Code Section 311’s disallowance of the recognition of a loss in non-liquidating distributions is a dangerous tax trap.
When a corporation makes a distribution, the shareholder has dividend income if the corporation has earnings and profits.
The longer the foreign corporation was owned the greater the amount due. tax code, treats the distribution as a sale to Bob. tax law, this gain is taxable to Bob as ordinary income.
The BVI holding company distributes all of the shares of the other foreign corporation to Bob. The BVI holding company has ,000 of tax accounting gain. The corporation argued that, in calculating the gain recognized, the IRS should have determined the fair market value of the distributed property by aggregating the market value of the limited partnership interests the shareholders received instead of calculating the fair market value of the distributed property.
The amount so recharacterized roughly corresponds to the amount of ordinary income the partnership would have if it sold the §751(a) property, thus preventing a partner from converting into a capital gain the ordinary income that would pass through if the partnership sold the property. Example 24: Distribution of Excess Other Property Resulting in the Recognition of Ordinary Income to the Distributee Partner and Capital Gain to the Partnership 3. Rights to Payment for Services Rendered or to Be Rendered 1.
This Portfolio contains (1) a discussion of the computation of §751(a) ordinary gain when a partner sells or exchanges a partnership interest, (2) a discussion of how distributions from a partnership are (or potentially are) to be analyzed under §751(b), in particular in light of the possible application of the principles under §704(c) concerning built-in gain and built-in loss properties, and (3) a complete analysis of the definition of §751(a ) and §751(b) property. Example 25: Distribution of Excess § 751(b) Property Resulting in the Recognition of Capital Loss to the Distributee Partner and Ordinary Income to the Partnership IV.