Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
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Chapter 6, Problem 10IRP
Corporation WJ began business in 2019 and elected S corporation status. This year, it operated at a significant loss, flowing through $(624,000) of ordinary business loss to its sole shareholder, William Jones.
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Bruno, an individual, is the sole shareholder of Green Corporation. On January 1, 2019, Bruno decided to liquidate Green Corporation. At the date of liquidation, Green Corporation had assets with a FMV of $2,500,000 and a basis of $1,800,000. Green Corporation’s earnings and profits at the date of liquidation were $2,000,000. Bruno’s basis in Green Corporation stock is $900,000.
1. What tax impact does the liquidation have on Green Corporation?
2. What tax impact does the liquidation have on Bruno (Assume tax rate of 23.8%)
3. How would your answer change if Bruno was a C-Corporation instead of an individual?
Due to COVID-19 impact, Watson Co becomes insolvent and placed into voluntary liquidation by itsdirectors. Dissolve liquidators have been appointed as the company liquidators. On the winding up ofthe Watson Co, Dissolve liquidators have started distributions and Paul as ex-shareholder of WatsonCo received $7,200 from the liquidators, which was inclusive of $3,000 unfranked dividend pursuantto the provision of Income Tax Assessment Act 1963, section 47(1). This distribution to Paul was fromhis $4,000 investment in the shares of Watson Co on 2nd February 2019.Required:With reference to relevant provisions of ITAA 97 and ITAA 36, critically analyze the tax consequencesof the above scenario for Paul. ( maximum 300 words).
Due to COVID-19 impact, Watson Co becomes insolvent and placed into voluntary liquidation by its directors. Dissolve liquidators have been appointed as the company liquidators. On the winding up of the Watson Co, Dissolve liquidators have started distributions and Paul as ex-shareholder of Watson Co received $7,200 from the liquidators, which was inclusive of $3,000 unfranked dividend pursuant to the provision of Income Tax Assessment Act 1963, section 47(1). This distribution to Paul was from his $4,000 investment in the shares of Watson Co on 2nd February 2019.Required:With reference to relevant provisions of ITAA 97 and ITAA 36, critically analyze the tax consequences of the above scenario for Paul.
Chapter 6 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 6 - Prob. 1QPDCh. 6 - Prob. 2QPDCh. 6 - Prob. 3QPDCh. 6 - Prob. 4QPDCh. 6 - For many years, Mr. K, the president of KJ Inc.,...Ch. 6 - Prob. 6QPDCh. 6 - Prob. 7QPDCh. 6 - Firm NB, which uses the cash method of accounting,...Ch. 6 - Prob. 9QPDCh. 6 - Prob. 10QPD
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