Chapter 18 corporate taxation nonliquidating distributions

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The breadth of the topical coverage, the storyline approach to presenting the material, the emphasis on the tax and nontax consequences of multiple parties involved in transactions, and the integration of financial and tax accounting topics make this book ideal for the modern tax curriculum.

This is done through a system of rules that track and adjust the shareholder’s stock basis.

While there are some differences, the S corporation basis system is similar to the rules that apply to partnerships.

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The Internal Revenue Code uses four tests to make this distinction: To prevent gamesmanship among related parties, Congress has added another layer of rules that must be analyzed to determine if a distribution is a redemption.Instead of being treated as dividends, redemptions are treated as a sale or exchange of the stock by the shareholder.[6] The distinction can be important when the long-term capital gains rates (which apply to redemptions) are higher than the tax rates on dividends.Corporate shareholders may prefer that the distribution be treated as a dividend, allowing the corporation to take advantage of the special dividends-received deduction under Code § 243 (which allows the dividends to only be taxed once at the corporate level).When a corporation makes a nonliquidating distribution to a shareholder, the shareholder must answer the following three questions: What is the amount of the distribution?Mc Graw-Hill’s Taxation of Individuals is organized to emphasize topics that are most important to undergraduates taking their first tax course.

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