Lesson 6.2.1 Stock Attribution Rules: Concepts

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來自 University of Illinois at Urbana-Champaign 的課程

Taxation of Business Entities I: Corporations

17 個評分

University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

17 個評分

課程 3（共 5 門，Specialization U.S. Federal Taxation）

This course provides an introduction to the U.S. federal income taxation of corporations and their shareholders. The course focuses on the relevant provisions of Subchapter C of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing corporate formation, operations, distributions, and liquidation. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

從本節課中

Module 6: Corporate Redemptions and Partial Liquidations

In this module, you will explore redemptions and partial liquidations, which is when shareholders sell stock back to the issuing corporation in exchange for cash. You will learn about the five types of qualified redemptions, which are applied after you have considered stock attribution rules. Finally, you will analyze how these redemptions are treated by both the shareholders and the corporation.

Lesson 6.2.1 Stock Attribution Rules: Concepts3:49

Lesson 6.2.2 Stock Attribution Rules: Applications7:05

與講師見面

Michael P Donohoe, PhD, CPA
Associate Professor of Accountancy and PwC Faculty Fellow
Department of Accountancy, Gies College of Business

In the prior lesson, you learn there are five types of

qualified stock redemptions that receive sale or exchange tax treatment.

Each type applies a different test to determine eligibility.

The tests however are applied after considering intricate stock attribution rules,

which determine if a shareholder constructively own

stock that is actually owned by a related party.

This is an important issue because

most qualified stock redemptions are concerned with whether there

was a substantial reduction in the shareholders proportionate ownership interest.

In this lesson, you will learn about the Stock Attribution Rules in Section 318,

which cover four categories of Constructive Stock Ownership.

After reviewing the concepts,

you'll apply them to Sunchaser Shakery.

Subsequent lessons consider each of the five types of qualified stock redemptions,

which rely on the Stock Attribution Rules in Section 318.

When creating the qualifying stock redemption rules in Section 302,

which are concerned with substantial reductions in ownership interest,

Congress believe that an individual or business entity

should be deemed as owning shares of stock that are actually

owned by family members and related entities under

the Complex Stock Attribution Rules in Section 318.

Why? Consider a simple example.

Assume that Michael and his wife Emily each own 50 of

the 100 outstanding shares of Sunchaser Shakery Corporation.

Further assume Michael sells 25 of his shares back to Sunchaser.

While Michael's proportionate ownership interest declines from 50 to 33 percent,

the remaining shares outstanding are owned by his spouse.

Thus, for all intents and purposes,

Michael and Emily each constructively own all of the shares of stock.

Without stock attribution rules,

a shareholder could easily reduce legal ownership without sacrificing real ownership.

Said another way in this example,

Michael can easily reduce his legal ownership down to

33 percent while his household continues to own 100 percent of the outstanding stock.

Section 318 is one of several sets of Constructive Ownership Rules in the code.

It applies when it is expressly made applicable by another section.

It considers four categories of attribution: family,

partnership, corporation and estate or trust.

For family attribution, an individual is

considered as owning stock owned by his or her spouse,

children, grandchildren and parents.

Notice this, siblings, aunts,

uncles and in-laws are not viewed as part of the family for

this rule and there is no attribution from grandparent to grandchild.

The family attribution rules can be waived or

non-applicable in some situations. More on this later.

For partnership attribution, a partner is considered to own stock owned by

a partnership to the extent of the partner's proportionate interest in the partnership.

However, any stock owned by a partner is deemed to be owned in full by the partnership.

For corporate attribution, the stock owned by a corporation is viewed as owned

proportionately by any shareholder owning 50 percent or more of the corporation's stock.

Any stock owned by a shareholder,

who owns 50 percent or more of a corporation,

is deemed to be owned in full by the Corporation.

For a state or trust attribution,

a beneficiary or heir is determined to own the stock owned by an estate or trust

to the extent of the beneficiary or heirs proportionate interest in the estate or trust.

Similar to the other cases,

the stock owned by a beneficiary or heir is

deemed to be owned in full by an estate or trust.

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