Redemption qualified with 15-year note

Article Abstract:

Letter Ruling 9502027 establishes that a redemption of a taxpayer's entire share in a closely held C corporation in exchange for a 15-year promissory note is considered a complete termination of interest under Sec. 302. Under Sec. 302(a)(3) and (5), a stock redemption can be characterized as a sale or exchange if it qualifies as a complete termination of the stockholder's interest in the company except as a creditor, if the stockholder does not regain interest in the company during the decade after redemption except through inheritance, and if the stockholder consents to report to the IRS the reacquisition of interest within the said period. Furthermore, under Sec. 302(c)(2)(B), the stockholder must not have transacted with a related party, either to acquire or to transfer stock, within the ten years before the stock redemption except when the stock acquisition or disposition was not carried out specifically to avoid taxes.

Stocks, Stock redemption

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Unplanned sale of corporation can result in extra tax to its shareholders

Article Abstract:

Capital gains on sale of corporate stock can be lost when a corporation is considered to be 'collapsible'. Taxpayers find it difficult to assess corporate collapsibility because of the complexity of collapsible corporation rules. Closely held corporations are especially likely to fall within the harsh provisions of collapsible corporation regulations. Recent tax reform makes careful review of the collapsible corporation problem critical when sale or liquidation of a business is planned. Adequate evaluation of relief provisions available in Sections 341 d through f may be undertaken once the chance of applying collapsible corporation rules is undertaken.

Taxation, Collapsible corporations

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PTPs may combine the best of corporate and partnership worlds

Article Abstract:

Master limited partnerships (MLPs) are publicly traded partnerships (PTPs) that provide tax savings by allowing a business to be operated as a partnership subject to one level of taxation rather than as a corporation subject to two levels of taxation. The usefulness of MLPs have, however, been severely curtailed by the Congressional enactment of Section 7704, which aims to limit the erosion of the corporate tax base by classifying certain PTPs as corporations for tax purposes. Section 7704 remains vague on key questions as no specific regulations have been issued to date.

Finance, taxation, & monetary policy, Legislative bodies, Limited partnership, Limited partnerships, United States. Congress, Tax policy

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