ACC 565 Benefits of IRC Section 338 Corporate Liquidations, Taxable Acquisition Transactions, and Nontaxable Reorganizations”IRC Section 338 allows a deeme

ACC 565 Benefits of IRC Section 338 Corporate Liquidations, Taxable Acquisition Transactions, and Nontaxable Reorganizations”IRC Section 338 allows a deemed sale election generating immediate taxation to the target corporation and a stepped-up or stepped-down basis to the price paid by the acquiring corporation for the target corporation stock plus liabilities on the deemed sale. Examine at least one (1) benefit of a Section IRC 338 liquidation election for a target corporation. Create a scenario that would demonstrate a favorable IRC Section 338 liquidation election for a target corporation. (check attachment)Constructive Dividends, Redemptions, and Related Party Losses Suppose you are a CPA hired to represent a client who is currently under examination by the IRS. The client is the president and 95% shareholder of a building supply sales and warehousing business. He also owns 50% of the stock of a construction company. The client’s son owns the remaining 50% of the stock of the construction company. (check attachment) Corporate Liquidations, Taxable Acquisition Transactions, and Nontaxable
Reorganizations”
(350 words)
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IRC Section 338 allows a deemed sale election generating immediate taxation to the target
corporation and a stepped-up or stepped-down basis to the price paid by the acquiring
corporation for the target corporation stock plus liabilities on the deemed sale. Examine at least
one (1) benefit of a Section IRC 338 liquidation election for a target corporation. Create a
scenario that would demonstrate a favorable IRC Section 338 liquidation election for a target
corporation.
Constructive Dividends, Redemptions, and Related Party Losses
Suppose you are a CPA hired to represent a client who is currently under examination by the IRS. The
client is the president and 95% shareholder of a building supply sales and warehousing business. He also
owns 50% of the stock of a construction company. The client’s son owns the remaining 50% of the stock
of the construction company. The client has received a Notice of Proposed Adjustments (NPA) on three
(3) significant issues related to the building supply business for the years under examination. The issues
identified in the NPA are unreasonable compensation, stock redemptions, and a rental loss. Additional
facts regarding the issues are reflected below:
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Unreasonable compensation: The taxpayer receives a salary of $10 million composed of a $5
million base salary plus 5% of gross receipts not to exceed $5 million. The total gross receipts of
the building supply business are $300 million. The NPA by the IRS disallows the salary based on
5% of gross receipts as a constructive dividend.
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Stock redemptions: During the audit period, the construction company redeemed 50% of the
outstanding stock owned by the client and 50% of the stock owned by the client’s son, leaving
each with the same ownership percentage of 50%. The IRS treated the redemption as a
distribution under Section 301 of the IRC.
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Rental loss: The rental loss results from a building leased to the construction company owned by
the client and his son.
Use the Internet to research the rules and income tax laws regarding unreasonable compensation, stock
redemptions treated as dividends, and related party losses. Be sure to use the six (6) step tax research
process in Chapter 1 that was demonstrated in Appendix A of your textbook as a guide for your written
response.
Write a three page paper in which you:
1. Based on your research and the facts stated in the scenario, prepare a recommendation for the
client in which you advise either acceptance of the proposed adjustments or further appeal of
the issue based on the potential for prevailing on appeal.
2. Create a tax plan for the future redemption of the client’s stock owned in the construction
company that will not be taxed according to Section 301 of the IRC.
3. Propose a strategy for the client to receive similar amounts in compensation in the future and
avoid the taxation as a constructive dividend.
Your assignment must follow these formatting requirements:
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Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all
sides; citations and references must follow APA or school-specific format. Check with your
professor for any additional instructions.
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Include a cover page containing the title of the assignment, the student’s name, the professor’s
name, the course title, and the date. The cover page and the reference page are not included in
the required assignment page length.
The specific course learning outcomes associated with this assignment are:
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Analyze and research tax issues regarding corporations, partnerships, S corporations, and
consolidated tax returns distributions, or other corporate levies.
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Create client, internal, and administrative documents that appropriately convey the results of
tax research and planning.
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Create an approach to tax research that results in credible and current resources.

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