1. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Comprehensive Volume Chapter 19 Corporations: Distributions Not In Complete Liquidation

2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 Taxable Dividends Distributions from corporate earnings and profits (E & P) –Treated as a dividend distribution Taxed as ordinary income or as preferentially taxed dividend income Distributions in excess of E & P –Nontaxable to extent of shareholder’s basis (i.e., a return of capital) Excess distribution over basis is capital gain

3. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Earnings & Profits (slide 1 of 2) No definition of E & P in Code Similar to Retained Earnings (financial reporting), but often not the same

4. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 Earnings & Profits (slide 2 of 2) E & P represents: –Upper limit on amount of dividend income recognized on corporate distributions –Corporation's economic ability to pay dividend without impairing capital

5. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 Calculating Earnings & Profits (slide 1 of 4) Calculation generally begins with taxable income, plus or minus certain adjustments –Add previously excluded income items and certain deductions to taxable income including: Muni bond interest Excluded life insurance proceeds Federal income tax refunds Dividends received deduction Domestic production activities deduction

6. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 Calculating Earnings & Profits (slide 2 of 4) Calculation generally begins with taxable income, plus or minus certain adjustments (cont’d) –Subtract certain nondeductible items: Nondeductible portion of meal and entertainment expenses Related-party losses Expenses incurred to produce tax-exempt income Federal income taxes paid Key employee life insurance premiums (net of increase in cash surrender value) Fines, penalties, and lobbying expenses

7. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Calculating Earnings & Profits (slide 3 of 4) Certain E & P adjustments shift effect of transaction from the year of inclusion in or deduction from taxable income to year of economic effect, such as: –Charitable contribution carryovers –NOL carryovers –Capital loss carryovers Gains and losses from property transactions –Generally affect E & P only to extent recognized for tax purposes –Thus, gains and losses deferred under the like-kind exchange provision and deferred involuntary conversion gains do not affect E & P until recognized

8. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 Calculating Earnings & Profits (slide 4 of 4) Other adjustments –Accounting methods for E & P are generally more conservative than for taxable income, for example: Installment method is not permitted Alternative depreciation system required § 179 expense must be deducted over 5 years Percentage of completion must be used (no completed contract method)

9. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 Examples of E & P Adjustments Effect on taxable income for E & P: Transaction Add Subtract Tax-exempt income X Life insurance proceeds X Deferred installment gain X Excess charitable contribution X Ded. of prior excess contribution X Federal income taxes X Officer’s life insurance premium X Accelerated depreciation X

10. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 Current vs Accumulated E & P (slide 1 of 3) Current E & P –Taxable income as adjusted

11. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11 Current vs. Accumulated E & P (slide 2 of 3) Accumulated E & P –Total of all prior years’ current E & P (since February 28, 1913) reduced by distributions from E & P

12. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 Current vs. Accumulated E & P (slide 3 of 3) Distinction between current and accumulated E & P is important –Taxability of corporate distributions depends on how current and accumulated E & P are allocated to each distribution made during year

13. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 Allocating E & P to Distributions (slide 1 of 4) If positive balance in both current and accumulated E & P –Distributions are deemed made first from current E & P, then accumulated E & P –If distributions exceed current E & P, must allocate current and accumulated E & P to each distribution Allocate current E & P pro rata (using dollar amounts) to each distribution Apply accumulated E & P in chronological order

14. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14 Allocating E & P to Distributions (slide 2 of 4) When the tax years of the corporation and its shareholders are not the same –May be impossible to determine the amount of current E & P on a timely basis –Allocation rules presume that current E & P is sufficient to cover every distribution made during the year until the parties can show otherwise

15. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 Allocating E & P to Distributions (slide 3 of 4) If current E & P is positive and accumulated E & P has a deficit –Accumulated E & P IS NOT netted against current E & P Distribution is deemed to be taxable dividend to extent of positive current E & P balance

16. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16 Allocating E & P to Distributions (slide 4 of 4) If accumulated E & P is positive and current E&P is a deficit, net both at date of distribution –If balance is zero or a deficit, distribution is a return of capital –If balance is positive, distribution is a dividend to the extent of the balance –Any current E & P is allocated ratably during the year unless the parties can show otherwise

17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 Cash Distribution Example A $20,000 cash distribution is made in each independent situation: 1 2 3*. Accumulated E & P, beginning of year100,000(100,000) 15,000 Current E & P 50,000 50,000(10,000) Dividend: 20,000 20,000 5,000 *Since there is a current deficit, current and accumulated E & P are netted before determining treatment of distribution.

18. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 Qualified Dividends (slide 1 of 3) For individual taxpayers, qualified dividends are subject to a max 15% tax rate – Beginning in 2008, qualified dividends are exempt from tax for taxpayers in the 10% or 15% rate brackets –The lower rates on dividend income apply to both the regular income tax and the alternative minimum tax Corporations treat dividends as ordinary income and are permitted a dividends received deduction

19. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19 Qualified Dividends (slide 2 of 3) To qualify for lower rates, dividends must be: –Paid by domestic or certain qualified foreign corps Qualified foreign corps include those traded on a U.S. stock exchange or any corp. located in a country that: –Has a comprehensive income tax treaty with the U.S. –Has an information-sharing agreement with the U.S. and –Is approved by the Treasury –Paid on stock held > 60 days during the 121-day period beginning 60 days before the ex-dividend date –Dividends paid to shareholders who hold both long and short positions in the stock do not qualify

20. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20 Qualified Dividends (slide 3 of 3) Qualified dividends are not considered investment income for purposes of determining the investment interest expense deduction –An election is available to treat qualified dividends as ordinary income (taxed at regular rates) and include them in investment interest income –Thus, taxpayers subject to an investment interest expense limitation must compare relative benefits of low tax on qualifying dividends vs. increased amount of deductible investment interest expense

21. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21 Property Dividends (slide 1 of 4) Effect on shareholder: –Amount distributed equals FMV of property Taxable as dividend to extent of E & P Excess is treated as return of capital to extent of basis in stock Any remaining amount is capital gain

22. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 Property Dividends (slide 2 of 4) Effect on shareholder (cont’d): –Reduce amount distributed by liabilities assumed by shareholder –Basis of distributed property = fair market value

23. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23 Property Dividends (slide 3 of 4) Effect on corporation: –Corp. is treated as if it sold the property for fair market value Corp. recognizes gain, but not loss –If distributed property is subject to a liability in excess of basis Fair market value is treated as not being less than the amount of the liability

24. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24 Property Dividends (slide 4 of 4) Effect on corporation’s E & P: –Increases E & P for excess of FMV over basis of property distributed (i.e., gain recognized) –Reduces E & P by FMV of property distributed (or basis, if greater) less liabilities on the property –Distributions of cash or property cannot generate or add to a deficit in E & P Deficits in E & P can arise only through corporate losses

25. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25 Property Distribution Example Property is distributed (corporation’s basis = $20,000) in each of the following independent situations. Assume Current and Accumulated E & P are both $100,000 in each case: 1 2 3. Fair market value of distributed property60,00010,00040,000 Liability on property -0- -0- 15,000 Gain(loss) recognized40,000 -0-20,000 E&P increased by gain40,000 -0-20,000 E & P decrease on dist.60,00020,00025,000

26. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26 Constructive Dividend (slide 1 of 2) Any economic benefit conveyed to a shareholder may be treated as a dividend for tax purposes, even though not formally declared –Need not be pro rata

27. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27 Constructive Dividend (slide 2 of 2) Usually arises with closely held corporations Payment may be in lieu of actual dividend and is presumed to take form for tax avoidance purposes Benefit conveyed is recharacterized as a dividend for all tax purposes –Corporate shareholders are entitled to the dividends received deduction –Other shareholders receive preferential tax rates

28. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28 Examples of Constructive Dividends (slide 1 of 3) Shareholder use of corporate property at reduced cost or no cost (e.g., company car to non-employee shareholder) Bargain sale of property to shareholder (e.g., sale for $1,000 of property worth $10,000) Bargain rental of corporate property

29. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29 Examples of Constructive Dividends (slide 2 of 3) Payments on behalf of shareholder (e.g., corporation makes payments to satisfy obligation of shareholder) Unreasonable compensation

30. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30 Examples of Constructive Dividends (slide 3 of 3) Below market interest rate loans to shareholders High rate interest on loans from shareholder to corporation

31. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 Avoiding Unreasonable Compensation Documentation of the following attributes will help support payments made to an employee- shareholder: –Employee’s qualifications –Comparison of salaries with dividends made in past –Comparable salaries for similar positions in same industry –Nature and scope of employee’s work –Size and complexity of business –Corporation’s salary policy for other employees

32. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32 Stock Dividends (slide 1 of 2) Excluded from income if pro rata distribution of stock, or stock rights, paid on common stock –Five exceptions to nontaxable treatment deal with various disproportionate distribution situations Effect on E & P –If nontaxable, E & P is not reduced –If taxable, treat as any other taxable property distribution

33. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33 Stock Dividends (slide 2 of 2) Basis of stock received –If nontaxable If shares received are identical to shares previously owned, basis = (cost of old shares/total number of shares) If shares received are not identical, allocate basis of old stock between old and new shares based on relative fair market value Holding period includes holding period of formerly held stock –If taxable, basis of new shares received is fair market value Holding period starts on date of receipt

34. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 Stock Rights (slide 1 of 2) Tax treatment of stock rights is same as for stock dividends –If stock rights are taxable Income recognized = fair market value of stock rights received Basis = fair market value of stock rights If exercised, holding period begins on date rights are exercised Basis of new stock = basis of rights plus any other consideration given

35. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35 Stock Rights (slide 2 of 2) If stock rights are nontaxable –If value of rights received < 15% of value of old stock, basis in rights = 0 Election is available which allows allocation of some of basis of formerly held stock to rights –If value of rights is 15% or more of value of old stock, and rights are exercised or sold, must allocate some of basis in formerly held stock to rights

36. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36 Effect of Redemption (slide 1 of 3) If qualified as a redemption: –Shareholder reports gain or loss on surrender of stock Gain taxed at favorable capital gains rates (0%/15%) Shareholder reduces gain by basis in stock redeemed Capital gains may be offset by capital losses, if available

37. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37 Effect of Redemption (slide 2 of 3) If transaction has appearance of a dividend, redemption will not be qualified: –For example, if shareholder owns 100% and corporation buys ½ of stock for $X, shareholder still owns 100%

38. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38 Effect of Redemption (slide 3 of 3) If not qualified as a redemption: –Shareholder reports dividend income Individual shareholders may be taxed at 0%/15% rates But, redemption proceeds may not be offset by basis in stock surrendered Cannot be offset by capital losses –Corporate shareholders may prefer dividend treatment because of the dividends received deduction

39. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39 Transactions Treated as Redemptions (slide 1 of 3) The following types of distributions may be treated as a redemption of stock rather than as a dividend: –Distributions not essentially equivalent to a dividend (subjective test) –Disproportionate distributions (mechanical rules)

40. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40 Transactions Treated as Redemptions (slide 2 of 3) –Distributions in termination of shareholder’s interest (mechanical rules) –Partial liquidations of a corporation where shareholder is not a corporation, and either (1) Distribution is not essentially equivalent to a dividend, or (2) An active business is terminated (May be subjective (1) or mechanical (2))

41. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41 Transactions Treated as Redemptions (slide 3 of 3) –Distributions to pay death taxes (limitation on amount of allowed distribution is mechanical test) Stock attribution rules must be applied, so distribution which appears to meet requirements may not qualify

42. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42 Stock Attribution (slide 1 of 5) Qualified stock redemption must result in substantial reduction in shareholder’s ownership –Stock ownership by certain related parties is attributed back to shareholder whose stock is redeemed

43. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 43 Stock Attribution (slide 2 of 5) Attribution from family members –Stock owned by spouse, children, grandchildren, or parents attributed back to individual

44. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 44 Stock Attribution (slide 3 of 5) Attribution from entity to owner: –Partner: deemed owner of proportionate number of shares owned by partnership –Beneficiary or heir: deemed owner of proportionate shares owned by entity –50% or more shareholder: deemed owner of proportionate shares owned by corporation

45. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 45 Stock Attribution (slide 4 of 5) Attribution from owner to entity –Partnership: deemed owner of total shares owned by partner –Estate or trust: deemed owner of total shares owned by heir or beneficiary –Corporation: deemed owner of total shares owned by 50% or more shareholder

46. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 46 Stock Attribution (slide 5 of 5) Family attribution rules do not apply to redemptions in complete termination of shareholder’s interest Stock attribution rules do not apply to partial liquidations or redemptions to pay death taxes

47. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 47 Not Essentially Equivalent Redemptions (slide 1 of 3) Redemption qualifies for sale or exchange treatment if “not essentially equivalent to a dividend” –Subjective test –Provision was added to deal specifically with redemptions of preferred stock Shareholders often have no control over when preferred shares redeemed Also applies to common stock redemptions

48. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 48 Not Essentially Equivalent Redemptions (slide 2 of 3) To qualify, redemption must result in a meaningful reduction in shareholder’s interest in redeeming corp. Stock attribution rules apply Indicators of a meaningful reduction include: –A decrease in the redeeming shareholder’s voting control –Reduction in rights of redeeming shareholders to Share in corporate earnings, or Receive corporate assets upon liquidation

49. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 49 Not Essentially Equivalent Redemptions (slide 3 of 3) If redemption fails to satisfy any of the qualifying stock redemption rules –Treated as ordinary dividend –Basis in stock redeemed attaches to remaining stock owned (directly or constructively)

50. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 50 Qualifying Disproportionate Redemption (slide 1 of 4) Redemption qualifies as disproportionate redemption if: –Shareholder owns less than 80% of the interest owned prior to redemption –Shareholder owns less than 50% of the total combined voting power in the corporation after the redemption

51. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 51 Qualifying Disproportionate Redemption (slide 2 of 4)

52. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 52 Qualifying Disproportionate Redemption (slide 3 of 4)

53. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 53 Qualifying Disproportionate Redemption (slide 4 of 4) Shareholder has 46 2/3% ownership represented by 35 voting shares (60-25) of 75 (100-25) outstanding voting shares Redemption is qualified disproportionate redemption because: –Shareholder owns < 80% of the 60% owned prior to redemption (80% × 60% = 48%), and –Shareholder owns < 50% of total combined voting power of corporation

54. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 54 Complete Termination Redemptions Termination of entire interest generally qualifies for sale or exchange treatment –Often will not qualify as disproportionate redemption due to stock attribution rules –Family attribution rules will not apply if: Former shareholder has no interest (other than as creditor) for at least 10 years Agree to notify IRS of any disallowed interest within 10 year period

55. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 55 Redemptions in Partial Liquidation (slide 1 of 3) Noncorporate shareholder gets sale or exchange treatment for partial liquidation including: –Distribution not essentially equivalent to a dividend –Under a safe-harbor rule, distribution pursuant to termination of an active business

56. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 56 Redemptions in Partial Liquidation (slide 2 of 3) To qualify, distribution must be made within taxable year plan is adopted or the succeeding taxable year Not essentially equivalent test looks at effect on corporation –Requires genuine contraction of the business of the corporation Difficult to apply due to lack of objective tests Advanced ruling from IRS should be obtained

57. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 57 Redemptions in Partial Liquidation (slide 3 of 3) Under the safe-harbor rule, to meet the complete termination of a business test, the corporation must: –Have two or more active trades or businesses that have been in existence for at least five years Distribution must consist of the assets of a qualified trade or business or the proceeds from the sale of such assets –Terminate one trade or business and continue a remaining trade or business

58. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 58 Redemptions to Pay Death Taxes (slide 1 of 2) Allows sale or exchange treatment if value of stock exceeds 35% of value of adjusted gross estate –Stock of 2 or more corps may be treated as stock of single corp for 35% test if 20% or more of each corp was owned by decedent –Special treatment limited to sum of: Death Taxes Funeral and administration expenses

59. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 59 Redemptions to Pay Death Taxes (slide 2 of 2) Basis of stock is stepped up to fair market value on date of death (or alternate valuation date) –When redemption price equals stepped-up basis, no tax consequences to estate

60. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 60 Effect of Redemption on Corporation (slide 1 of 2) Gain or loss recognition –If property other than cash used for redemption Corporation recognizes gain on distribution of appreciated property Loss is not recognized –Corporation should sell property, recognize loss, and use proceeds from sale for redemption

61. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 61 Effect of Redemption on Corporation (slide 2 of 2) Effect on Earnings and Profits –E & P is reduced in a qualified stock redemption by an amount not in excess of the ratable share of E & P attributable to stock redeemed Corporate expenditures incurred in a stock redemption are not deductible –e.g., accounting, brokerage, legal and loan fees

62. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 62 If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: Dr. Donald R. Trippeer, CPA trippedr@oneonta.edu SUNY Oneonta