Question

(1) Summarize the alternative involving the possibility of liquidating the business, using rationale based on tax research, codes, and regulations.

(2) Summarize the alternative of transferring the business activity, providing justification based on tax research, codes, and regulations

Answer 1

1. Summarize the alternative involving the possibility of liquidating the business using rationale based on tax research, codes and regulations.

Liquidation takes place only when the corporation being inconsistent with the provisions under section 1371 (a).During liquidation process an option will be provided for recognizing profit or loss to corporation under section 336. The alternative involving the possibility of liquidating the business is to sell completely business to another owner or sell only few assets and retain remaining asset.If a company gives an assurance to the assurance that there will be no possibility of liquidation in near future then it can seek investment from shareholders.

1. Summarize the alternative of transferring the business activity, providing justification based on tax research, codes and regulations.

There are certain restrictions are laid down on transferring ownership in S Corporation. In S corporation a shareholders can transfer their share with respective to the shareholding percentage. In this case, shareholder can transfer his shares only up to his shareholding percentage. Capital gains are not taxed by company; it is taxed as per individual rates and taxes.

In case of C Corporation, as per section 338 sale of assets always leads to tax on the amount of sale (gain or profit).Where as in case of liquidation, it is taxed as a capital gain and in case of distribution it will be treated as dividend. Capital gain will be raised in case of sale of stock