Some divorce-related stock redemptions cause unintended tax
Article Abstract:
The redemption of closely held stock in connection to a divorce has the potential to expose conflicting Internal Revenue Code provisions pertaining to this issue. For instance, some courts have concluded that these redemptions are tax free under Sec. 1041 while some have held that these are taxable under Sec. 302(b)(3). Also, some have adjudged them to be a constructive distribution while others have treated them as nontaxable to the nonredeeming spouse. Until these issues are resolved either through final Regulations or the courts, taxpayers and tax consultants will have to muddle through in the midst of all this vagueness. At present, the main concern is whether or not the redemption is conducted on behalf of the nontransferring or remaining spouse and whether or not the remaining spouse is required to buy the shares of the transferring spouse. The transferring spouse is not taxable if both requirements are met.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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Gifts not to avoid tax, so redemptions not dividends
Article Abstract:
IRS Letter Ruling 9632008 found redemptions of the taxpayer's remaining shares qualified for capital gain treatment. In this case, the gifts of stock to the children of the taxpayers in anticipation of the redemption were not given for the purpose of income tax avoidance despite the fact that they consequently reduced the tax. The IRS judged that income tax avoidance was not a rationale for the gifts although they lowered the number of shares that were sold by the taxpayers, thereby also reducing the gain recognized and the tax. The basis for the decision was Revenue Ruling 77-293, which involved a similar situation. The attribution rules were not applicable and the redemption ended the interest of the taxpayer. Therefore, the exchange qualified for capital gains.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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Gain on tendered stock taxable despite charitable donation
Article Abstract:
The Tax Court found in the 'Ferguson' case that taxpayers were subject to capital gains taxation on shares of stock donated to charities as a result of inopportune timing. The court implemented the anticipatory assignment of income doctrine and judged that the taxpayers must include gain on the shares since the stock had been tendered in line with a merger prior to the donation. In this case, the taxpayers were the owners of a family business that subsequently took their company to the public, after which they retained ownership of 18.8% of the corporate shares and acted as president and executives. The taxpayers transferred their shares through an in-house journal entry to charity-managed accounts.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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