ACC565 Week 4 Assignment 2 Discussion 1 and Discussion 2
Discussion 1
"Corporate Liquidations" Please respond to the following:
From the e-Activity, evaluate the appropriateness of the techniques used and the common issues pursued by the IRS in corporate liquidations and dissolutions. Create an argument to defend the client if the IRS pursues the assignment of income doctrine or the clear reflection of income doctrine on a cash-basis corporation, as reflected in the Examining Officers Guide (EOG).
Outline a plan of liquidation for a client that liquidates two (2) years after incorporation by transferring loss property under IRC Section 351. The plan of liquidation should be defensible against the IRS in an audit that challenges the plan as having a tax-avoidance purpose. Analyze the consequences in an IRS audit of a subsequent reincorporation after a corporate liquidation and recognition of losses.
Discussion 2
IRC Section 338 allows a deemed sale election generating immediate taxation to the target corporation and a stepped-up or stepped-down basis to the price paid by the acquiring corporation for the target corporation stock plus liabilities on the deemed sale. Examine at least one (1) benefit of a Section IRC 338 liquidation election for a target corporation. Create a situation which demonstrates a favorable Section IRC 338 liquidation election for a target corporation.
Identify one (1) consequence of a nontaxable reorganization, and offer an alternative to eliminate the negative effect of the identified consequence.
Week 4 Assignment 2
· Unreasonable compensation: The taxpayer receives a salary of $10 million composed of a $5 million base salary plus 5% of gross receipts not to exceed $5 million. The total gross receipts of the building supply business are $300 million. The NPA by the IRS disallows the salary based on 5% of gross receipts as a constructive dividend
· Stock redemptions: During the audit period, the construction company redeemed 50% of the outstanding stock owned by the client and 50% of the stock owned by the client’s son, leaving each with the same ownership percentage of 50%. The redemption was treated as a distribution under Section 301 of the IRC by the IRS.
· Rental loss: The rental loss results from a building leased to the construction company owned by the client and his son.
Write a three page paper in which you:
1. Based on your research and the facts stated in the scenario, prepare a recommendation for the client in which you advise either acceptance of the proposed adjustments or further appeal of the issue based on the potential for prevailing on appeal.
2. Create a tax plan for the future redemption of the client’s stock owned in the construction company that will not be taxed according to Section 301 of the IRC.
3. Propose a strategy for the client to receive similar amounts in compensation in the future and avoid the taxation as a constructive dividend.
4. Use the six (6) step tax research process to record your research for communications to the client.
Use the Internet and databases to research the rules and income tax laws regarding unreasonable compensation, stock redemptions treated as dividends and related party losses. Be sure to use the six (6) step tax research process in Chapter 1 and demonstrated in Appendix A of your textbook as a guide for your written response.
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Solution: 100% Perfect Answer week 4 Assignment , Discussion 1 and Discussion 2