Shareholders are never allowed to recognize losses on a nonliquidating distribution. a. true. b. false. Jessica...

Shareholders are never allowed to recognize losses on a nonliquidating distribution.

		a. true.
		b. false.

Jessica (an individual) owns 92%of the SYZ Corporation. The other 8% of SYZ is owned by the Action Corporation. If Jessica liquidates the SYZ Corporation, will she be able to defer any of the gain realized on the liquidation under Section 332 (Parent/subsidiary liquidation).

		a. Yes
		b. No

Terry owns 100 shares of the XYZ Corporation. Under the constructive ownership rules of Section 318, how many shares of the XYZ Corporation is Terry’s granddaughter deemed to own?

		a. 100
		b. 40
		c. Zero
		d. None of the above

Solutions

Expert Solution

1. Shareholders are never allowed to recognize losses on a nonliquidating distribution.

The answer is B - False.

In certain circumstances, distributions can be considered as the redemption of stock.

A distribution can be qualified as stock redemption if it significantly reduces the shareholder interest in the corporation. If the stock of the shareholder is depreciated, he can recognize a loss at the time of redemption.

2. Jessica (an individual) owns 92%of the SYZ Corporation. The other 8% of SYZ is owned by the Action Corporation. If Jessica liquidates the SYZ Corporation, will she be able to defer any of the gains realized on the liquidation under Section 332 (Parent/subsidiary liquidation)?

The answer is B - No

For liquidation to be subject to the Parent/subsidiary liquidation rules under Section 332, the corporation receiving a distribution in liquidation must own at least 80% of the stock of the liquidating corporation. In the present case, it is holding only 8%.

3. Terry owns 100 shares of the XYZ Corporation. Under the constructive ownership rules of Section 318, how many shares of the XYZ Corporation is Terry’s granddaughter deemed to own?

The answer is C - Zero

Under the constructive ownership rules of Section 318 (a) (1)(A),

An Individual shall be considered as owning the stock owned, directly or indirectly, by or for

(i) his spouse, and

(ii) his children, grandchildren, and parents.

Since the word grandparent is not mentioned, Terry's granddaughter can not be coonsidered as deemed to own.

ekkarill92 answered 1 year ago

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