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Water Corporation report EssayComparison of Dividends and Redemptions. Bailey is one of four equal unrelated stockholders of Checker Corporation. Bailey has held Checker behave for four eld and has a can in her ancestry of $40,000. Checker has $280,000 of current and accumulated EP and distributes $100,000 to Bailey. What are the tax consequences to Checker and to Bailey if Bailey is an individual and the diffusion is tough as a dividend? The amount of a distribution equals money received plus the FMV of either non money dimension received reduced by all liabilities assumed or acquired by the shareowner. The distribution is treated as a dividend to the extent of the distributing fellowships current and accumulated EP. any(prenominal) superfluous excess istreated as a capital gain. The shareholders basis in the property received is its FMV. The shareholders holding outcome for the property begins on the solar day after the distribution date. When a gage distribut es appreciated property, it must recognize gain as if it sold the property for its FMV instantaneously before the distribution.For gain cite purposes, a propertys FMV is deemed to be at least equal to any liability to which the property is subject or that the shareholder assumes in familiarity with the distribution. A corporation recognizes no loss when it distributes to its shareholders property that has depreciated in value. A corporations EP is increased by any EP gain resulting from a distribution of appreciated property. A corporations EP is reduced by (a) the amount distributed plus (b) the greater of the FMV or EP adjusted basis of any non money property distributed, minus any liabilities to which the property is subject or that the shareholder assumes in connection with the distribution. EP also is reduced by taxes remunerative or incurred on the corporations recognized gain, if any. In Part a, what would be the tax consequences if Bailey were a corporation? The amount of a distribution equals money received plus the FMV of any non money property received reduced by any liabilities assumed or acquired by the shareholder. The distribution is treated as a dividend to the extent of the distributing corporations current and accumulated EP.Any distribution amount exceeding EP is treated as a return of capital that reduces the shareholders stock basis (but not below zero). Any additional excess is treated as a capital gain. The shareholders basis in the property received is its FMV. The shareholders holding period for the property begins on the day after the distribution date. What are the tax consequences to Checker and to Bailey (an individual) if Bailey surrenders all her stock in a buyback qualifying for sale treatment? Sale Exception If the redemption meets specific requirements, the distribution amount received by the shareholder is offset by the adjusted basis of the shares surrendered. The difference generally is treated as a capital gain or lo ss. No basis adaptation occurs. Gain/Loss Recognition Under the sale exception, the corporation recognizes gain (but not loss) as though it has sold distributed noncash property for its FMV direct before redemption. sugar and Profits Adjustment For a redemption treated as a sale, EP is reducedby the portion of current and accumulated attributable to the redeemed stock. Any distribution amount exceeding this portion reduces the corporations paid-in capital. In Part c, what would be the tax consequences if Bailey were a corporation? Sale Exception If the redemption meets specific requirements, the distribution amount received by the shareholder is offset by the adjusted basis of the shares surrendered. This difference is generally treated as a capital gain or loss. No basis adjustment occurs. Which treatment would Bailey prefer if Bailey were an individual? Which treatment would Bailey Corporation prefer? Bailey would prefer to be taxed and treated as an individual. Bailey corporati on would prefer to be treated like a corporation.Compare the tax consequences to the shareholder and the distributing corporation of the following three kinds of corporate distributions routine dividends, stock redemptions, and complete liquidations Ordinary DividendsThe amount of a distribution equals money received plus the FMV of any non money property received reduced by any liabilities assumed or acquired by the shareholder. The distribution is treated as a dividend to the extent of the distributing corporations current and accumulated EP. Any additional excess is treated as a capital gain. The shareholders basis in the property received is its FMV. The shareholders holding period for the property begins on the day after the distribution date. When a corporation distributes appreciated property, it must recognize gain as if it sold the property for its FMV immediately before the distribution.For gain recognition purposes, a propertys FMV is deemed to be at least equal to any l iability to which the property is subject or that the shareholder assumes in connection with the distribution. A corporation recognizes no loss when it distributes to its shareholders property that has depreciated in value. A corporations EP is increased by any EP gain resulting from a distribution of appreciated property. A corporations EP is reduced by (a) the amount distributed plus (b) the greater of the FMV or EP adjusted basis of any non money property distributed, minus any liabilities to which the property is subject or that the shareholder assumesin connection with the distribution. EP also is reduced by taxes paid or incurred on the corporations recognized gain, if any.Stock Redemption for ShareholdersGeneral Rule The distribution amount received by a shareholder in exchange for his or her stock is treated as a dividend to the extent of the distributing corporations EP. The basis of the surrendered stock is added to the basis of the shareholders remaining stock.Distributi ng CorporationGain/Loss Recognition Under the general rule, the corporation recognizes gain (but not loss) as though it had sold distributed noncash property for its FMV immediately before the redemption. Earnings and Profits Adjustment For a redemption treated as a dividend, EP is reduced in the same manner as for fixing dividend.