Question

Mickey Mouse, Minnie, Donald, and Daisy are seeking professional advice regarding whether they should organize a corporation and transfer their shares of stock in several corporations to this new corporation. The shares of each company are listed on the NYSE and are readily marketable. Mickey would transfer shares in Goofy Corporation, Minnie would transfer stock in Pete Corporation, Donald would transfer stock in Pluto Corporation, and Daisy would transfer stock in several corporations. The newly formed corporation for investment purposes would hold the stock. Mickey asks you, his tax adviser, whether he would have gain on the transfer of his substantially appreciated shares in Goofy Corporation if he transferred the shares to a newly formed corporation. Your input will be critical as they make their decision. Prepare a letter to your client, Mickey Mouse, and a memo for the firm’s files. Mickey’s address is 100 Mouseketool Lane, Clubhouse, FL 32830

Answer 1

The four share holders and their investment are in the following companies

Mickey mouse-Goofy corporation

Minnie-Pete Corporation

Donald-Pluto corporation

Daisy-Several corporations

All the shares held by them are listed in the NYSE(New York Stock exchange), so they are listed securities.

Here they want to sell their holding of shares in their companies and pool them to form a new company.

As a tax Adviser i have to advise mickey mouse who is having investment in Goofy corporation.

As per Income tax act,1961 if he is having shares in a listed company and if he is holding them for more than 12 months, his profit from the sale odf such shares is exempt u/s 10(38).

So if he is holding them for more than 12 months he is not liable for the profit incurred to him from such sale.

Moreover it is in his hands to decide whether to Show the income as business income or capita gains.

If it is in the daily course of his business it becomes business income i.e PGBP (profits and gains from business or profession) and becomes taxable.

If he sells them casually(i.e other than regular course) it becomes his Capita gain and Exempt u/s 10(38).

Moreover it depends on the market conditions that exist on that day and depends on how they expect their company(forecomiing) is expected to earn profits on their investment. If they expecyt that their company is expected to accrue more profits over years it is recommended for mickey to sell his investment in goofy corporation and invest the same in the new company.