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Under IRC Section 311(b)(2), when a corporation distributes a property,

 

Under IRC Section 311(b)(2), when a corporation distributes a property, subject to a liability, or the shareholder assumes the obligation of the distributing corporation, the fair market value (FMV) of the property is at least equal to the amount of the liability.

  • Assume your client made a nonliquidating distribution with FMV exceeding its adjusted basis.
  • What are the potential tax effects to the distributing company (client) and the receivers (shareholders)?
  • Propose a plan in which you mitigate the potential tax impact on your client and the shareholders

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