Question

how does the tax treatment of partial liquidation differ from stock redemption ?

corporation distribution appreciated noncash property to shareholder as a divided what impact does the distribution have on the corporation earning and profits?

 assume a calendar year corporation has difict  negative current E&P of $100under this circumstance a cash distribution of $100 to the corporation sole sharholdeton June 30will not be treated as a divided because total E&P at December 31 is $0 true or false ? explain

Answer 1

Part 1 : Tax treatment of partial liquidation and stock redemption

In a partial liquidation, the shareholders have prescribed tax treatments in which individuals receive exchange treatment and corporations treat the distribution as a dividend to the extent of earnings and profit (E&P). In a stock redemption, each shareholder's tax treatment depends on whether a change in stock ownership requirement is met

Part 2 : Impact on the corporation earning and profits

The corporation reduces Earnings and Profits (E&P) by the lesser of the property's fair market value or E&P adjusted basis, reduced by any liability assumed by the shareholder on the distribution.

Part 3 :  True or False

The given statement is False because a portion of the distribution can be treated as dividend based on accumulated earnings and profits on june 30. But not treating the distribution as dividend because total E&P at December 31 is $0 is a wrong treatment, hence the statement is false.