Tax Section 311 Taxability of a Corporation on Dividends

While victorious, the plaintiff’s believed that the district court had erred in their decision not to award punitive damages. The defendants, on the other hand, argued that the court had erred in denying their motion for summary judgment.

in many of the previous court cases, the rulings have been linked to a Case Law that was made in

When a corporation distributes appreciated property, it must recognize gain as if it sold the property for its FMV immediately before the distribution. For gain recognition purposes, a property’s FMV is deemed to be at least equal to any liability to which the property is subject or that the shareholder assumes in connection with the distribution. A corporation recognizes no loss when it distributes to its shareholders property that has depreciated in value. A corporation’s E&P is increased by any E&P gain resulting from a distribution of appreciated property. A corporation’s E&P is reduced by (a) the amount distributed plus (b) the greater of the FMV or E&P adjusted basis of any non money property distributed, minus © any liabilities to which the property is subject or that the shareholder assumes in connection with the distribution. E&P also is reduced by taxes paid or incurred on the corporation’s recognized gain, if any.

Amanda offered John market value for his share which she did not have to do. According to Bankton, Amanda could have stated any price. The market value of a property has only become more substantial in later modern cases. As Craig Anderson states: “In the modern cases, by contrast, what has typically been asked is simply for the defender to be compelled to sell up to the pursuer at a market valuation.” An example of a modern case which has similar circumstances to the present case of Amanda and John is the case of Gray v Kerner. In Gray v Kerner ‘a house was co-owned by the parties and after the breakdown of their relationship the pursuer sought to buy out the defenders shares and for his share of mortgage payments. The defender, however, wanted divison and sale of the property. The sheriff sided with the pursuer as her family life should not be disrupted by biding on the house in an open market and no inconvenience was caused to the defender.’ This is a significant case as the facts of the case are similar to that of Amanda

The appellants complain that the tax court fail to apply debt-equity principles. The secondary inquiry cannot be reached unless the first question concerning whether an economic

The Court ruled in favor of the appellant, and the decision is described as follows:

The Internal Revenue Service (“IRS”) issued regulations called the “Clifford Regulations” in 1946. The Clifford Regulations formed the basis for Congressional codification of the grantor trust rules in current Subpart E in 1954. While income tax rates today are not as far apart as they were in 1954, and even though the IRS targeted abuses with the grantor trust rules, those rules offer favorable opportunities for taxpayers today.

In a Court-reviewed opinion, we held that the phrase "all its stock" did not include "nonvoting stock which is limited and preferred as to dividends." 27 T.C. at 688. Thus, Hazleton Bakeries' distribution, which was in respect of only the nonvoting preferred stock, was not a distribution in complete cancellation or redemption of all its stock.

The case presents that the Court of Appeals overturned the $18.5 million judgment against the company, but W Inc. filed a petition for a re-hearing before the judges against the ruling of the reversal.

3. All the stock is Sec. 1244 Stock. Under Sec. 1244, if Common stock is sold at loss or becomes worthless, the at least part of the loss would become ordinary loss that could be used to offset ordinary income.

Net book value at end of year 1 is $8,793. Less what you received on the sale $7,500. Gives you a disposal loss of $1,293 using the straight-line method of depreciation. You then add the disposal loss from the previous years depreciation $1,880, which results in a total income statement impact of $3,173.

The contention arose with Hunter v Moss which did not follow the orthodox approach where Hunter was entitled 50 out of moss’s 1000 shares. Under the Goldcorp rule there would be no trust because the property was not separated however Dillon J said there was a valid trust. The rationale for this controversial decision was that it would have made no difference which 50 shares would have been given because they were all identical. So here there was no need to segregate the property if it was intangible.

Distributions in excess of E&P reduce the shareholder's basis for his or her stock or, if remaining amount is in excess of the shareholder's basis, then the exceeding amount is taxed as capital gains to the shareholder. An S corporation that distributes a nonliquidating property can only recognize gains, but not losses. Its distributions are not taxable if they don’t have earnings and profits; and if the distribution is less than the shareholder’s adjusted basis in his/her stock. If S corporation has accumulated E&P, then the distributions made out of E&P are taxable as dividend

It has the option to distribute the cash in the form of dividends. Shareholders were taxed on cash dividends at ordinary income rates whereas gains realized on shares that were repurchased received capital gains treatment.

A dividend tax is an income tax paid on the earnings from a corporation that is distributed to its shareholders. Dividend payments are treated as ordinary income, and they are taxed as if the taxpayer had earned income through active work. Presently, there is much controversy surrounding the tax. The government taxes dividends twice: It first taxes corporate income, then taxes the same income again when shareholders receive dividends paid out of corporate income. Which is a “double taxation”( http://pages.stern.nyu.edu/~byeung/dividend%20taxation.pdf). The double taxation raises the questions of whether the tax should be eliminated, and which taxes should be cut. With both sides ..., the dividend tax … because…,