Page 273 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes several tax years and, therefore, result in tax deferral). For example, a plan of liquidation
documented in the corporate minutes could state that multiple liquidating distributions
will occur and explain the business reasons for this.
Recovering Stock Basis before Recognising Gain

Generally, shareholders are allowed to recover their entire basis before recognising gain
(Rev. Ruls. 68-348 and 85-48; and Quinn, 35 B.T.A. 412 (1937), acq. 1937-1 C.B. 21). The full
amount (100%) of all distributions made after basis has been recovered is recognised as
gain.
Observation: The current reduction of the maximum tax rate on capital gains and on
qualifying dividends to 15% through 2012 somewhat mitigates the traditional preference
for a sale or exchange transaction (e.g., a Sec. 331 liquidation payment) over a dividend.
However, under current law, distributions made after 2012 will be taxed at higher capital
gain and dividend rates. Therefore, taxpayers should consider making the fi nal distribution
before 2013.

When a shareholder holds several blocks of the same class of stock (acquired at different
times and at different prices) and several distributions are made in complete liquidation,
each distribution is allocated among the different blocks in proportion to the number of
shares in each block.
Claiming a Loss on a Liquidation

A shareholder may claim a loss on a series of distributions only in the year the loss is
definitely sustained. Generally, a loss cannot be recognised until the tax year in which

the final distribution is received. However, there have been some exceptions to this rule
(e.g., in the year the last substantial distribution was made because the amount of the fi nal
distribution was then determinable with reasonable certainty).
Requesting a Prompt Assessment
The normal period for assessment of tax is three years from the date the return is fi led. A
corporation can accelerate the period in which the IRS can assess tax by requesting a prompt
assessment of tax [Sec. 6501(d)]. Form 4810, Request for Prompt Assessment under Internal
Revenue Code Section 6501(d), is used to request a prompt assessment. The request limits
the time for assessing tax or beginning a court action to collect the tax to 18 months from

the date the request is filed. It does not extend the time in which an assessment can be made
beyond three years from the date the return was fi led.
One example of a situation when a request for prompt assessment might be appropriate
is the liquidation of a corporation because of shareholder differences. If the IRS assesses
an additional tax liability after the assets have been divided among the shareholders,

disagreements could arise regarding who is responsible for the deficiency. On the other

hand, filing a request for prompt assessment when there is only one shareholder might not
be warranted.
Questions
1. Study and analyse the case.

2. Write down the case facts.
3. What do you infer from it?

Source: http://www.aicpa.org/publications/taxadviser/2012/september/pages/casestudy_sep2012.aspx

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