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Stock Redemptions in Closely-Held Corporations by Mary J. McCann Mary J. McCann, manager in the Kansas City office, has been with the firm since 1954, and has recently received several awards as an outstanding business woman. She is an honoree of Phi Chi Theta, national professional business fraternity for women, and received an award as the outstanding senior woman in the school of business from the University of Kansas Chapter; she was also one of the first three women honored in 1965 for leadership among women in business from the University of Missouri Chapter. Miss McCann is a past president of the American Woman's Society of Certified Public Accountants and the Kansas City Women's Chamber of Commerce. She is presently editor of The Woman CPA; a member of the Missouri Commission on the Status of Women, Small Business Advisory Council for Missouri, American Institute of Certified Public Accountants, American Accounting Association, Missouri Society of CPAs, Kansas Society of CPAs, American Society of Women Accountants, American Woman's Society of CPAs, and the American Association of University Women. Miss McCann received a B.S.B. degree from the University of Kansas, and is a member of Beta Gamma Sigma. Capital gain or dividend? This is the first and foremost question in the mind of a shareholder in a closely-held corporation who is considering a redemption of stock by the corporation without complete liquidation of the corporation. If the redemption is considered to be a distribution in payment in exchange for the stock, he will be taxed on the gain, if any, at capital gain rates. But if it is not considered to be a distribution in exchange for stock, the tax consequences may be extremely costly. The proceeds of the redemption, not just the gain, would then be taxed as a dividend to the extent of the current year's or the accumulated "earnings and profits" (as determined under the Internal Revenue Code) at ordinary income rates. "Earnings and profits" as determined under the Internal Revenue Code may be drastically different from the corresponding amounts in the corporation's records. The Internal Revenue Code provides in general that a redemption is to be treated as an exchange unless it is essentially equivalent to a dividend [Section 302(b) (1)]- Are there any tests for determining with assurance that a stock redemption by a closely-held corporation will be treated as an exchange of stock? In addition to the general provision, the Internal Revenue Code within its framework provides for stock redemptions in the following situations to be considered as exchanges of stock if the qualifying requirements are met: (1) substantially disproportionate redemption [Section 302(b)(2)] 10 THE QUARTERLY
Object Description
Title |
Stock redemptions in closely-held corporations |
Author |
McCann, Mary J. |
Subject |
Close corporations Stocks -- Taxation -- United States |
Personal Name |
McCann, Mary J. |
Portrait |
McCann, Mary J. |
Office/Department |
Touche, Ross, Bailey & Smart. Kansas City Office |
Citation |
Quarterly, Vol. 12, no. 2 (1966, June), p. 10-14 |
Date-Issued | 1966 |
Source | Originally published by: Touche, Ross, Bailey & Smart |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF image with OCR under text, scanned at 400dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi. Digital Accounting Collection |
Date-Digitally Created | 2009 |
Language | eng |
Identifier | Quarterly_1966_June-p10-14 |