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1 page/β‰ˆ275 words
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APA
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Literature & Language
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English (U.S.)
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Topic:

Preferred Stock Bailouts and Personal Holding Company

Coursework Instructions:

"Preferred Stock Bailouts and Personal Holding Company" Please respond to the following:
From your analysis of Section 306 in the e-Activity, differentiate between the tax treatment of earnings and profit on the distributing corporation of both a sale of Section 306 stock and redemption of Section 306 stock. Suggest the most important reasons for this differentiation in tax treatment.
Per the text, the personal holding company (PHC) tax penalizes taxpayers who enter into tax-motivated transactions designed to shelter passive income of closely held corporations from higher individual tax rates. Suppose you represent a professional athlete who is the majority owner of a corporation. The corporation has several personal service contracts with advertising agencies and endorsements for your client in addition to passive income. Propose a plan in which you eliminate the potential for the PHC tax on the client’s corporation.
THESE ARE TWO SEPARATE DISCUSSION QUESTIONS. BOTH NEED A RESPONSE

Coursework Sample Content Preview:

Preferred Stock Bailouts and Personal Holding Company
Name
Course
Instructor
Date
Preferred Stock Bailouts
Proceeds of sale or redemption of section 306 stock is treated as ordinary income or distribution where section 301 applies. In other words, if a corporation has E &P and the distribution would ordinarily be treated as dividends and is distributed as non-voting preferred stock then it will be taxed as ordinary income. On the other hand, redemption of 306 stock is treated like a distribution where §301 is applicable. The amount of gain taxable is dependent on earnings and profits during redemption rather than the time of the original distribution. The differentiation is tax treatment is important as section 306 was enacted to discourage trade in preferred stock transactions where shareholders could withdraw E&P without reducing interest in a corporation. This is especially in cases where tax-free sock dividend are lat...
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