stock of the distributing corporation.

Double taxation is the hallmark of the subchapter C regime.

Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.

For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.

For example, a US corporation (US corp.) owns all of the stock of a foreign corporation (CFC 1). has a basis of 0 in the CFC 1 stock; and CFC 1 has E&P of 0. is treated as both a US shareholder of CFC 1 and as a Section 1248 shareholder of CFC 1, because it owns at least 10 percent of the stock of CFC 1. sells the stock of CFC 1 to a third party purchaser for

Double taxation is the hallmark of the subchapter C regime.

Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.

For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.

For example, a US corporation (US corp.) owns all of the stock of a foreign corporation (CFC 1). has a basis of $100 in the CFC 1 stock; and CFC 1 has E&P of $500. is treated as both a US shareholder of CFC 1 and as a Section 1248 shareholder of CFC 1, because it owns at least 10 percent of the stock of CFC 1. sells the stock of CFC 1 to a third party purchaser for $1,000, $500 of the $900 gain on the sale will be treated as a deemed dividend to the US corp. Section 1248(c)(2) further provides that on the sale of CFC 1 described above, any E&P of subsidiary CFCs owned by CFC 1 would also be included in the amount of the deemed dividend to the US corp.

For example, if CFC 1 also owns all of the stock of a second foreign corporation (CFC 2), and CFC 2 has E&P of $100 on the date of the sale of the stock of CFC 1, that $100 would also be included in the income of US corp. Thus, of the $1,000 of gain realized on the sale of CFC 1 stock by the US corp., $600 ($500 of E&P attributed to CFC 1 stock and $100 of E&P attributed to CFC 2 stock) would be treated as a deemed dividend to the US corp., and $300 would be treated as a capital gain from the sale or exchange of the CFC 1 stock.

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Double taxation is the hallmark of the subchapter C regime.Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.For example, a US corporation (US corp.) owns all of the stock of a foreign corporation (CFC 1). has a basis of $100 in the CFC 1 stock; and CFC 1 has E&P of $500. is treated as both a US shareholder of CFC 1 and as a Section 1248 shareholder of CFC 1, because it owns at least 10 percent of the stock of CFC 1. sells the stock of CFC 1 to a third party purchaser for $1,000, $500 of the $900 gain on the sale will be treated as a deemed dividend to the US corp. Section 1248(c)(2) further provides that on the sale of CFC 1 described above, any E&P of subsidiary CFCs owned by CFC 1 would also be included in the amount of the deemed dividend to the US corp.For example, if CFC 1 also owns all of the stock of a second foreign corporation (CFC 2), and CFC 2 has E&P of $100 on the date of the sale of the stock of CFC 1, that $100 would also be included in the income of US corp. Thus, of the $1,000 of gain realized on the sale of CFC 1 stock by the US corp., $600 ($500 of E&P attributed to CFC 1 stock and $100 of E&P attributed to CFC 2 stock) would be treated as a deemed dividend to the US corp., and $300 would be treated as a capital gain from the sale or exchange of the CFC 1 stock.

,000, 0 of the 0 gain on the sale will be treated as a deemed dividend to the US corp. Section 1248(c)(2) further provides that on the sale of CFC 1 described above, any E&P of subsidiary CFCs owned by CFC 1 would also be included in the amount of the deemed dividend to the US corp.

For example, if CFC 1 also owns all of the stock of a second foreign corporation (CFC 2), and CFC 2 has E&P of 0 on the date of the sale of the stock of CFC 1, that 0 would also be included in the income of US corp. Thus, of the

Double taxation is the hallmark of the subchapter C regime.

Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.

For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.

For example, a US corporation (US corp.) owns all of the stock of a foreign corporation (CFC 1). has a basis of $100 in the CFC 1 stock; and CFC 1 has E&P of $500. is treated as both a US shareholder of CFC 1 and as a Section 1248 shareholder of CFC 1, because it owns at least 10 percent of the stock of CFC 1. sells the stock of CFC 1 to a third party purchaser for $1,000, $500 of the $900 gain on the sale will be treated as a deemed dividend to the US corp. Section 1248(c)(2) further provides that on the sale of CFC 1 described above, any E&P of subsidiary CFCs owned by CFC 1 would also be included in the amount of the deemed dividend to the US corp.

For example, if CFC 1 also owns all of the stock of a second foreign corporation (CFC 2), and CFC 2 has E&P of $100 on the date of the sale of the stock of CFC 1, that $100 would also be included in the income of US corp. Thus, of the $1,000 of gain realized on the sale of CFC 1 stock by the US corp., $600 ($500 of E&P attributed to CFC 1 stock and $100 of E&P attributed to CFC 2 stock) would be treated as a deemed dividend to the US corp., and $300 would be treated as a capital gain from the sale or exchange of the CFC 1 stock.

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Double taxation is the hallmark of the subchapter C regime.Sometimes in life, when faced with a given situation, we say things simply as a matter of reflex. ” “You have a lovely home here.” “You’re a great gal, I’ll call you sometime. Take, for example, the client who contemplates the type of entity that should be used to hold a piece of real estate.For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.For example, a US corporation (US corp.) owns all of the stock of a foreign corporation (CFC 1). has a basis of $100 in the CFC 1 stock; and CFC 1 has E&P of $500. is treated as both a US shareholder of CFC 1 and as a Section 1248 shareholder of CFC 1, because it owns at least 10 percent of the stock of CFC 1. sells the stock of CFC 1 to a third party purchaser for $1,000, $500 of the $900 gain on the sale will be treated as a deemed dividend to the US corp. Section 1248(c)(2) further provides that on the sale of CFC 1 described above, any E&P of subsidiary CFCs owned by CFC 1 would also be included in the amount of the deemed dividend to the US corp.For example, if CFC 1 also owns all of the stock of a second foreign corporation (CFC 2), and CFC 2 has E&P of $100 on the date of the sale of the stock of CFC 1, that $100 would also be included in the income of US corp. Thus, of the $1,000 of gain realized on the sale of CFC 1 stock by the US corp., $600 ($500 of E&P attributed to CFC 1 stock and $100 of E&P attributed to CFC 2 stock) would be treated as a deemed dividend to the US corp., and $300 would be treated as a capital gain from the sale or exchange of the CFC 1 stock.

,000 of gain realized on the sale of CFC 1 stock by the US corp., 0 (0 of E&P attributed to CFC 1 stock and 0 of E&P attributed to CFC 2 stock) would be treated as a deemed dividend to the US corp., and 0 would be treated as a capital gain from the sale or exchange of the CFC 1 stock.

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The Portfolio highlights traps for unwary taxpayers and discusses planning opportunities in connection with a corporate liquidation.

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