Preview

Acc 565 Parent Tyrone Subsidiary Tax Research

Better Essays
Open Document
Open Document
3445 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Acc 565 Parent Tyrone Subsidiary Tax Research
INDEX TO TAX RESEARCH FILE

Item Page Reference
Determine the Facts 1
Locate the Applicable Authorities 1
Evaluate Authorities 1
Analyze the Facts in Terms of Applicable Authorities 2
Communicate Conclusions and Recommendations to Others 3
Memorandum-to-the-File 11
Client Letter 12

Determine the Facts
Parent Corporation has owned 60% of Subsidiary Corporation’s single class of stock for a number of years. Tyrone owns the remaining 40% of the Subsidiary stock. On August 10, of the current year, Parent purchases Tyrone’s Subsidiary stock for cash. On September 15, Subsidiary adopts a plan of liquidation. Subsidiary then makes a single liquidating distribution on October 1. The activities of Subsidiary continue as a separate division of Parent.
Locate the Applicable Authorities
IRC: 332 (b), 1504 (a) (see attached)
Rev Rul 70-106, 1970-1 CB 70
Rev Rul 75-521, 1975-2 CB 120

Evaluate Authorities

The issue in our Parent-Subsidiary-Tyrone situation is whether the requirements of Section 332 and Section 1504 are satisfied. Two recent revenue rulings offer additional guidance on the level of stock. Because we do not have to look further than the IRC and Rev Rul, we can have confidence in our tax assessment.

Analyze the Facts in Terms of Applicable Authorities
Section 332 requires Parent to meet stock requirements on the date of the liquidation plan and further requires Parent to own the required level of stock until receipt of the liquidation. Additionally, the stock requirements set forth in 1504 dictate that the level of stock must also be 80% of the combined voting power, as well as 80% of the total value of stock. Because Subsidiary only has 1 class of stock, this requirement is easily satisfied.

Our concern is because 60% of the stock was held prior to the August 10th purchase of Tyrone, Subsidiary’s minority stockholder. However, there is no indication Parent or Tyrone

You May Also Find These Documents Helpful

  • Good Essays

    According to the fact of this case, Parent Co. (Parent) wholly owns Poor Son Co. (Poor Son) as a legal subsidiary, and both of them all nonpublic companies. However, in January 2007 Poor Son filed a voluntary bankruptcy under Chapter 11 of the U.S. bankruptcy code because of its inability of meet obligations as they became due. Then, Parent claimed the loss of control of Poor Son and deconsolidated Poor Son from its financial statement. Through the bidding process in May 2009, Poor Son and OtherCo, the winning sponsor, filed a joint plan of reorganization to the bankruptcy court, but the plan was rescinded by OtherCo later due to significant market value shrink of Poor Son. After that, the bankruptcy court reopened the bidding process and recommended Parent’s plan of reorganization in August 2010. Finally, Parent received final confirmation of Poor Son’s plan.…

    • 615 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Authority/Law: §302(c)(2)(A) provides that constructive ownership of stock owned by family members as defined by §318(a)(1) does not apply to a complete termination redemption of stock, if immediately after a distribution the distributee does not hold interest in the corporation (including an interest as officer, director, or employee), other than an interest as a creditor [§302(c)(2)(A) (i)] and the distributee does not acquire any such interest 10 years from the date of such distribution [§302(c)(2)(A)(ii)]. Under §318(a)(1)(A) an individual shall be considered as owning the stock owned, directly or indirectly, by or for their spouse [§318(a)(1)(A)(i)],…

    • 1254 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Since A Ltd. owns 45% of B Co. but maintains the majority of the voting power due to only about 70% of the total amount of available votes casted. This gives A Ltd. the control to decide on the operating and financial policies of B Co. This being said A Ltd. owns 45% interest in B Co and thus needs to account for that percentage of ownership appropriately using the proprietary model of consolidation. This will accurately and reliably reflect accounting information provided on the consolidate statements.…

    • 1403 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Corporation X acquires all of the outstanding capital stock of Corporation Y in exchange for voting stock of X. Corporation Y is a solvent corporation. Prior to the exchange, Y has an issue of six percent fifteen-year debentures outstanding. Pursuant to the plan of reorganization, X…

    • 660 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    The enterprise is a VIE as defined in the codification of the master glossary. From the narrative, nominee equity holders do not absorb the losses of the enterprise and do not benefit from the residual gain the residual gain rather goes to the WFOE. The nominee equity holders though they own 100% of the share cannot run the activities of the enterprise; the activities are run by the WFOE as they provide the intellectual property, employees, resources and other services to run the schools. The nominee shareholders equally pledge their equity rights to the WFOE and cannot transfer, sell or give their equity for encumbrance. This descriptions in the narrative are in line with the definition of a VIE as per ASC 810-10.…

    • 700 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Besson Freight Company had an agreement with Jay Transportation to purchase their assets for 225 million. In order to finance their purchase, Besson asked a shareholder in Besson, Deltona Lines, to invest 110 million. Deltona agrees with the stipulation that the investment be made into a newly formed subsidiary named Del-Bess Inc. Deltona will own 80 percent of Del-Bess voting preferred stock. Also in Deltona’s agreement, Besson would contribute an amount to be determined by Del-Bess for the remaining 20 percent of the voting preferred stock and all non-voting common stock. Then Del-Bess would be the entity to purchase the assets from Jay Transportation and lease them to Besson Freight Company. The remaining 60 million necessary to fund the purchase would be provided by bank financing.…

    • 541 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Case Study of Prostitution

    • 1406 Words
    • 6 Pages

    1. Plans, organizes, maintains, and manages the processes and operations of multiple functional areas within Finance. Manages the activities of assigned areas to include: planning, implementing, administering and evaluating projects and services impacting College operations from a Finance perspective.…

    • 1406 Words
    • 6 Pages
    Good Essays
  • Satisfactory Essays

    Adavanced Accounting

    • 488 Words
    • 2 Pages

    EXERCISE 3-3 (1) Determination and Distribution of Excess Schedule Company Parent NCI Implied Price Value Fair Value (80%) (20%) Fair value of subsidiary $340,000* $272,000 $ 68,000 Less book value of interest acquired: Common stock ($10 par) $100,000 Retained earnings 150,000 Total equity $250,000 $250,000 $250,000 Interest acquired 80% 20% Book value $200,000 $ 50,000 Excess of fair value over book value $ 90,000 $ 72,000 $ 18,000 Adjustment of identifiable accounts: Worksheet Amortization Adjustment Key Life per Year Fixed assets $60,000 debit D1 10 $6,000 Goodwill 30,000 debit D2 Total $90,000 *$272,000/80% = $340,000 (2) (CY1) Subsidiary Income 20,000 Investment in Sargo Company 20,000 To eliminate parent’s share of subsidiary earnings for the current year.…

    • 488 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    VALLEY SWIM CLUB

    • 1200 Words
    • 12 Pages

    absorbed within a year by stock turnover. In addition, the board has a real concern about…

    • 1200 Words
    • 12 Pages
    Powerful Essays
  • Satisfactory Essays

    Cost of liquidation 1 000 Balance b/d 23 000 Retained earnings 80 000 80 000 24 000 Balance c/d 23 000 Shareholders’ distribution 1 000 24 000 24 000 Shareholders’ Distribution $ $ Liquidation 1 000 Share capital 60 000 Distribution: cash 19 000 Shares in Bathurst Ltd 40 000 60 000 60 000 Exercise 12.8 (cont’d) B. Journal entries: Bathurst Ltd Net fair value of identifiable assets and liabilities acquired: Plant $30 000 Inventory 28 000…

    • 1313 Words
    • 19 Pages
    Satisfactory Essays
  • Good Essays

    Consolidation theory is the special purpose entities that can apply to private or public companies. Consolidation theory has an ownership interest, contractual relationship, and other business relationship with special purpose entity. Consolidation has two theory parent and entity theory. The parent theory is a proprietary interest in the net assets of the consolidated group. The purpose of this consolidation statement is providing information to the stockholders of the parent company. The parent theory can only take in account when the parent company…

    • 501 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Introduction MFRS110

    • 2240 Words
    • 10 Pages

    III.holds more than half of the issued share capital of the firstmentioned corporation (excluding any part thereof which…

    • 2240 Words
    • 10 Pages
    Powerful Essays
  • Powerful Essays

    Companies are able to turn into parent companies through numerous of different means. The two most common ways are through (1) acquisition of smaller companies and (2) the spinoff or creation of subsidiaries. The term Holding/ Parent – subsidiary is not equivalent to the term “parent/child”. This is a significant tip. While the parent business enterprise incorporate its subsidiary corporation. International accounting standards state that a parent company to produce consolidated financial statements showing position and results of the whole group. Because consolidated and its subsidiaries, to gauge the overall worth of an entire group of companies as opposed to one company’s stand alone position. The intellectual capital of an enterprise typically includes a portfolio of diverse intangible assets. Goodwill is base on the company’s character and consumer faithfulness. Positive goodwill should be capitalized and classified as an asset on the balance sheet. Any negative goodwill excess of the fair values of the non-monetary assets of acquired should be recognized in the profit and loss account the periods expected to be benefited such as: Recognition and measurements, Amortization, Revaluation, and Negative goodwill. And the recommendation of the (IASB).…

    • 2183 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    Intercompany Eliminations

    • 1170 Words
    • 5 Pages

    In addition to the basic elimination entries that are needed to eliminate the equity in subsidiary companies during consolidation, there are specific types of events that must also be eliminated. The intercompany transactions−such as sales of inventory or other assets, subsidiary stock transactions, or intercompany bond transactions−that require special attention during the consolidating process are overviewed in this module.…

    • 1170 Words
    • 5 Pages
    Good Essays
  • Good Essays

    • FACTS: Comp – 20K shares + 10K debentures (loan) owned by Mr S (secured cred). 6 other shareholders – Mrs S and 5 children. Financial trouble – loan from Mr B (5K). Liquidated – Mr B paid back. 1K left.…

    • 1334 Words
    • 6 Pages
    Good Essays