Yiping Zhao
11343239
AC471-005
Issue
What potential tax problems might result if an individual pursues his plan to transfer 40% of the corporate stock to his two children as gifts? Would it make any difference if an individual received all voting stock and had the new corporation transfer nonvoting stock to his children?
Fact
T, an individual taxpayer, plans to incorporate his farming and ranching activities, currently operated as a sole proprietorship. His primary purpose of incorporating is to transfer a portion of his ownership in land to his son and daughter. T believes that gifts of stock rather than land will keep his business intact. Included in the property he plans to transfer is machinery purchased two years earlier.
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If this individual receiving all voting stock and then transfer to his children, he actually “control” the corporation and his children will have ability to “control” the corporation in fact. It will be qualified to recognize no gain or loss during the transaction. Under the Reg. §1.47-3(f) (5) (ii), the transferor of the section 38 property in any taxable year dose not retain a substantial interest in the trade or business directly or indirectly. According to this code, the transferor does not need to make the payment for tax of the interest during the property transaction only if the property can be qualified to “section 38 property” which indicate property (1) with respect to which depreciation is allowable to the taxpayer (2) has an estimated useful life of 3 years or more (3) which is tangible personal property or other tangible property. In this case, the machinery purchased by the individual two years ago can be applied for the “section 38 property” which also means the transferor does not need to pay for the interest happened during the transaction. And because of the gift of stock made by the individual caused a reduction in his interest. Which occurred at a time when the useful lives were just taken into account in computing the credit about the “section 38 property”. Unless his remain interest is a substantial interest, the section 47(b) would no longer be applicable and total
Part 1: Partnership formation. In January of 2010, Jason and Jesse contribute the following assets to
To meet the control test under section 351, a taxpayer transferring property to a corporation must by himself own 80 percent or more of the corporation 's voting stock and 80 percent of each class of nonvoting stock after the transfer even if there are
Rul. 70-104, 1970-1 C.B. 66 (1970), is that services from the consulting agreement by the father show a prohibited interest within §302(c)(2)(A)(i). The attribution to him would be terminated due to stock attribution rules of §318, which states that stock owned by family members individually may be reattributed to him through estate, trust, partnership or corporation of which he is a stockholder. Therefore the redemption does not qualify as a termination of his shareholder’s interest within the meaning of §302(b)(3) of the Code.
In 2013 Marianne sold land, building and equipment with a combined basis of $150,000 to an unrelated third party and in return received an installment note of $80,000 per year for five years. Of the $250,000 gain on sale, $150,000 was classified as Section 1245 gain and the remaining $100,000 was Section 1231 gain. In 2013, Marianne had a capital loss carryover of $60,000, $50,000 of which she used to offset her Section 1231 gain; she recognized no Section 1245 gain. The following year she recognized $40,000 of 1245 gain and $10,000 of Section 1231 gain which she promptly offset with the last $10,000 of the capital loss carryover. In 2015, she recognized $50,000 Section 1245 gain and no Section 1231 gain.
Sony have been known worldwide as a Japanese multinational company, its efforts trying to expanding business in United States, have made that Sony acquires CBS Records and Columbia Pictures. Thus, creating Sony Music and Sony Pictures, which represent Sony entertainment. This involved to the company in $1.2 billion of debt, and assigned goodwill assets for $3.8 billion.
Capital can come from state and corporate pension funds, public and private endowments and personal investors
1. Section 351 (which permits transfers to controlled corporations to be tax deferred) can be justified under the
Phyllis and Freddie can redeem the preferred shares at any time; the preferred shareholder still has control over the assets. If they qualify as a qualified Small Business Corporation, one can multiply the number of capital gains exemptions by increasing the number of taxpayers who are shareholders. In addition, Phyllis and Freddie can transfer the asset to the children to who they would like to appoint from their company. The growth in value of which will not be subject to a challenge of their Will under the Wills Variation Act. It can prevent future family disputes and help the estate equalization. When Phyllis and Freddie transfers the preferred shares to their children, it creates the commitment for the children to take over the ownership of the company. Phyllis and Freddie can also maintain control of the
Recently, CEO Roger Smith has passed away. Mr. Smith had much success in his lifetime. The CEO stated in his will that he wanted to give his money to his grandchildren. The company board has decided to split his earnings and give it to three of his grandchildren. Each grandchild will receive 5 million dollars. Mr. Smith had always been about helping those in need. The Board chose the three grandchildren that will make a difference with the inheritance. The three grandchildren who were chosen are Fred, Marsha, and Janet Smith.
There are situations where once the 351(a) factors are met, a transferor will transfer stock received to someone outside of the control group, and then the requirement after might not be met. A transferor might distribute some of the control received to the shareholders after the requirement based on 351(c). This type of distribution can be taxable to both the shareholders and the distributing
→ The family control would be weakened and it may hurt family interest if issuing stocks. What's more, if one of the family member sold his/her share, the Winfield Refuse Management, Inc would no longer be a family company.
2010 Corporate Partnership Estate and Gift Tax with H&R Block TaxCut 4e Pratt Kulsrud Solution Manual
In the mystery-thriller Seven from 1995, we meet the two homicide detectives William Somerset and David Mills, played by Morgan Freeman and Brad Pitt. Together they are hunting a serial killer who uses the seven deadly sins as reasons for his murders. At the end of the movie, the two detectives are out in the desert together with the murderer, John Doe. He has told them that they are going to find the last two corpses. The two detectives have already found five of his victims, so the last two bodies will make his work complete. After a while, the sixth victims’ head is delivered in a box. It belongs to Detective Mills’ wife, Tracy. This makes Mills so upset that he shoots John Doe, who becomes the seventh corpse.
23. The formation of a Subchapter S corporation is a way to circumvent the double taxation of