Chapter 14
1. Please describe the concept of "double taxation" and discuss which entity(ies) are subject to this type of taxation. (5 pts)
A C Corporation has shareholders and therefore subject to double taxation. The double tax includes the tax the corporation pays taxes on its profits as well as the distributions to its shareholders.
2. What type of taxpayers are considered "eligible" taxpayers with regard to special ordinary loss treatment of IRC Section 1244 stock? (5 pts.)
Individuals report ordinary losses from the sale or exchange (including worthlessness) of section 1244 (small business) stock on line 10.
To qualify as section 1244 stock, all six of the following requirements must be met.
1. You acquired the stock after June 30, 1958, upon original issuance of the shares from a domestic corporation (or the stock was acquired by a partnership in which you were a partner continuously from the date the stock was issued until the time of the loss).
2. If the stock was issued before November 7, 1978, it was issued under a written plan that met the requirements of Regulations section 1.1244(c)-1(f), and when that plan was adopted, the corporation was treated as a small business corporation under Regulations section 1.1244(c)-2(c).
3. If the stock was issued after November 6, 1978, the corporation was treated as a small business corporation at the time the stock was issued under Regulations section 1.1244(c)-2(b). To be treated as a small business corporation, the total amount of money and other property received by the corporation for its stock as a contribution to capital and paid-in surplus generally may not exceed $1 million.
4. The stock was issued for money or other property (excluding stock or securities).
5. The corporation, for its 5 most recent tax years ending before the date of the loss, derived more than 50% of its gross receipts from sources