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Category: Tax
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Experience:  32 years tax experience, including four years at a Big 4 firm.
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IS A STOCKHOLDER TAXED ON THE NET ASSETS DISTRIBUTED IN A TERMINATION

Resolved Question:

IS A STOCKHOLDER TAXED ON THE NET ASSETS DISTRIBUTED IN A TERMINATION OF
ENTIRE INTEREST UNTILIZING THE ZENZ DOCTRINE OR ON THE TOTAL PRICE OF THE STOCK OFFERED? TOTAL OFFER IS 27,500m, BUT NET ASSET DIST IS 13,789?
Submitted: 2 years ago.
Category: Tax
Expert:  PDtax replied 2 years ago.

PDtax :

Hi from Just Answer. Zenz v. Quinlivan laid the groundwork...Q & A

Expert:  PDtax replied 2 years ago.
Zenz set the tone for getting capital gain treatment for liquidating distributions, using a buyer of additional shares, in effect replacing Zenz as shareholder. Regardless of E & P accumulated, capital gains treatment was allowed.

If you have a third party buyer (to circumvent the substantially disproportionate distribution problem), shareholder would be taxed based on sale proceeds at fmv less basis in the shares. Use the total amount offered, 27,500m.

Several sources were used to assemble this answer, including: http://www.staleylaw.com/images/Sell_Business_14199.2.pdf, http://www.leagle.com/xmlResult.aspx?page=2&xmldoc=19541127213F2d914_1888.xml&docbase=CSLWAR1-1950-1985&SizeDisp=7, and http://www.woodporter.com/Publications/Articles/ma/129901a.htm.

Thanks for a great question. Please provide positive feedback when you close out your question, or ask any supporting questions you may have.
Customer: replied 2 years ago.

Acquiring corp insist that taxpayer would only pay tax on $13,879 ,


so for clarification purposes, you are telling me that the taxpayer would pay tax on the full $27,500M x 15% for a tax owed of $4,125,000.


 

Expert:  PDtax replied 2 years ago.
I misunderstand the transaction, then.

If you are using Zenz to sell shares for 27,500m, then to buy shares for 13,879m, then I agree with you, Zenz treatment for the purchased shares should be for the consideration given to that shareholder, which I assume is 13,879m.

Thanks from Just Answer.
Customer: replied 2 years ago.

So now you are telling me that they only tax on the 13,879M


and no tax is based on the difference to get to $27,500?


Only taxed on net assets distributed of $13,879?


 


 

Expert:  PDtax replied 2 years ago.
You have been unclear on the amount of consideration paid to seller. If seller is to be paid 13,879m, that is the sale price of their transaction. If seller instead receives 27,500m, that is their sale price.

Thanks from Just Answer.
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 2192
Experience: 32 years tax experience, including four years at a Big 4 firm.
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