Use of the installment method in liquidations.EXECUTIVE SUMMARY
* Installment notes An installment note is a form of promissory note calling for payment of both principal and interest in specified amounts, or specified minimum amounts, at specific time intervals. This periodic reduction of principal amortizes the loan. derived from bulk sales of inventory are eligible for Sec. 453(h) treatment.
* S shareholders can apply Sec. 453(h) to an installment note received in a Sec. 338(h)(10) deemed asset sale.
* Special rules apply to installment notes received in S liquidations.
This two-part Adj. 1. two-part - involving two parts or elements; "a bipartite document"; "a two-way treaty"
many-sided, multilateral - having many parts or sides article explores the use of the Sec. 453 installment-sale method by corporations and shareholders in complete liquidations. Part I addressed definitions, mechanics and Sec. 453's application to C corporations; Part II discusses, among other issues, S corporations, original issue discount and sales of inventory and other property.
This two-part article addresses whether and when shareholders can use the installment method installment method
The accounting method of treating revenue from the sale of an asset on installments such that profits are recognized in proportion to the percentage of the sale price collected in a given accounting period. when receiving liquidating corporate distributions. Part I, in the last issue, discussed Sec. 453(h) in the context of C corporation liquidations; Part II, below, examines S corporation liquidations, original issue discount (OID (1) (Object IDentifier) A permanent number assigned to an object for storage (persistence). It is typically a long integer, such as 128 bits, that can be computed using various methods to create a unique number. ) and special property sales.
Under Sec 453B(h) (except as discussed below), an S corporation recognizes no gain or loss on the distribution, in complete liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts.
A type of proceeding pursuant to federal Bankruptcy , of a qualifying installment obligation. However, a recipient shareholder may report his gain on an exchange of his stock for an installment note on the installment method. (19)
Sec. 453B(h)(2), flush To empty the contents of a memory buffer. See buffer.
Elizabeth Barrett Browning’s spaniel, subject of a biography. [Br. Lit.: Woolf Flush in Barnhart, 446]
See : Dogs
(data) flush language, provides that Treasury can issue regulations providing that the character of the gain or loss to the shareholder shall be determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.
As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Sec. 1366 principles. Generally under Sec. 1366(b), the character of income, gain or loss that flows through from the S corporation to its shareholders is determined as if such item were realized directly from the source, and in the same manner as realized by the corporation. Thus, Sec. 453B(h)(2) seems to suggest that the character of a shareholder's gain on the exchange of his S stock under the installment method (in accordance with Sec. 453(h)) is determined by the character of the transaction generating the installment note (i.e., at the corporate level). However, to date, no regulations explain this provision; such flowthrough treatment would seem to contradict con·tra·dict
v. con·tra·dict·ed, con·tra·dict·ing, con·tra·dicts
1. To assert or express the opposite of (a statement).
2. To deny the statement of. See Synonyms at deny. Regs. Sec. 1.453-11(a)(2)(i), which provides that a shareholder treats a qualifying installment note (for all Code purposes) as if it were received from the person issuing it in exchange for the shareholder's stock in the liquidating corporation.
Further, flowthrough treatment seems entirely inappropriate when the S corporation has recognized the income or gain on the original sale because the installment method did not apply. For instance, an S corporation would recognize gain on the sale of inventory and/or and/or
Used to indicate that either or both of the items connected by it are involved.
Usage Note: And/or is widely used in legal and business writing. property subject to depreciation recapture depreciation recapture
See recapture of depreciation. at the time of sale, and pass it through to the shareholders as ordinary income (thus increasing their stock bases). It would seem unjust UNJUST. That which is done against the perfect rights of another; that which is against the established law; that which is opposed to a law which is the test of right and wrong. 1 Toull. tit. prel. n. 5; Aust. Jur. 276, n.; Hein. Lec. El. Sec. 1080. to require the shareholder also to recognize ordinary income on distribution of the installment obligation.
On the other hand, when an S corporation would recognize short-term capital gain Short-term capital gain
A profit on the sale of a security or mutual fund share that has been held for one year or less. A short-term capital gain is taxed as ordinary income. (but for its use of the installment method and Sec. 453B(h)), but a shareholder would recognize long-term capital gain Long-term capital gain
A profit on the sale of a security or mutual fund share that has been held for more than one year. on the sale of his S stock, passthrough treatment might be appropriate. Pending further guidance under the Sec. 453B(h)(2) flush language, the proper treatment is uncertain. (20)
Example 1: J owns 100% of S corporation X, with a $450,000 stock basis. In 2002, X sells its only asset, equipment with a $575,000 original cost, a $450,000 adjusted basis and a $750,000 fair market value (FMV FMV - full-motion video ), for a $750,000 qualifying installment note, then liquidates by distributing the installment note to J. X recognizes $125,000 ($575,000-$450,000) Sec. 1245 depreciation recapture income on the sale (under Sec. 453(i)), but not the $175,000 Sec. 1231 gain ($750,000-$575,000), and has no further gain on the liquidating distribution. J has $175,000 gross profit on the liquidation ($750,000-$575,000 (21)), which will be recognized as gain on the exchange of his stock, with a 23.334% gross profit ratio (GPR (Ground Penetrating Radar) A UWB-based technology that locates objects buried underground. It is used to locate buried lines, storage tanks, pipes and conduits as well as to determine the structural integrity of the ground underneath a road or runway. ) ($175,000/$750,000) on future note payments.
J's gain will be Sec. 1231 gain if Sec. 453B(h)(2) applies, but capital gain if Regs. Sec. 1.453-11(a)(2)(i) applies. However, none of J's gain should be converted to Sec. 1245 recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax)
RECAPTURE, war. income, because X already recognized it and passed it through to J, thus increasing his X stock basis.
If an S corporation sells an asset (or group of assets) for an installment note at a loss, it seems clear that a shareholder receiving the note in a liquidating distribution could use Sec. 453(h) to recognize gain, and that Sec. 1366(b) would not apply. Thus, even assuming Sec. 453B(h)(2) is in effect, there are situations in which it cannot (or should not) apply. The Service should clarify this point.
BIG and PII See Pentium II. Taxes
Special rules apply when an installment note (1) arises in connection with a corporate sale of an asset with Sec. 1374 built-in built-in - (Or "primitive") A built-in function or operator is one provided by the lowest level of a language implementation. This usually means it is not possible (or efficient) to express it in the language itself. gain (BIG) (22) or (2) triggers Sec. 1375 excess passive investment income (PII) tax. (23) In the first case, any BIG attributable to the asset sold (and thus, embodied em·bod·y
tr.v. em·bod·ied, em·bod·y·ing, em·bod·ies
1. To give a bodily form to; incarnate.
2. To represent in bodily or material form: in the installment note) must be recognized by the corporation under Sec. 1374 on distribution to the shareholder(s) in complete liquidation, under Regs. Sec. 1.1374-4(h). (24) In the second case, the corporation must include any PII attributable to the original sale (and embodied in the note) in its PII tax calculation for the year. (25) In either case, however, a shareholder can still use Sec. 453(h) to recognize gain attributable to the receipt of the installment note.
Deemed Asset Sales
Sec. 453(h) may also apply when S stock is acquired in a Sec. 338 qualified stock purchase and the selling shareholder(s) elect(s) under Sec. 338(h)(10) to treat the transaction as a deemed asset sale and deemed liquidation. The Service has recently made it clear that an S shareholder can apply Sec. 453(h) to an installment note received in a Sec. 338(h)(10) transaction. The shareholder is deemed to have received the installment note from the liquidating corporation in exchange for his stock under Sec. 453(h) and can use the installment method. (26)
Example 2: (27) S corporation T's sole asset is real estate with a $110,000 FMV, a $35,000 basis and a $10,000 mortgage. F, a 40% shareholder, sells his T stock (with a $10,000 basis) for a $25,000 note and $15,000 of real estate. The other shareholders sell their stock for a total of $60,000; a Sec. 338(h)(10) election is made.
Old T is deemed to have sold its assets to New T for $110,000 ($25,000 note + $75,000 cash and property + $10,000 mortgage relief). Old T reports its gain under the installment method; its gross profit is $75,000 ($110,000-$35,000), the contract price is $100,000 ($110,000-$10,000), and the GPR is 75% ($75,000/$100,000). Old T is deemed to have $56,250 gain ($75,000 x 75%).
Under Sec. 1366, F reports $22,500 gain (40% x $56,250); his stock basis increases (under Sec. 1367) to $32,500 ($10,000 + $22,500). In T's deemed liquidation, F is deemed to have received the $25,000 note and the $15,000 real estate. Applying Sec. 453(h), F's gross profit is $7,500 ($40,000-$32,500), the contract price is $40,000, and the GPR is 18.75% ($7,500/$40,000). F's resulting gain at liquidation (attributable to the receipt of the real estate) is $2,813 ($15,000 x 18.75%); his gain to be reported to be spoken of; to be mentioned, whether favorably or unfavorably.
See also: Report on receipt of note payments will be $4,688 ($25,000 x 18.75%). F's total gain recognition is $7,500.
A qualifying installment note can have an issue price that differs from its face amount if it contains inadequate stated interest. The difference is OID or unstated interest under Secs. 1272 and 1274, or Sec. 483 (not both), depending on the selling price and the property sold. (28)
Under Secs. 1272 and 1274, interest is generally imputed Attributed vicariously.
In the legal sense, the term imputed is used to describe an action, fact, or quality, the knowledge of which is charged to an individual based upon the actions of another for whom the individual is responsible rather than on the individual's for a debt instrument used in a property sale or exchange when at least one payment is due more than six months after the transaction, and the instrument's maturity price exceeds the stated or imputed principal amount (whichever applies). (29) Under Sec. 1274(b)(1) and (2), the issue price of an installment note containing inadequate stated interest is the sum of the present values of all the payments due on the debt, discounted at the applicable Federal rate, compounded semiannually sem·i·an·nu·al
Occurring or issued twice a year.
semi·an . (30)
According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Regs. Sec. 1.453-11(a)(5), Example 1(iv), if a qualified installment note with unamortized OlD is distributed to a shareholder in a complete liquidation, the shareholder would be deemed to have received the note directly from the payer; he or she would include the note's issue price at the time of distribution in the selling price and contract price for the shares surrendered. Under Regs. Sec. 1.453-11(a)(2)(ii), the issue price is the adjusted issue price (the original issue price adjusted for payments and/or OID amortization under Regs. Sec. 1.1275-1(b)(1)), plus any accrued ac·crue
v. ac·crued, ac·cru·ing, ac·crues
1. To come to one as a gain, addition, or increment: interest accruing in my savings account.
2. (but unpaid) qualified stated interest at the distribution. (31) In effect, the shareholder inherits the discount remaining in the note.
Thus, if the installment note in Example 3 is the sole distribution to K (with a $125,000 stock basis) in 2003, immediately after the corporation has received the first payment on the note, K would be deemed to have received the note's adjusted issue price on the liquidation ($273,569) and would report the same interest (stated plus imputed interest Imputed Interest
A term used to describe interest considered to be paid, even through no interest payment has been made.
Imputed interest is calculated based upon actual payments that are to be paid, but have not yet been paid. ) the corporation would have reported had it retained the note and collected payments.
In addition, K would, recognize installment-sale gain, based on his GPR calculated under the deemed contract price (i.e., adjusted issue price at the time of distribution) as applied to his receipt of future principal payments (excluding any OID amortization applied against nominal principal payments). K's GPR is 54.308% (($273,569-$125,000)/$273,569). Thus, K would recognize interest and installment-sale gain as depicted de·pict
tr.v. de·pict·ed, de·pict·ing, de·picts
1. To represent in a picture or sculpture.
2. To represent in words; describe. See Synonyms at represent. in Exhibit 1 at right.
Although Sec. 453(b) bars use of the installment method for a corporate sale of inventory, a shareholder who receives (in a liquidating distribution) an installment note attributable to such a sale may be able to use Sec. 453(h). According to Sec. 453(h)(1)(B), the note must result from a sale (within the 12-month period generally applicable) of inventory to one person in one transaction involving substantially all of such property attributable to a corporation's trade or business (i.e., a bulk sale). The bulk-sale rule is applied separately to each separate trade or business. Thus, a corporation with more than one trade or business must sell substantially all of the inventory of one business to one person in a single transaction to meet the rule.
If a liquidating corporation sells inventory in a bulk sale (with or without other assets other assets
Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. ) for an installment note, a shareholder receiving the note may use Sec. 453(h). If it sells the inventory in other than a bulk sale (i.e., a broken-lot sale) with noninventory assets, the installment note qualifies only partially. Under Regs. Sec. 1.453-11(c)(4)(i), the portion of the note attributable to the broken lot is not eligible for Sec. 453(h) treatment, but the portion of the note attributable to the noninventory assets is.
Example 4: Z Corp. sells $100,000 of inventory and $200,000 of noninventory assets for a $300,000 installment note with adequate stated interest, in a broken-lot sale. Y, a Z shareholder with a $60,000 stock basis, received the installment note in a liquidating distribution. Y's gross profit is $240,000, her GPR is 80% ($240,000/ $300,000) and her immediate gain is $80,000 ($100,000 x 80%). Y recognizes $160,000 gain on future note payments ($240,000-$80,000 gain recognized on the receipt of the broken-lot portion of the installment note). (32)
Under Regs. Sec. 1.453-11(c)(4)(iii), the future note payments (except stated interest payments) are applied first, in full, against the note's nonqualified portion (on which the seller has already recognized gain Recognized Gain
The amount of gain reported for income tax purposes.
You can defer recognizing some gains until the following year(s).
See also: Capital Gain, Capital Loss, Deferred Income Tax, Drought Sale, Exempt Income, Exemption, Gain, Recognized Loss ). Thus, in Example 4, Y treats the future principal payments as a nontaxable adj. 1. Not subject to taxation; - of goods imported into a country or sold at retail outlets; as, most laws imposing sales taxes make food nontaxable s>. Opposite of taxable nt>.
Adj. 1. return of basis (up to $100,000), then under the installment method in accordance with her 80% GPR; she recognizes stated interest in the normal way.
If a buyer assumes debt on a sale of a broken lot with other assets, Regs. Sec. 1.453-11(c)(4)(ii) provides that he or she treats the installment note as acquired in exchange for the broken lot (and, thus, not qualified for Sec. 453(h) treatment) to the extent the lot's Lot’s
wife disobeyed God’s order not to look back; she became a pillar of salt. [O.T.: Genesis 19:26]
See : Transformation FMV exceeds the sum of the (1) unsecured liabilities unsecured liability
A liability for which no specific collateral is held by a creditor. Essentially, payment on an unsecured liability is assured by the promise of the borrower. assumed by the purchaser, (2) secured liabilities encumbering the broken lot (whether assumed by the buyer or taken subject to) and (3) cash, plus the FMV of other property the seller received.
Example 5: The facts are the same as in Example 4, except that, in addition to transferring the installment note, the buyer pays Z Corp. $12,500, assumes $40,000 of unsecured liabilities and takes the inventory subject to $25,000 of secured debt. The portion of the $300,000 installment note not qualified under Sec. 453(h) is $22,500 ($100,000 (FMV of the broken lot)--($12,500 + $40,000 + $25,000)).
Y will receive the $12,500 and the $300,000 installment note, thus realizing a $252,500 gross profit ($312,500-$60,000 (basis)), an 80.8% GPR ($252,500/$312,500) and a $28,280 immediate gain (($12,500 x 80.8%) + ($22,500 x 80.8%)). After receiving $22,500 in note payments as a return of basis, Y recognizes $224,220 in installment gain on the remainder of the note ($277,500 x 80.8%). Her total gain recognition is $252,500.
Certain Property Sales
Regs. Sec. 1.453-11(c)(5)(i) denies Sec. 453(h) treatment to an installment note to the extent attributable to the sale of "covered property" in certain tax-avoidance situations:
* Dealer dispositions and other personal property dispositions (Sec. 453(b)(2)).
* Sales of property subject to depreciation recapture (Sec. 453(i)).
* Dispositions under a revolving credit Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. plan and/or a sale of stock or securities traded on an established market (Sec. 453(k)).
Regs. Sec. 1.453-11(c)(5)(ii) defines "covered property" as property owned by any shareholder during the 12-month period before or after liquidation-plan adoption, and which was, in the shareholder's hands, any of the following:
* Personal property of the same type as that regularly sold or disposed dis·pose
v. dis·posed, dis·pos·ing, dis·pos·es
1. To place or set in a particular order; arrange.
2. of by the shareholder on the installment plan.
* Real property held by the shareholder for sale to customers in the regular course of business.
* Subject to depreciation recapture of 50% or more of the FMV at the time of sale by the corporation.
* Stock or securities traded on an established market.
* Property for sale under a revolving credit plan.
The rule appears to prevent a related person from transferring substantial property (the sale of which is not eligible for installment reporting) to a corporation that sells its assets (including the property) for an installment note it distributes to a shareholder in liquidation. If the note is then eligible for Sec. 453(h) treatment in the shareholder's hands, the original ban on use of the installment method on the sale is nullified nul·li·fy
tr.v. nul·li·fied, nul·li·fy·ing, nul·li·fies
1. To make null; invalidate.
2. To counteract the force or effectiveness of. . Thus, installment treatment is denied for a sale of covered property.
Example 6: M owns all the stock of N Corp., which has substantial net operating loss operating loss
The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. (NOL NOL - Never Offline ) carryovers. In early 2002, M contributes equipment with a $300,000 FMV and $52,000 basis to N tax free under Sec. 351. Later that year, N; with total assets of $1 million, sells the equipment for an installment note and distributes it to M and the other shareholders. N's NOLs absorb the depreciation recapture income and any other gain on the sale; a principal purpose of M's Sec. 351 contribution was to avoid Sec. 453(j) depreciation recapture. The installment note does not qualify for Sec. 453(h) treatment in M's hands. (33)
This rule does not apply, according to Regs. Sec. 1.453-11(c)(5)(iii), to any corporate distribution if, on the date the plan of complete liquidation is adopted (and at all times thereafter), the FMV of such assets is less than 15% of the corporation's total asset value.
Sec. 453(h)(1)(E) addresses installment sales Installment sale
The sale of an asset in exchange for a specified series of payments (the installments).
A sale in which the buyer is scheduled to make a series of payments over a period of time. by liquidating subsidiaries; it provides generally that a controlling shareholder (as defined in Sec. 368(c)) receiving an installment note from its 80% subsidiary (on a sale or exchange of the subsidiary's assets) is treated as if it acquired the note directly by sale or exchange. Under Regs. Sec. 1.453-11(c)(3)(i), the transferee corporate parent "steps into the shoes" of the transferor subsidiary as to the installment note. Sec. 453B(d) provides a complementary rule; an installment note transferred by a subsidiary to its parent in a complete liquidation of the subsidiary under Secs. 332 and 337 (34) is exempted from Sec. 453B(a)'s general taxability rule.
Finally, a subsequent liquidating distribution of the installment note by the corporate parent to a qualifying individual (or nonparent) shareholder under Sec. 331 qualifies for Sec. 453(h) treatment. The parent recognizes gain or loss on the liquidating distribution under Sec. 336. However, a recipient shareholder (absent an election out) reports the transaction on the installment method as if the note (and any other assets) had been received in an installment sale of the parent's stock. (35) To qualify under Sec. 453(h), the corporate parent presumably pre·sum·a·ble
That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. must adopt a plan of liquidation before the subsidiary's installment sale, and complete the liquidation within 12 months of plan adoption (it would seem advisable ad·vis·a·ble
Worthy of being recommended or suggested; prudent.
ad·visa·bil for the subsidiary to do so, too).
Example 7: P owns 100% of R Corp., which owns 100% of Q Corp. In preparation for a complete liquidation, Q sells real estate with a $500,000 FMV and $210,000 basis to unrelated-party A for $100,000 and a $400,000 installment note with adequate stated interest. In the sale year, Q recognizes $58,000 gain ($100,000 x 58% GPR). If Q liquidates immediately, distributing all its assets (including the installment note) to R, Q has no gain on the liquidation.
R takes Q's basis in the note and recognizes the attributable gain the way Q would have. (36) If R subsequently liquidates, it would recognize gain or loss on the assets distributed to P (including the installment note). However, P can use Sec. 453(h) for his gain on the liquidation of his R stock; the installment note qualifies.
Sec. 453(h) can be very useful in structuring a sale of a corporation's business, by allowing a shareholder receiving a qualified installment note in liquidation (or deemed liquidation) to defer de·fer 1
v. de·ferred, de·fer·ring, de·fers
1. To put off; postpone.
2. To postpone the induction of (one eligible for the military draft).
v.intr. all or part of his stock gain. A tax adviser representing a liquidating corporation or a recipient shareholder should be alert to any Sec. 453(h) opportunities available.
Example 3: K sells real estate in 2002 with a $500,000 FMV and $310,000 basis for $100,000 and a $400,000 installment note payable at $100,000 per year for four years, plus 3% simple interest. The applicable Federal rate is 8%, compounded annually. * The present value of the principal and interest payments is $357,008; the OID is $42,992. The future note payments are: Cash Total Stated Year payment interest interest 2003 $112,000 $28,561 $12,000 2004 109,000 21,885 9,000 2005 106,000 14,916 6,000 2006 103,000 7,630 3,000 $430,000 $72,992 $30,000 Imputed Imputed Principal principal Year interest paid balance $357,008 2003 $16,561 $83,439 273,569 2004 12,885 87,115 186,454 2005 8,916 91,084 95,370 2006 4,630 95,370 -0- $42,992 $357,008 * Present-value calculations under Sec. 1274 are based on semi-annual compounding; this example uses annual compounding for simplicity. Exhibit 1: K's interest and installment-sale gain Payment Stated Imputed Year received interest interest 2003 $109,000 $9,000 $12,885 2004 106,000 6,000 8,916 2005 103,000 3,000 4,630 $318,000 $18,000 $26,431 Imputed Principal installment Principal Year paid gain balance $273,569 2003 $87,115 $47,311 186,454 2004 91,084 49,465 95,370 2005 95,370 51,793 -0- $273,569 $148,569
For more information about this article, contact Prof. Harris at firstname.lastname@example.org.
(19) See Notice 2000-26, IRB IRB
See: Industrial Revenue Bond 2000-17, 954, Q&A-7.
(20) The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has followed (without comment) Sec. 453B(h)(2), flush language (on the character of the gain a shareholder recognizes); see IRS Letter Ruling 9853013 (9/28/98), issued after Regs. Sec. 1.453-11(a)(2)(i).
(21) J's $450,000 adjusted basis is increased by the $125,000 Sec. 1245 gain X recognized.
(22) Sec. 1374 may impose a tax (currently at 35%) on an S corporation that transfers (in a taxable disposition) an asset that had BIG when the corporation (previously a C corporation) elected S status, (unless more than 10 years have elapsed e·lapse
intr.v. e·lapsed, e·laps·ing, e·laps·es
To slip by; pass: Weeks elapsed before we could start renovating.
n. since the election's effective date).
(23) Sec. 1375(a) imposes a tax on an S corporation with accumulated ac·cu·mu·late
v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates
To gather or pile up; amass. See Synonyms at gather.
To mount up; increase. earnings and profits and PII that exceeds 25% of gross receipts the total of the receipts, before they are diminished by any deduction, as for expenses; - distinguished from net profits.
See under Gross,
See also: Gross Receipt . PII includes gains from sales or exchanges of stock or securities; see Secs. 1375(b)(3) and 1362(d)(3).
(24) Any tax the corporation paid under Sec. 1374 is treated as a loss sustained during the year (and allocated to shareholders accordingly), under Sec. 1366(f)(2).
(25) Sec. 1366(f)(3) provides that any Sec. 1375 tax paid by the corporation reduces the PII flowing through to the shareholders.
(26) See Regs. Sec. 1.338(h)(10)-1(e), Example 10; and Notice 2000-26, note 19 supra A relational DBMS from Cincom Systems, Inc., Cincinnati, OH (www.cincom.com) that runs on IBM mainframes and VAXs. It includes a query language and a program that automates the database design process. , Q&A-5.
(27) Adapted from Regs. Sec. 1.338(h)(10)-1(e), Example 10.
(28) This article limits its discussion to the application of Secs. 1272 and 1274.
(29) Sec. 1274(c)(1); see Sec. 1274(c)(3) for exceptions.
(30) Sec. 1274A provides special rules when the principal amount does not exceed $2.8 million.
(31) See Regs. Sec. 1.1273-1(c). "Qualified stated interest" includes interest unconditionally payable in cash or property at least annually at a single fixed rate. Special rules apply to variable-rate Variable-rate
A varible-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. debt instruments; see Regs. Sec. 1.1275-5(e). The adjusted issue price of a qualifying installment note with unstated interest subject to Sec. 483 is determined under Regs. Sec. 1.446-2(c) and (d).
(32) If the liquidating corporation is an S corporation, the corporation's income recognition on the inventory sale increases a shareholder's basis, reducing his overall gain on the liquidation.
(33) However, M may still have converted ordinary income into long-term capital gain.
(34) Secs. 332 and 337 provide generally that neither the parent nor the liquidating subsidiary recognizes gain or loss, on the subsidiary's liquidation.
(35) See Regs. Sec. 1.453-11(c)(3)(i), Example 1.
(36) This rule applies regardless of whether the sale giving rise to the installment note occurred in the context of a subsidiary liquidation.
Richard W. Harris, MBA MBA
Master of Business Administration
Noun 1. MBA - a master's degree in business
Master in Business, Master in Business Administration , J.D., LL.M LL.M Legum Magister (Master of Laws) ., CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. Professor and Director, Graduate Tax Program Grand Valley State University Grand Rapids Grand Rapids, city (1990 pop. 189,126), seat of Kent co., SW central Mich., on the Grand River; inc. 1850. The second largest city in the state, it is a distribution, wholesale, and industrial center for an area that yields fruit, dairy products, farm produce, , MI