Question

. Assume, that D is the sole shareholder of Y Corporation. D’s basis for the stock is $1,000. Y Corporation owns a factory and inventory. Y Corporation sells the factory and inventory for a $10,000 promissory note, payable in five equal principal instalments (with interest), and then distributes the note to D in complete liquidation. Determine the tax consequences to D.

Answer 1

• Company distributes the assets to shareholders on liquidation covered under section 2 22(c) . Where company is liable to pay dividend distribution tax & shareholder exempt to pay tax.

                             In given situation D is a shareholder .when Y corporation distributes assets to the D then Y corporation liable to pay dividend distribution tax & shareholder D is exempt from tax.