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Essay / Research Paper Abstract
A 4 page paper discussing the retirement plans of an executive with a small company. Mr. Burton owns 58,000 of the 100,000 outstanding shares of Mirkwood stock and wants to redeem only as many shares as the federal government will see as a sale instead of a dividend distribution. He seeks a sale that meets the requirements of a substantially disproportionate redemption. The paper calculates how many shares the company will need to redeem. Bibliography lists 2 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSacctTaxPlan.rtf
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Unformatted sample text from the term paper:
58,000 of the 100,000 outstanding shares of Mirkwood stock with a $50 basis per share. He wants to retire from business, and Mirkwoods board of directors has offered to redeem
any number of his shares for FMV ($120 per share). Mr. Burton wants to surrender enough shares so that the redemption will be treated as a sale instead of a
dividend distribution." Mr. Burtons concern is how the redemption is treated for tax purposes. Federal Requirements Cheslowitz (1993) explains nuances of distributions
in stock redemption as determinants of how such transactions are viewed for tax purposes. "There are four ways for a redemption to be taxed as an exchange" (Cheslowitz, 1993),
one of which is by means of the Substantially Disproportionate Redemption. For a transaction to qualify as a Substantially Disproportionate Redemption, the shareholder must meet several tests: * Immediately
after the redemption, the shareholder must "own less than 50% of the combined voting power of all classes of stock entitled to vote" (Cheslowitz, 1993); * The shareholder must own
"less than 80% of the shareholders ownership of stock prior to the distribution (Cheslowitz, 1993); and * The redemption must be made in a single transaction - i.e., a
series of non-qualifying redemptions cannot culminate in "distributions not substantially disproportionate to the shareholder" Cheslowitz, 1993). Achieving a substantially disproportionate redemption was one of Mr. Burtons goals. In
order to achieve that goal, he needed to ensure that he finalize the transaction owning 80 percent less stock than he did at the beginning of the transaction. a. Determine the
minimum number of whole shares that Mirkwood can redeem from Mr. Burton. Prior to redemption of shares, Mr. Burton owned 58 percent of
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