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CCH Federal Taxation Comprehensive Topics Chapter 15 Corporate Nonliquidating Distributions. ©2006 , CCH, a Wolters Kluwer business 4025 W. Peterson Ave. Chicago, IL 60646-6085 800 248 3248 www.CCHGroup.com. Chapter 15 Exhibits.

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cch federal taxation comprehensive topics chapter 15 corporate nonliquidating distributions

CCH Federal TaxationComprehensive TopicsChapter 15Corporate Nonliquidating Distributions

©2006, CCH, a Wolters Kluwer business

4025 W. Peterson Ave.

Chicago, IL 60646-6085

800 248 3248

www.CCHGroup.com

chapter 15 exhibits
Chapter 15 Exhibits

1. Effect of Operations on Owners—Comparison Among Entities

2. Effect of Nonstock Distributions on Owners—Comparison Among Entities

3. Effect of Nonstock Distributions on Entities—Comparison Among Entities

4. Effect of Taxable Stock Distributions on Shareholders

5. Effect of Identical, Nontaxable Stock Distributions on Shareholders

6. Effect of Nonidentical, Nontaxable Stock Distributions on Shareholders

7. Effect of Stock Redemptions on Shareholders

8. Effect of Stock Redemptions on Corporations

9. Effect of Complete Liquidations on Shareholders

10. Effect of Complete Liquidations on Corporations

Chapter 15, Exhibit Contents A

CCH Federal Taxation Comprehensive Topics

chapter 15 exhibits3
Chapter 15 Exhibits

11. Nonstock Distributions—Effect on Shareholders

12. Earnings and Profits of C Corporations

13. Nonstock Distributions—Effect on Corporation

14. Nonstock Distributions—Examples

15. Stock Distributions

16. Redemptions (Including Partial Liquidations)—Overview

17. Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders

18. Redemptions (Including Partial Liquidations)—Example on Shareholder Effect

19. Redemptions (Including Partial Liquidations)—Tax Effect on Corporations

20. Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Chapter 15, Exhibit Contents B

CCH Federal Taxation Comprehensive Topics

effect of operations on owners comparison among entities
Effect of Operations on Owners—Comparison Among Entities

Chapter 15, Exhibit 1a

CCH Federal Taxation Comprehensive Topics

effect of operations on owners comparison among entities5
Effect of Operations on Owners—Comparison Among Entities

Chapter 15, Exhibit 1b

CCH Federal Taxation Comprehensive Topics

effect of nonstock distributions on owners comparison among entities
Effect of Nonstock Distributions on Owners—Comparison Among Entities

Chapter 15, Exhibit 2a

CCH Federal Taxation Comprehensive Topics

effect of nonstock distributions on owners comparison among entities7
Effect of Nonstock Distributions on Owners—Comparison Among Entities

Chapter 15, Exhibit 2b

CCH Federal Taxation Comprehensive Topics

effect of nonstock distributions on owners comparison among entities8
Effect of Nonstock Distributions on Owners—Comparison Among Entities

Chapter 15, Exhibit 2c

CCH Federal Taxation Comprehensive Topics

effect of nonstock distributions on entities comparison among entities

C and S Corporations

Partnerships

Does an entity recognize gain or loss on the distribution of:

i) Cash or its own bonds to owners?

ii) Other property (other than its own stock)?

No

Gains: Yes (compute gain in the same way as if the property were sold)

Losses: No (except in complete liquidation)

No

No gain or loss, unless it is part of a disguised sale. In a disguised sale, the partnership’s recognized gain or loss = (a) – (b), where:

(a) = FMV of property dist’d.

(b) = AB of property dist’d.

Effect of Nonstock Distributions on Entities—Comparison Among Entities

Chapter 15, Exhibit 3a

CCH Federal Taxation Comprehensive Topics

effect of nonstock distributions on entities comparison among entities10
Effect of Nonstock Distributions on Entities—Comparison Among Entities

Chapter 15, Exhibit 3b

CCH Federal Taxation Comprehensive Topics

effect of taxable stock distributions on shareholders
Effect of Taxable Stock Distributions on Shareholders

Rules for Taxable Stock Dividends:

1. Upon receipt: Stock dividends are taxable as ordinaryincome at their fair market value (FMV).

2.  Upon sale: Basis of taxable stock dividends = same amount as in (a) above; holding period begins on the day AFTER receipt (i.e., consistent with the general rule for holding period).

Chapter 15, Exhibit 4a

CCH Federal Taxation Comprehensive Topics

effect of taxable stock distributions on shareholders12
Effect of Taxable Stock Distributions on Shareholders

Chapter 15, Exhibit 4b

CCH Federal Taxation Comprehensive Topics

effect of taxable stock distributions on shareholders13
Effect of Taxable Stock Distributions on Shareholders

Solution:

March 31, 20x1 receipt: $4,000 taxable dividend income.

$4,000 = $20/share x (1,000 old x 20%);

June 30, 20x2 sale: $2,000 short-term capital gain.

$2,000 = $6,000 sales proceeds - $4,000 basis of new shares.

(The beginning holding period date is October 1, 20x1, the day AFTER receipt of the stock dividend. A June 30, 20x2 sale results in a short-term holding period.)

Chapter 15, Exhibit 4c

CCH Federal Taxation Comprehensive Topics

effect of identical nontaxable stock distributions on shareholders
Effect of Identical, Nontaxable Stock Distributions on Shareholders

Rules for Identical, Nontaxable Stock Dividends:

1.  Upon receipt: Stock dividends are not taxable.

2. Upon sale: Allocate old basis over old and new shares using the following formula:

Basis per share = old basis  (# old shares + # new shares)

(Holding period of original and new shares begins on day AFTER original acquisition.)

Chapter 15, Exhibit 5a

CCH Federal Taxation Comprehensive Topics

effect of identical nontaxable stock distributions on shareholders15
Effect of Identical, Nontaxable Stock Distributions on Shareholders

Chapter 15, Exhibit 5b

CCH Federal Taxation Comprehensive Topics

effect of identical nontaxable stock distributions on shareholders16
Effect of Identical, Nontaxable Stock Distributions on Shareholders

Solution:

March 31, 20x1 receipt: The stock dividends are not taxable.

June 30, 20x2 sale: $4,000 long-term capital gain (6,000 – 2,000).

$2,000 basis of new shares = $10/share x 200 new shares, where

$10/share = [$12,000  (1,000 old shares + 200 new shares)];

(The beginning holding period date is 4/1/x1, the day AFTER receipt of the original stock. A 6/30/x2 sale results in a long-term holding period.)

Chapter 15, Exhibit 5c

CCH Federal Taxation Comprehensive Topics

effect of nonidentical nontaxable stock distributions on shareholders
Effect of Nonidentical, Nontaxable Stock Distributions on Shareholders

Rules for Nonidentical, Nontaxable Stock Dividends:

1. Upon receipt: Stock dividends are not taxable.

2.  Upon sale: Allocate the original common stock (C/S) basis between the number of original C/S shares and the number of new preferred stock shares (P/S) using relative fair market values as of the date of receipt.

3.  The holding period of the original C/S does not change (i.e., it begins on the day AFTER original acquisition). The holding period of the new P/S shares is the same as the C/S.

Chapter 15, Exhibit 6a

CCH Federal Taxation Comprehensive Topics

effect of nonidentical nontaxable stock distributions on shareholders18
Effect of Nonidentical, Nontaxable Stock Distributions on Shareholders

Chapter 15, Exhibit 6b

CCH Federal Taxation Comprehensive Topics

effect of nonidentical nontaxable stock distributions on shareholders19
Effect of Nonidentical, Nontaxable Stock Distributions on Shareholders

Solution:

March 31, 20x1 receipt: The stock dividends are not taxable.

June 30, 20x2 sale of common stock: $14,000 long-term capital gain

1. $14,000 capital gain: = (20,000 sales price – 8,000 adjusted basis).

2.  $8,000 AB = $12,000 x [(1,000 C/S shares x 16 per share]  [16,000 + (100 P/S shares

x 80 per P/S share)]

3.  Long-term HP: The beginning holding period date is April 1, 20x1, the day AFTER receipt of the original stock. A June 30, 20x2 sale results in a long-term holding period.

June 30, 20x2 sale of preferred stock: $6,000 long-term capital gain

1. $6,000 capital gain: = 10,000 sales price – 4,000 adjusted basis).

2.  $4,000 AB = 12,000 x [(100 P/S shares x 80 per share]  [16,000 + 8,000]

3.  Long-term HP: The beginning holding period date is April 1, 20x1, the same as the common stock. A June 30, 20x2 sale results in a long-term holding period.

Chapter 15, Exhibit 6c

CCH Federal Taxation Comprehensive Topics

effect of stock redemptions on shareholders

Stock Redemptions

Corporations

What is the tax effect of redemptions on shareholders?

If dividend treatment:

Same as non-stock distributions, i.e.,

C Corps

1. Ord. up to curr. E&P;

2.  Ord. up to accum. E&P;

3.  Tax-free up to outside basis

4.  Capital gain on remainder

Effect of Stock Redemptions on Shareholders

Chapter 15, Exhibit 7a

CCH Federal Taxation Comprehensive Topics

effect of stock redemptions on shareholders21
Effect of Stock Redemptions on Shareholders

Chapter 15, Exhibit 7b

CCH Federal Taxation Comprehensive Topics

effect of stock redemptions on shareholders22
Effect of Stock Redemptions on Shareholders

Chapter 15, Exhibit 7c

CCH Federal Taxation Comprehensive Topics

effect of stock redemptions on shareholders23
Effect of Stock Redemptions on Shareholders

Chapter 15, Exhibit 7d

CCH Federal Taxation Comprehensive Topics

effect of stock redemptions on corporations

Does a corporation recognize gain or loss on redemption?

(a)  If it distributes cash or its own bonds to owners?

(b)  If it distributes other property to its owners?

No

Gains: Yes, computed as if the property were sold; Losses: No.

Effect of Stock Redemptions on Corporations

Chapter 15, Exhibit 8

CCH Federal Taxation Comprehensive Topics

effect of complete liquidations on shareholders

Does an owner recognize gain or loss in a complete liquidation?

1. Parent owns less than 80% of subsidiary:

Yes, gains and losses are recognized, using the same formula as for redemptions with sales treatment, i.e., capital gain/loss = (a) – (b) – (c):

(a) = Fair market value of property received

(b) = Corporate debt assumed

(c) = Basis of stock given up

2. Parent owns 80% or more of subsidiary:

No gain or loss

Effect of Complete Liquidations on Shareholders

Chapter 15, Exhibit 9

CCH Federal Taxation Comprehensive Topics

effect of complete liquidations on corporations
Effect of Complete Liquidations on Corporations

Chapter 15, Exhibit 10

CCH Federal Taxation Comprehensive Topics

nonstock distributions effect on shareholders
Nonstock Distributions—Effect on Shareholders

What is the amount of distributions other than stock?

The amount of distribution other than stock of the corporation is: (a) – (b), where,

(a) = The fair market value of all property received (other than the common stock of the distributing corporation)

(b) = Liabilities of the distributing corporation, both recourse and nonrecourse, assumed by the shareholder

Chapter 15, Exhibit 11a

CCH Federal Taxation Comprehensive Topics

nonstock distributions effect on shareholders28
Nonstock Distributions—Effect on Shareholders

Chapter 15, Exhibit 11b

CCH Federal Taxation Comprehensive Topics

nonstock distributions effect on shareholders29
Nonstock Distributions—Effect on Shareholders

What is a shareholder’s basis in the nonstock property distributed by the corporation?

Basis = Fair market value of the asset. The assumption of a liability does not affect basis.

Chapter 15, Exhibit 11c

CCH Federal Taxation Comprehensive Topics

earnings and profits of c corporations
Earnings and Profits of C Corporations

Chapter 15, Exhibit 12

CCH Federal Taxation Comprehensive Topics

nonstock distributions effect on corporation
Nonstock Distributions—Effect on Corporation

Does a corporation recognize a gain or loss on the distribution of cash or its own bonds?

No.

Chapter 15, Exhibit 13a

CCH Federal Taxation Comprehensive Topics

nonstock distributions effect on corporation32
Nonstock Distributions—Effect on Corporation

Does a corporation recognize a gain or loss on the distribution of an asset?

Yes for gains (unlike partnerships), no for losses (similar to partnerships). A corporation is considered to have sold the property to the shareholder at the larger of FMV of the asset or the debt associated with the asset. Gain is computed as follows:

Gain = [greater of (a) or (b)], minus (c), where,

(a) = FMV of property distributed

(b) = corporation’s debt relief (if any)

(c) = corporations adjusted basis in the property distributed

The character of the gain is based on the character of the assets distributed. However if the shareholder owns > 50% of the o/s stock, the corporation’s gain is ordinary, regardless of the character of the assets.

Chapter 15, Exhibit 13b

CCH Federal Taxation Comprehensive Topics

nonstock distributions examples

Nonstock Distributions where Mortgage > Fair Market Value of Property

Facts:

1.  X Corp. distributed land to Fred, a shareholder. The land had been held as investment by X for five years. At the time of the distribution, the land had a FMV of $60, a basis to X of $5, and was subject to a mortgage of $70.

2.  X Corp.’s current and accumulated E&P was $2 and $18, respectively.

Questions:

1

What is the amount and character of the recognized gain to X Corp. as a result of this distribution?

2

If Fred the stockholder has a $20 basis in his X stock, what is the amount and character of his recognized gain?

3

What is Fred’s basis in the land?

Nonstock Distributions—Examples

Chapter 15, Exhibit 14a

CCH Federal Taxation Comprehensive Topics

nonstock distributions examples34
Nonstock Distributions—Examples

Chapter 15, Exhibit 14b

CCH Federal Taxation Comprehensive Topics

nonstock distributions examples35
Nonstock Distributions—Examples

Chapter 15, Exhibit 14c

CCH Federal Taxation Comprehensive Topics

nonstock distributions examples36

Example 2, Question 2 Computation

Amount of distribution = $50

[(Land FMV: 60) - (Mortgage on Land: 10) = 50]

Distributions to the Extent of:

Tier

Tax Treatment to Shareholder

Current E&P

2

1.

Ordinary income based on FMV

Accumulated E&P

18

2.

Ordinary income based on FMV

Shareholder’s basis in the stock

3.

Nontaxable return of capital

20

Any balance remaining

10

4.

Capital gain

50

Total amount distributed

Nonstock Distributions—Examples

Chapter 15, Exhibit 14d

CCH Federal Taxation Comprehensive Topics

stock distributions
Stock Distributions

What types of stock distributions are taxable to shareholders?

Stock dividends are usually tax-free to the shareholder unless any one of the following exceptions occurs under Code Sec. 305(b):

1. In lieu of cash. Shareholders could have opted for cash, but instead chose stock.

2.  Disproportionate distributions. (e.g., some shareholders receive property, others receive stock.)

3.  Common/preferred. (e.g., some shareholders receive C/S dividends, others receive P/S.)

4.  Dividends “of” convertible preferred stock.

5.  Dividends “of” preferred stock “on” preferred stock.

Chapter 15, Exhibit 15a

CCH Federal Taxation Comprehensive Topics

stock distributions38
Stock Distributions

Exceptions 1 - 4(from previous slide) are taxable because they allow the proportionate ownership mix of the shareholders to change. (Economic benefit doctrine applies.)

Exception 5 (from previous slide) is taxable because the recipients of preferred stock dividends get an increase in their priority claims (vis-à-vis common shareholders) against corporate net assets in event of liquidation. (Again, the economic benefit doctrine applies.)

Chapter 15, Exhibit 15b

CCH Federal Taxation Comprehensive Topics

slide39

What is the tax effect of stock dividends on the corporation and its shareholders?

It depends on whether stock dividends are taxable or nontaxable:

Corporate Treatment

Taxable

Nontaxable

Tax effect

Never a gain or loss on distribution

Never a gain or loss on distribution

E&P

Reduce E&P by market value

No effect on E&P

Shareholder treatment

Taxable

Nontaxable

Tax effect

Ordinary income based on market value at date of receipt

Not taxable until sold

Basis in new stock

Market value at date of receipt

Allocate old basis over old and new shares

Stock Distributions

Chapter 15, Exhibit 15c

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations overview
Redemptions (Including Partial Liquidations)—Overview

What is a stock redemption?

Stock is redeemed when a corporation acquires its own stock from a shareholder in exchange for cash or other property. Redemptions occur for numerous reasons, including:

1. To allow current shareholders to retain complete control of the corporation when one of them wishes to terminate her interest in the corporation.

2.  To allow a shareholder to terminate her interest in the corporation when it is difficult to find an outside buyer (i.e., the corporation stock is not publicly traded).

3.  To allow the corporation to “invest in itself” when future stock appreciation is anticipated.

4.  To build up treasury stock for later distribution to employees as a performance incentive.

Chapter 15, Exhibit 16a

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations overview41
Redemptions (Including Partial Liquidations)—Overview

What is the tax effect of redemptions to the shareholder?

The tax effect depends on whether the shareholder is required to treat the distribution as:

1. Dividend treatment. Receipt of nonstock distributions treatment (i.e., cash or other property), and stock dividends other than those qualifying for sales treatment (discussed below); or,

2.  Sale treatment. Sale of stock to the corporation.

Chapter 15, Exhibit 16b

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations overview42
Redemptions (Including Partial Liquidations)—Overview

A shareholder gets dividend treatment unless the redemptions cause one of the following 5 conditions to occur:

1. Terminate the shareholder’s entire interest.

2. Are substantially disproportionate between shareholders. This condition exists if the shareholder:

(i) gives up over 20% of his voting and nonvoting common stock; AND

(ii) owns less than 50% of total corporate voting stock after the redemption.

3.  Are NOT essentially equivalent to a dividend. Congress is vague on this condition. The courts have held that this condition exists if there is a “business contraction”—a corporation liquidating a “segment” of an existing business, such as a product line. Distribution of “excess” inventory or unwanted assets does not count (i.e., IS essentially equivalent to a dividend).

4. Are from a shareholder, other than a corporation, in partial liquidation. This condition occurs if the corporation was actively engaged in two or more businesses over the past five years and decided to shut one down and distribute its assets. (Note that “3” above referred to a “segment” of a business, while “4” refers to an entire business.)

5. Are received by an estate to the extent of death taxes and administrative expenses.

If one of these 5 conditions occurs, then the shareholder gets sale treatment.

Chapter 15, Exhibit 16c

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on shareholders
Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders

Chapter 15, Exhibit 17a

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on shareholders44
Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders

Chapter 15, Exhibit 17b

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on shareholders45
Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders

Chapter 15, Exhibit 17c

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on shareholders46
Redemptions (Including Partial Liquidations)—Tax Effect on Shareholders

Chapter 15, Exhibit 17d

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on shareholder effect
Redemptions (Including Partial Liquidations)—Example on Shareholder Effect

Facts:

1. In 20x1, X Corporation has current E&P of $1,000,000.

2.  Emad owns 100 shares of X Corporation’s 1,000 shares outstanding. His basis in the 100 shares is $100,000 and the shares had been held long-term.

3.  On December 31, 20x1, X distributes land held for investment to Emad, and as part of the exchange, redeems 10 of Emad’s 100 shares.

4.  On the date of redemption, the land had a FMV of $50,000 and a basis to X of $15,000. Also, the land was subject to a $20,000 mortgage that Emad assumed.

Questions:

What are the tax consequences to Emad if the redemption is treated as a dividend?

What if the redemption were treated as a sale?

Chapter 15, Exhibit 18a

CCH Federal Taxation Comprehensive Topics

slide48

Redemptions (Including Partial Liquidations)—

Example on Shareholder Effect

Chapter 15, Exhibit 18b

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on corporations
Redemptions (Including Partial Liquidations)—Tax Effect on Corporations

What is the tax effect of redemptions to the corporation?

Gain or loss recognition: Under Code Sec. 311, losses are NOT recognized. However, gains are recognized based on: [Greater of (a) or (b)], less (c), where,

(a) = FMV of property transferred,

(b) = Debt relief, and

(c) = Adjusted basis of property transferred by the corporation to a shareholder to redeem her shares.

This formula applies to both the Dividend Treatment Method and the Sales Treatment Method. Of course, if the corporation pays cash, and has no debt relief, it recognizes no gain, since [FMV – AB of cash = 0].

Chapter 15, Exhibit 19a

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations tax effect on corporations50
Redemptions (Including Partial Liquidations)—Tax Effect on Corporations

Character of gainThe character of gain is based on the character of the property distributed (e.g., an inventory distribution creates OI if FMV > AB).

Chapter 15, Exhibit 19b

CCH Federal Taxation Comprehensive Topics

slide51

Redemptions (Including Partial Liquidations)—

Tax Effect on Corporations

Redemption expenses incurred In general, the costs incurred by a corporation in the redemption of stock are NOT deductible. These costs, such as transfer fees and legal and accounting fees, must be capitalized but they are NOT amortizable. Generally, they are not deducted until complete liquidation.

Chapter 15, Exhibit 19c

CCH Federal Taxation Comprehensive Topics

slide52

Redemptions (Including Partial Liquidations)—

Tax Effect on Corporations

Effect on E&PThe effect on the corporation’s E&P depends on shareholder treatment. Shareholders treat the redemption as either:

1. Dividend treatment: Receipt of a dividend (i.e., in the form of cash or other property by the shareholder); or

2.  Sale treatment: Sale of shareholder’s stock to the corporation.The effect on a corporation’s E&P is explained in the following slide, and the tax effect to shareholders is discussed after the next section.

Chapter 15, Exhibit 19d

CCH Federal Taxation Comprehensive Topics

slide53

Redemptions (Including Partial Liquidations)—

Tax Effect on Corporations

Corp. Effect

If Dividend Treatment to Shareholder

If Sale Treatment to Shareholder

Original E&P

Original E&P

(a)

(b)

 E&P by:

Corporate gain on property dist’n

[Greater of FMV of property dist’d or debt relief; Less: Basis of property transferred]

Same as with dividend treatment.

(c)

 E&P by:

Corp. liabilities assumed by S/H

Same as with dividend treatment.

(d) = (a)+(b)+(c)

= Adjusted E & P

= Adjusted E & P

(e)

 E&P by:

Greater of (i) or (ii), where

(i)  = FMV of prop. distributed to S/H

(ii) = Debt relief

(e) = (d) x [# redeemed shares  # shares outstanding before redemption]

(cannot exceed the amount of the distribution)

(f)

 Paid-in-

Capital:

N/A

[(f) = Greater of (i) or (ii), minus (iii), where

(i) = FMV of prop. distributed to S/H

(ii) = Debt relief; (iii) = (e) above

Chapter 15, Exhibit 19e

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on corporate effect
Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Facts (same as previous example but recapped below):

1. In 20x1, X Corporation has current E&P of $1,000,000.

2.  Emad owns 100 shares of X Corporation’s 1,000 shares outstanding. His basis in the 100 shares is $100,000 and the shares had been held long-term.

3.  On December 31, 20x1, X distributes land held for investment to Emad, and as part of the exchange, redeems 10 of Emad’s 100 shares.

4.  On the date of redemption, the land had a FMV of $50,000 and a basis to X of $15,000. Also, the land was subject to a $20,000 mortgage that Emad assumed.

Question: What are the tax consequences to X Corp. if the redemption is treated as a dividend?

Chapter 15, Exhibit 20a

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on corporate effect55
Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Chapter 15, Exhibit 20b

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on corporate effect56
Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Chapter 15, Exhibit 20c

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on corporate effect57
Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Chapter 15, Exhibit 20d

CCH Federal Taxation Comprehensive Topics

redemptions including partial liquidations example on corporate effect58
Redemptions (Including Partial Liquidations)—Example on Corporate Effect

Chapter 15, Exhibit 20e

CCH Federal Taxation Comprehensive Topics

slide59

Redemptions (Including Partial Liquidations)—

Example on Corporate Effect

Non-corporate shareholders tend to prefer sales treatment

because:

1. Gain is reduced by the basis of the stock redeemed; and

Gain is subject to the favorable capital gains rate.

Corporate shareholders tend to prefer dividend treatment

because:

70% to 100% of the dividend income can be offset by thedividend-received deduction (DRD), which is available only to corporate shareholders.

Chapter 15, Exhibit 20f

CCH Federal Taxation Comprehensive Topics