parts a, d,e,f,g

248 assets of a liquidated subsidiary or the proceeds of a sale of such assets, a corporate separation, governed by section 355, and not a corporate A distribution of the stock of the subsidiary under such circumstances is contraction. Similarly, as in the present case, where P sells all of the stock of its wholly owned subsidiary, S, and distributes the proceeds to its shareholders, there is no basis for attributing the business activities of S and distinct from its shareholders. New Colonial Ice Co. v. Helvering, 292 to P. It is well established that a corporation is a legal entity separate Commissioner, 319 U.S. 436 (1943), 1943 C.B. 1011. Although the assets of P are reduced by the subsequent distribution of the sale proceeds, the sale by P of the stock is not in and of itself sufficient to effect contraction of the business operations of P within the contemplation of section 346(a)(2) of the Code. Rather, the overall transaction has the economic significance of the sale of an investment and distribution of the proceeds. Accordingly, the distribution by P to its shareholders of the proceeds of the sale of the S stock does not qualify as a distribution in partial liquidation within the meaning of section (302(e)(1)] of the Code, and the distribution will be treated as a distribution by P of property taxable to the P shareholders under section 301 by reason of section 302(d). See section 1.302-2(b) of the regulations, which provides that all distributions in pro rata redemption of a part of the stock of a corporation generally will be treated as distributions under section 301 if the corporation has only one class of stock outstanding. PROBLEM Alpha Corporation operates a book publishing business ("Books") and a bar exam review course ("Cram") as divisions (i.e., not as separately incorporated entities). Alpha's single class of common stock outstanding is owned in equal shares by Michael, Pamela (Michael's wife) and Iris Corporation. Neither Michael nor Pamela owns any stock in Iris. Alpha also owns all of the stock of Beta Corporation, a separately incorporated company which is engaged in the beta processing business, and it directly owns a diversified securities portfolio. What are the shareholder level tax consequences of the following alternative transactions: (a) Alpha has operated Books and Cram for more than five years and it distributes the assets of Books to its three equal shareholders in redemption of 50 shares from each shareholder. Any different result if the redemption without an actual surrender of shares? (b) Is there a different result in (a), above, if Alpha had purchased Books three years ago for cash? made so, why should that matter? CHAPTER 5 REDEMPTIONS AND PARTIAL LIQUIDATIONS What if Alpha acquired Books three years ago in a tax-free reorganization? (c) What if all the assets of Books were destroyed by fire and Alpha distributes one-half of the insurance proceeds equally to its three shareholders in redemption of an appropriate number of shares of stock and retains the remaining proceeds to carry on its book publishing business on a somewhat smaller scale? (d) Same as (a), above, except that Alpha distributes the assets of Books to Michael in redemption of all of his stock. (e) Same as (a), above except that Alpha distributes the assets of Books to Iris in redemption of all of its Alpha stock. (f) Alpha distributes the securities portfolio to its three equal shareholders in redemption of 20 shares from each shareholder. (g) Alpha sells all of its Beta stock and distributes the proceeds pro rata to the shareholders in redemption of 20 shares from each. (h) Same as (g), above, except that Alpha liquidates Beta and then distributes the assets of Beta's business, which Beta has operated for more than five years. E. CONSEQUENCES TO THE DISTRIBUTING CORPORATION 1. DISTRIBUTIONS OF APPRECIATED PROPERTY IN REDEMPTION Code: $ 311. In the preceding chapter, the story of the decline of the General noult on General Utilities in 248 assets of a liquidated subsidiary or the proceeds of a sale of such assets, a corporate separation, governed by section 355, and not a corporate A distribution of the stock of the subsidiary under such circumstances is contraction. Similarly, as in the present case, where P sells all of the stock of its wholly owned subsidiary, S, and distributes the proceeds to its shareholders, there is no basis for attributing the business activities of S and distinct from its shareholders. New Colonial Ice Co. v. Helvering, 292 to P. It is well established that a corporation is a legal entity separate Commissioner, 319 U.S. 436 (1943), 1943 C.B. 1011. Although the assets of P are reduced by the subsequent distribution of the sale proceeds, the sale by P of the stock is not in and of itself sufficient to effect contraction of the business operations of P within the contemplation of section 346(a)(2) of the Code. Rather, the overall transaction has the economic significance of the sale of an investment and distribution of the proceeds. Accordingly, the distribution by P to its shareholders of the proceeds of the sale of the S stock does not qualify as a distribution in partial liquidation within the meaning of section (302(e)(1)] of the Code, and the distribution will be treated as a distribution by P of property taxable to the P shareholders under section 301 by reason of section 302(d). See section 1.302-2(b) of the regulations, which provides that all distributions in pro rata redemption of a part of the stock of a corporation generally will be treated as distributions under section 301 if the corporation has only one class of stock outstanding. PROBLEM Alpha Corporation operates a book publishing business ("Books") and a bar exam review course ("Cram") as divisions (i.e., not as separately incorporated entities). Alpha's single class of common stock outstanding is owned in equal shares by Michael, Pamela (Michael's wife) and Iris Corporation. Neither Michael nor Pamela owns any stock in Iris. Alpha also owns all of the stock of Beta Corporation, a separately incorporated company which is engaged in the beta processing business, and it directly owns a diversified securities portfolio. What are the shareholder level tax consequences of the following alternative transactions: (a) Alpha has operated Books and Cram for more than five years and it distributes the assets of Books to its three equal shareholders in redemption of 50 shares from each shareholder. Any different result if the redemption without an actual surrender of shares? (b) Is there a different result in (a), above, if Alpha had purchased Books three years ago for cash? made so, why should that matter? CHAPTER 5 REDEMPTIONS AND PARTIAL LIQUIDATIONS What if Alpha acquired Books three years ago in a tax-free reorganization? (c) What if all the assets of Books were destroyed by fire and Alpha distributes one-half of the insurance proceeds equally to its three shareholders in redemption of an appropriate number of shares of stock and retains the remaining proceeds to carry on its book publishing business on a somewhat smaller scale? (d) Same as (a), above, except that Alpha distributes the assets of Books to Michael in redemption of all of his stock. (e) Same as (a), above except that Alpha distributes the assets of Books to Iris in redemption of all of its Alpha stock. (f) Alpha distributes the securities portfolio to its three equal shareholders in redemption of 20 shares from each shareholder. (g) Alpha sells all of its Beta stock and distributes the proceeds pro rata to the shareholders in redemption of 20 shares from each. (h) Same as (g), above, except that Alpha liquidates Beta and then distributes the assets of Beta's business, which Beta has operated for more than five years. E. CONSEQUENCES TO THE DISTRIBUTING CORPORATION 1. DISTRIBUTIONS OF APPRECIATED PROPERTY IN REDEMPTION Code: $ 311. In the preceding chapter, the story of the decline of the General noult on General Utilities in