To: File
From: Cesar Chiong
Date: December 3, 2015
Re: The tax consequences of the proposed liquidation
Facts
Wheeler Electrical Supplies, Inc., is an accrual basis, and a calendar year C Corporation, has been in the business since 1983, in Texas. Wheeler Electrical has four individuals shareholders, Brian and Ashely Clay and their daughters Angela and Kristin, all of them possess the same numbers of share in wheeler’s incorporation qualified as §1244 stock. Angela purchased the 300 outstanding shares of the others for a nominal total price of $1,000 because the company is not doing well and they do not want to be part of it anymore. Angela’s basis in her 100 shares is $5,000.
One of the problems that might be having an impact on the company …show more content…
Issue and Conclusion #1
How much will be the gain or loss of Wheeler Electrical Supplies Inc. on the distribution of the plant, building, and land?
The gain of Wheeler Electrical Supplies Inc. on the distribution of the plant, building, and land is $195,000.
Analysis 1
If Angela decides to proceed with the liquidation of wheeler, will follow the section 336(a) which state “Gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.” In this case Wheeler has land for a basis of $175,000, a basis of $130,000 in building and plant, in the other side, $150,000 of fair value market in the land, and $230,000 in building and plant. The liability in the land, building, and plant is $500,000, and in order to get the gain or loss in the transfer we need to subtract the total liability against the total basis. This gain will be …show more content…
The tax liability will be $29,920
Analysis 3
SEC. 108 states that in the income from discharge of indebtedness the tax attributes affected are: NOL, Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year and capital loss carryovers, Any net capital loss for the taxable year of the discharge, and any capital loss carryover to such taxable year.
After getting the gain from the transfer of the building, land, and equipment, we also calculate the gain on the inventory would give $18,000. The total gain generate from this liquidation is $213,000; this is the addition of the inventory and the building, land, and equipment. Also we know that the corporation has a $50,000 of current loss in the year, and a net operating loss carryforward of $75,000. Then, the $213,000 of the gain will be reduce by the $50,000 of current loss and $75,000 of the net operating loss carryforward which give a total of $88,000 of income. This $88,000 will be multiply by the 34% of the tax corporation which will give a tax liability of $29,920. Issue and Conclusion 4
There is a gain in the negotiation with
From: Cesar Chiong
Date: December 3, 2015
Re: The tax consequences of the proposed liquidation
Facts
Wheeler Electrical Supplies, Inc., is an accrual basis, and a calendar year C Corporation, has been in the business since 1983, in Texas. Wheeler Electrical has four individuals shareholders, Brian and Ashely Clay and their daughters Angela and Kristin, all of them possess the same numbers of share in wheeler’s incorporation qualified as §1244 stock. Angela purchased the 300 outstanding shares of the others for a nominal total price of $1,000 because the company is not doing well and they do not want to be part of it anymore. Angela’s basis in her 100 shares is $5,000.
One of the problems that might be having an impact on the company …show more content…
Issue and Conclusion #1
How much will be the gain or loss of Wheeler Electrical Supplies Inc. on the distribution of the plant, building, and land?
The gain of Wheeler Electrical Supplies Inc. on the distribution of the plant, building, and land is $195,000.
Analysis 1
If Angela decides to proceed with the liquidation of wheeler, will follow the section 336(a) which state “Gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.” In this case Wheeler has land for a basis of $175,000, a basis of $130,000 in building and plant, in the other side, $150,000 of fair value market in the land, and $230,000 in building and plant. The liability in the land, building, and plant is $500,000, and in order to get the gain or loss in the transfer we need to subtract the total liability against the total basis. This gain will be …show more content…
The tax liability will be $29,920
Analysis 3
SEC. 108 states that in the income from discharge of indebtedness the tax attributes affected are: NOL, Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year and capital loss carryovers, Any net capital loss for the taxable year of the discharge, and any capital loss carryover to such taxable year.
After getting the gain from the transfer of the building, land, and equipment, we also calculate the gain on the inventory would give $18,000. The total gain generate from this liquidation is $213,000; this is the addition of the inventory and the building, land, and equipment. Also we know that the corporation has a $50,000 of current loss in the year, and a net operating loss carryforward of $75,000. Then, the $213,000 of the gain will be reduce by the $50,000 of current loss and $75,000 of the net operating loss carryforward which give a total of $88,000 of income. This $88,000 will be multiply by the 34% of the tax corporation which will give a tax liability of $29,920. Issue and Conclusion 4
There is a gain in the negotiation with