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Dividends and the ACE adjustment: how to maximize the after-tax return on intercompany investments.

The tax consequences of dividends have a significant impact on corporate finance and investment decisions. Both dividends received and dividends paid can affect the alternative minimum tax (AMT) adjustment for adjusted current earnings (ACE) and, thus, the amount of tax due. This article will explain how dividends affect the ACE adjustment; provide planning suggestions for minimizing the after-tax cost of corporate capital and maximizing the after-tax return on intercompany investments; and discuss whether a Sec. 1059 reduction in stock basis is necessary for ACE purposes.

The ACE Adjustment and the AMT Credit

The ACE adjustment is one component of the corporate AMT calculation. The ACE adjustment modifies AMT income by 75% of the sum of the Sec. 56(g)(4) components.(1) For this purpose, AMT income is taxable income modified by all the preferences and adjustments in Secs. 56, 57 and 58, other than the ACE adjustment and the alternative tax net operating loss (NOL) deduction. In March 1991, the Treasury issued regulations to clarify the ACE adjustment, including the treatment of dividends for ACE purposes. Note that a negative ACE adjustment is allowed to reduce AMT income to the extent that previous unrecovered positive ACE adjustments have increased AMT income.(2)

The AMT's cost is reduced by the present value of the AMT credit, which is generated when AMT is paid. The AMT credit can be carried forward and used to offset a firm's future regular tax liability to the extent that the regular tax exceeds the tentative minimum tax (TMT). The examples in this article assume that corporations face a 35% regular tax rate and a 20% AMT rate, but the AMT's cost varies depending on the cost of capital and the length of time until the AMT credit is used. Each firm's tax situation. is unique and should be treated as an individual case. However, a recent Treasury study indicates that only 22% of the AMT credits generated by corporations between 1987 and 1989 were recovered by the end of 1990.(3)

Deductions Disallowed for E&P That Are Also Disallowed for ACE Purposes

One component of the ACE adjustment is an umbrella provision that disallows deductions that are not permitted in determining earnings and profits (E&P).(4) Dividends received deductions (DRDs) reduce regular taxable income but do not reduce E&P and so are generally not allowed for ACE purposes.(5) However, certain 80% and 100% DRDs are allowed for ACE purposes (these exceptions will be discussed later).

Certain dividends paid reduce both taxable income and E&P, and are therefore deductible for ACE purposes. Examples include dividends paid on deposits by thrift institutions, to life insurance policyholders and by agricultural cooperatives that are not related to stock.(6) Other dividends paid reduce taxable income but not E&P and therefore are not deductible for ACE purposes (planning for these dividends will be discussed later).

* Returns from less-than-20%-owned stock investments

A corporation that owns less than 20% of either the voting power or the value of a dividend-paying corporation receives a 70% DRD for regular tax purposes.(7) Seventy percent DRDs always follow the general rule and are never allowed for ACE purposes.(8) Example 1 considers the cost of the disallowed DRD if the investor firm is subject to the AMT and receives a dividend from a less-than-20%-owned-corporation.

Example 1: A Corp. receives $6,000 of cash dividends from its $100,000 investment in 2% of the outstanding common stock of B Co. If A is in a regular tax position, it benefits from a 70% DRD and only 30% of the dividends received, $1,800, is included in taxable income. Applying a 35% regular tax rate, the tax is $630, and the after-tax return is $5,370 ($6,000 -- $630).

If A is subject to the AMT, 75% of the 70% DRD, $3,150 (0.75 x (0.7 x $6,000)), is included in AMT income in addition to the $1,800 of regular taxable income. Thus, the investment produces $4,950 of AMT income ($1,800 + $3,150), which is taxed at a 20% rate, producing a marginal tax of $990 ($4,950 x 0.2). Under the AMT, the dividends from B stock produce only $5,010 of immediate after-tax income. Note, however, that the $360 excess of TMT over regular tax ($990 -- $630) can be used as an AMT credit in future years.

Example 1 shows the computation of two marginal tax rates on dividend income from an investment representing less than 20% ownership. The firm receiving the dividend is subject to a 10.5% marginal tax rate if it pays only the regular tax. if the recipient firm pays the AMT, however, the immediate marginal tax rate becomes 16.5%, an increase of more than 57% over the marginal regular tax rate.

Planning suggestion: Corporations subject to the AMT should consider alternatives other than casual investments (less-than-20% shareholdings) in dividend-paying stocks.

Example 2 illustrates that, under certain circumstances, a corporation subject to the AMT can maximize its after-tax return by investing in fully taxable bonds rather than in dividend-paying stocks.

Example 2: As an alternative to the investment in B Co. described in Example 1, A Corp. could have invested $100,000 in 8% 0 Corp. bonds. If A is subject to the maximum regular corporate tax rate, the 0 bonds yield $5,200 after tax ($100,000 x 0.08 x (1 -- 0.35)). However, if A is subject to the AMT, the 0 bonds yield $6,400 ($100,000 x 0.08 x (1 -- 0.2)). Note that the present value of the reduced AMT credit, $1,200 ($100,000 x 0.08 x (0.35 -- 0.20)), reduces the after-tax return from the 0 bonds from $6,400 to $5,200 as the length of time until the AMT credit is used becomes shorter.

This example shows that higher-rate fully taxable bonds become more attractive investments, relative to lower-rate dividend-paying stocks, as the length of time until the AMT credit is used increases.

* Public utility preferred stock dividends

A regular tax deduction is provided for dividends paid by public utilities on preferred stock issued before Oct. 1, 1942.(9) The amount of the deduction is 14/35, or 40%, of the dividend paid. Correspondingly, corporations that receive these preferred stock dividends from public utilities are allowed a DRD pertaining only to the remaining 60% of the dividend.(10) Neither of these deductions, however, is allowed for ACE purposes.(11)

Example 3: U, a utility corporation, has 100,000 shares of 8%, $100 par, preferred stock outstanding issued before Oct. 1, 1942, of which B Corp. owns 10,000 shares. U's current E&P is $2,000,000. Under the regular tax, both corporations get a deduction for the dividend. U deducts 14/35 of the $80,000 dividend paid to B (10,000 shares x $100 par x 8%) or $32,000. B cannot consider the $32,000 deducted by U in determining its DRD. Therefore, B's DRD is $33,600 (($80,000 -- $32,000) x 70%).

In computing the AMT, U must include the $32,000 of disallowed Sec. 247 deduction in the ACE adjustment, which increases AMT income by $24,000 ($32,000 x 75%), for $4,800 ($24,000 x 20%) of additional AMT liability. B must add the $33,600 of DRD for regular tax purposes in order to determine its ACE adjustment. B must include $25,200 ($33,600 x 75%) in AMT income, resulting in $5,040 ($25,200 x 20%) of additional AMT liability.

For corporate shareholders not subject to the AMT, the only additional tax is the AMT incurred by the public utility.

Planning suggestion: Public utilities subject to the AMT should consider redeeming preferred stock issued before Oct. 1, 1942. The cost of the AMT makes this form of capital relatively unattractive. In addition, investor corporations subject to the AMT may want to consider divesting these public utility preferred shares in favor of investing in securities that produce higher after-tax yields.

* Dividends paid to ESOPs

Sec. 404(k) allows corporations a regular tax deduction for dividends paid to an employee stock option plan (ESOP). However, these dividends paid to an ESOP do not reduce the firm's current E&P and thus are not deductible for ACE purposes.(12) Additional AMT resulting from this disallowed deduction increases an ESOP's cost and diminishes its financial attractiveness as a means of compensating employees.

Example 4: D Corp. is considering establishing an ESOP. If D pays regular tax at a 35 % marginal rate, a $ 1 00,000 dividend payment to an ESOP costs only $65,000 after tax. If, however, D is subject to the AMT, 75% of the dividend payment is added back in determining the AMT base. In effect, only 25% of the $100,000 payment, or $25,000, is deductible for AMT purposes. Under the AMT, the dividend payment saves only $5,000 in immediate tax ($25,000 x 20%). By comparing the $35,000 tax savings under the regular tax with the $5,000 tax savings under the AMT, it is easy to see the increased cost of an ESOP when a firm pays the AMT and has a positive ACE adjustment.

Planning suggestion: Corporations subject to the AMT should consider canceling their ESOP and/or should generally avoid initiating an ESOP.

* Dividends paid by farming cooperatives

Sec. 1382(c)(1) provides a regular tax deduction for dividends paid on the capital stock of a qualified farming cooperative.(13) However, consistent with the E&P computation, no deduction is allowed for ACE purposes.(14) As a result, farming cooperatives that pay AMT face a higher after-tax cost for distributing dividends than cooperatives that are not subject to the AMT.

Example 5: In 1991, F, Inc., a farmers' co-op, pays a $10,000 dividend to its participating farmers. For regular taxes, the dividend produces a $10,000 deduction and $3,500 in tax savings. However, 75% of the $10,000 deduction must be added back as part of the ACE adjustment. Thus, the dividend reduces AMT income by only $2,500, which is taxed at the 20% AMT rate to produce $500 of savings under the AMT. The $10,000 dividend cost F $6,500 ($10,000 -- $3,500) under the regular tax, but $9,500 ($10,000 -- $500) under the AMT.

Planning suggestion: Agricultural cooperatives subject to the AMT should consider compensating their members through means other than dividends, possibly through reduced profit margins on transactions with members.

Deductions Disallowed for E&P That Are Allowed for ACE Purposes

* 80% and 100% DRDs allowed if related income is subject to income tax

While 70% DRDs are never allowed for ACE purposes, a portion of 80% and 100% DRDs may be deducted in computing the ACE adjustment. For regular tax purposes, a corporation that owns at least 20% of the value and voting power of a dividend-paying corporation receives an 80% DRD.(15) In addition, for regular tax purposes, a corporation can deduct 100% of dividends received under four sets of circumstances: (1) qualifying dividends are received by a corporation from a domestic corporation that is a member of the same affiliated group;(16) (2) dividends are received by a small business investment company;(17) (3) certain dividends are received by a domestic corporation from a wholly owned foreign subsidiary;(18) and (4) certain dividends are received by a domestic corporation from a foreign sales corporation (FSC).(19)

The portion of a DRD eligible for ACE deduction is determined by the extent that the related income was subject to Federal income tax by the paying corporation.(20) For this purpose, income is subject to Federal income tax if it is included, or should be included, on the Federal tax return of the dividend-paying corporation.(21) Example 6 demonstrates the application of 80% and 100% DRDs for ACE purposes.

Example 6: G Corp. owns 40% of the domestic R Corp. R's current E&P is $12,000,000, of which $6,000,000 is derived from tax-exempt interest. R pays a $10,000,000 cash dividend and G receives its $4,000,000 share. For G, the dividend produces a $3,200,000 DRD for regular tax purposes (80% x $4,000,000), and only $800,000 of taxable income results, so the dividend produces $280,000 of regular tax.

For ACE purposes, G is allowed to deduct the 80% DRD to the extent that the dividend it received from R is attributable to earnings subject to Federal income tax. Thus, the 80% DRD is allowed with respect to $2,000,000 ($6,000,000 [divided by] $12,000,000 x $4,000,000) of the dividend received. G has a $1,600,000 (80% x $2,000,000) DRD for ACE purposes, and 75% of the excess of the regular tax DRD over the ACE DRD, $1,200,000 (($3,200,000 -- $1,600,000) x 75%) is included in AMTI. Under the AMT, G pays $400,000 of tax on the $4,000,000 dividend (20% x ($4,000,000 -- $3,200,000 + $1,200,000)). The additional $120,000 of tax under the AMT ($400,000 of TMT -- $280,000 of regular tax) becomes AMT credit carryforward.

Planning suggestion: Corporations subject to the AMT may want to encourage dividend-paying companies in which they own 20% or more of the outstanding shares to sell their tax-exempt securities and invest in fully taxable securities that produce higher pretax returns.

Note that income may be considered subject to Federal income tax even if tax is not actually paid.(22) For example, if a firm pays no tax because of NOLs or tax credits, a company receiving that firm's dividend is still permitted an 80% or 100% DRD.

* DRD for dividends received from a Sec. 936 corporation

One exception to the 80% and 100% DRD treatment occurs when the dividend-paying firm does not pay tax because of the Sec. 936 credit. Under Sec. 936, a domestic corporation can receive a tax credit relating to income earned in a possession of the United States. For ACE purposes, both 80% and 100% DRDs are allowed for dividends received from a corporation eligible for the Sec. 936 possessions tax credit.(23) As with other types of dividends, the DRDs are allowed to the extent that the dividends relate to income subject to Federal income tax. By definition, however, income subject to Federal income tax does not include income eligible for the Sec. 936 credit.(24)

Current and accumulated E&P must be examined to determine the portion of a dividend originating from income eligible for the Sec. 936 credit. Dividend distributions are assumed to originate first out of current E&P, and then out of the most recently accumulated E&P.(25) If a distribution is an amount less than the entire E&P of any year, that year's portion of the distribution must be allocated based on the proportion of E&P arising during the year from income eligible for the Sec. 936 credit. Example 7 illustrates the application of this rule.

Example 7: Y Corp. pays a $ 100,000 dividend to its 100% shareholder, S Corp. Y has $70,000 of current E&P, of which $60,000 was eligible for the Sec. 936 credit and $10,000 was subject to Federal income tax. Y's E&P from the prior year was $200,000, of which $150,000 was eligible for the Sec. 936 credit.

Of the $70,000 portion of the distribution paid from current E&P, only $10,000 arose from income not eligible for the Sec. 936 credit. The remaining $30,000 portion of the $100,000 distribution originates from the $200,000 of accumulated E&P. One-quarter ($50,000 [divided by] $200,000) of the $30,000 dividend paid out of accumulated E&P arose from income not eligible for the Sec. 936 credit. Thus, one-quarter of the $30,000, or $7,500, relates to E&P subject to Federal income tax. Of the entire $100,000 dividend, $17,500 ($10,000 + $7,500) is subject to Federal income tax, allowing S a 100% DRD for ACE purposes for $17,500 of the $100,000 dividend.

For regular tax purposes, S pays no tax on the dividend because of the 100% DRD. However, under the AMT, S must pay 20% tax on $61,875 (75% x ($100,000 -- $17,500)) of the dividend, resulting in a tax of $12,375, or a 12.375% immediate marginal tax rate on the $100,000 dividend received.

Planning suggestion: Sec. 936 subsidiaries should consider delaying dividend distributions if a large portion of current income is eligible for the Sec. 936 credit, and this portion is expected to decrease in the future. Deferral of a dividend to a year in which a greater portion of income is "subject to tax" increases the DRD available to the parent company receiving the dividend.

* DRD for FSC dividends

A domestic corporate shareholder is allowed a 100% DRD for the portion of dividends received from the foreign trade income of a foreign sales corporation FSC).(26) The 100% DRD applies only to the portion of a distribution paid from E&P attributable to foreign trade income earned while the distributing corporation was an FSC. In addition, a domestic corporation owning less than 20% of an FSC can deduct 70% of the portion of a dividend received from an FSC that is paid out of income effectively connected with a U.S. trade or business.(27) If more than 20% of an FSC is owned, the percentage of DRD increases from 70% to 80%.(28)

For ACE purposes,(29) the term FSC includes an FSC, a small FSC(30) and a former FSC.(31) As with dividends received from other corporations, FSC-related DRDs are allowed for ACE purposes to the extent that they relate to income subject to Federal income tax. Only the E&P of an FSC that arises out of nonexempt foreign trade income is, for the purpose of determining the ACE 100% DRD, considered subject to Federal income tax.(32) Treasury regulations provide priority rules for determining the portion of a distribution from an FSC that arises out of income subject to U.S. income tax.(33) The third category on the priority list is likely to be most important for E&P distributions from foreign trade income.(34) This category determines the exempt and nonexempt portions of foreign trade income determined under either of the administrative pricing methods of Sec. 925(a)(1) or (2). Under the regulation, 15/23 of distributions must be attributed to foreign trade income that is exempt from Federal income tax;(35) the remaining 8/23 is attributed to nonexempt foreign trade income that is subject to Federal income tax.

Example 8: P Corp., an FSC, distributes a $100,000 dividend to its 100% shareholder, domestic 0 Corp. The entire distribution relates to foreign trade income. Under the formula prescribed in Sec. 925(a)(1), $34,783 (8/3 x $100,000) is attributable to nonexempt foreign trade income, which is subject to Federal income tax. In computing the ACE adjustment, 0 is allowed a 100% DRD for $34,783 of the $100,000 distribution it received. Since the entire $100,000 was deducted in determining AMT income, the difference, $65,217 ($100,000 -- $34,783), must be added for ACE purposes. Seventy-five percent of the positive ACE adjustment is taxed at 20% to produce an immediate $9,783 of AMT ($65,217 x 75% x 20%). In contrast, 0 owes no regular tax on the dividend because it is permitted to deduct the full 100% DRD.

Planning suggestion: Corporations owning shares of an FSC should consider the AMT cost of dividends in evaluating returns from an FSC relative to other possible investment returns.

Sec. 1059 Extraordinary Dividends(36)

For regular tax purposes, Sec. 1059 requires a reduction in regular tax adjusted basis for DRDs taken with respect to "extraordinary" dividends. An extraordinary dividend occurs when the amount received is at least equal to either 5% of the basis of preferred stock or 10% of the basis of common stock.(37) The basis reduction occurs if the extraordinary dividend is declared, announced or agreed to within two years after the stock was acquired.(38)

Neither the Code nor the regulations specify whether Sec. 1059 is to be applied separately for ACE purposes. If the AMT is strictly intended to be a parallel tax system, the Sec. 1059 basis reduction rule must be applied, regardless of the perceived "unfairness" of reducing basis for ACE purposes without receiving an ACE tax benefit. In contrast, in order to maintain parity with the regular tax system, there should not be a Sec. 1059 basis reduction for ACE purposes, since no 70% DRDs are permitted for ACE purposes and only a limited portion of 80% and 100% DRDs is allowed.

Example 9: In early 1991, T Corp. invests in $100,000 of G Corp. common stock, representing 10% of G's outstanding shares. Later in 1991, G pays T a $15,000 cash dividend. For regular tax purposes, T claims a 70% DRD which amounts to $10,500. For ACE purposes, however, no DRD is allowed for 70% DRDs.

In 1992, T sells the stock for $100,000. Sec. 1059 requires that T reduce its basis in G stock by $10,500 to $89,500. Therefore, a $10,500 gain must be recognized for regular tax purposes. Must this gain also be recognized for ACE purposes even though T did not benefit from the DRD in determining the ACE adjustment? Note that this would require a basis adjustment for ACE purposes that is not currently prescribed.

Sec. 1059 reduces the stock basis by the amount of DRD claimed for extraordinary dividends, and appears to apply in computing both the regular tax and ACE bases of the stock. However, Sec. 1059 seems to have been created to prevent dividend recipient corporations from taking a DRD followed shortly by a sale of the stock in which the cost basis reduces the taxable gain. ACE rules prevent corporations from deducting any of the 70% DRD and a portion of the 80% and 100% DRDs. Thus, a taxpayer could argue that Sec. 1059 basis reductions do not logically apply to the extent that DRDs were disallowed for ACE purposes. While there may be some reasonable grounds for increasing the stock basis for ACE purposes by the amount of the disallowed DRD, this issue remains unresolved.

The Hill(39) case, recently decided by the Supreme Court, is likely to be instructive for the outcome of the ACE Sec. 1059 issue. In Hill, the Court did not agree with the taxpayer's literal reading of the term "adjusted basis" for the purpose of determining the AMT preference for percentage depletion. The Supreme Court sided with the IRS, interpreting "adjusted basis" by inferring that Congress intended Sec. 1016 to be used in coordination with Sec. 263 to avoid allowing taxpayers to deduct capital expenditures. By supporting the apparent intention of Congress, rather than a literal interpretation of Sec. 1016, the Hill case lent support to taxpayers on the Sec. 1059 issue. Certainly, Congress intended to apply only a single penalty by disallowing the DRD for ACE purposes. A literal reading of Sec. 1059 would also require a reduction in ACE basis for a DRD that is not permitted for ACE purposes. Thus, relying on Hill, taxpayers should not be required to reduce their ACE basis in stock by the disallowed DRD for a Sec. 1059 extraordinary dividend.

Planning suggestion: Corporations disposing of stock following the receipt of a Sec. 1059 extraordinary dividend, during a time when the recipient corporation is subject to the AMT, should identify the basis issue for ACE purposes. Consideration should be given to the Supreme Court's decision and interpretation in Hill. Substantiation for a higher basis for ACE purposes, not reduced by the Sec. 1059 adjustment, would be based on the premise that the taxpayer received no tax benefit from the DRD since it was not allowed for ACE purposes.


The rules on the treatment of dividends for ACE purposes are complex. For the situations described in this article, the following planning suggestions should help tax practitioners navigate through the rules in order to maximize after-tax returns.

* Consider investment alternatives to dividend-paying stock in the case of a disallowed DRD.

* Redeem outstanding preferred stock in the case of a utility corporation.

* Avoid creating an ESOP or consider canceling an ESOP.

* Compensate members of an agricultural cooperative with means other than a dividend.

*i Encourage dividend-paying subsidiaries to change their investment mix from tax-exempt securities to fully taxable securities.

* Delay dividend distributions from a Sec. 936 subsidiary.

* Evaluate investment alternatives other than an FSC.

* Weigh the Supreme Court's decision in Hill in determining the ACE basis of stock following a Sec. 1059 "extraordinary dividend."

The ACE rules generally require that a distribution of earnings from one corporation to another be subject to at least one level of income tax. In fact, for investments that represent less than 20% ownership in domestic corporations, taxation is incurred twice at the corporate level. For other types of investments, the rules are often complicated but the underlying concept is straightforward: For ACE purposes, only income subject to Federal income tax by the dividend-paying corporation is eligible for a DRD by the receiving corporation. (1) Specifically, 75% of "excess ACE" is included in AMT income as the ACE adjustment (Sec. 56(g)(1)). Excess ACE is the difference between ACE and AMT income before the ACE adjustment. ACE is AMT income modified by the components of the ACE adjustment that are listed in Sec. 56(g)(4). (2) Sec. 56(g)(2)(B). (3) See "Tax Report--A Special Summary and Forecast of Federal and State Tax Developments: Credits for paying minimum taxes brought minimal benefits to corporations," The Wall Street Journal, 10/28/92, at 1; and Gerardi, Milner and Silverstein, "Temporal Aspects of the Corporate Alternative Minimum Tax: Results Corporate Panel Data for 1987-1990," a working paper of the U.S. Treasury Office of Tax Analysis (see Table 1). (4) Sec. 56(g)(4)(C). As described in Sec. 312, E&P generally reflects a firm's ability to pay a dividend. (5) Regs. Sec. 1.56(g)-1(d)(3)(iii)(A), (B) and (C). (6) Regs. Sec. 1.56(g)-1(d)(4)(ii), (iii) and (iv). (7) Sec. 243(a)(1), (c)(2) and (e). (8) Regs. Sec. 1.56(g)-1(d)(3)(iii)(A) and (C). (9) Sec.247. (10) Sec. 244(a). (11) Regs. Sec. 1.56(g)-1(d)(3)(iii)(B) and (D). (12) Regs. Sec. 1.56(g)-l(d)(3)(iii)(E). (13) For this purpose, qualified farming cooperatives are those specified in Sec. 521(b)(1). (14) Regs. Sec. 1.56(g)-i(d)(3)(iii)(F). (15) Sec. 243(c). (16) Sec. 243(a)(3). (17) Sec. 243(a)(2). (18) Sec. 245(b). (19) Sec. 245(c). (20) Sec. 56(g)(4)(C)(ii)(I). (21) Regs. Sec. 1.56(g)-1(d)(2)(i). (22) Id. (23) Regs. Sec. 1.56(g)-1(d)(2)(ii)(B). (24) Regs. Sec. 1.56(g)-1(d)(2)(i). (25) Regs. Sec. 1.56(g)-1(d)(2)(ii)(B). (26) Sec. 245(c)(1)(A). (27) Sec. 245(c)(1)(B). "Effectively connected income" is defined in Sec. 245(c)(4)(B). (28) Id. (29) Regs. Sec. 1.56(g)-1(d)(2)(ii)(A). (30) As defined in Sec. 922(b). (31) As defined in Temp. Regs. Sec. 1.926(a)-1T(c). (32) Regs. Sec. 1.56(g)-1(d)(2)(ii)(A). (33) Temp. Regs. Sec. 1.926(a)-1T(b)(1) refers to Regs. Sec. 1.926(a)-1(b)(1)(ii) for guidance. (34) Under the priority list, a distribution first comes from foreign trade income that is exempt because it relates to engineering or architectural services provided for construction projects located outside the United States (Regs. Sec. 1.926(a)-1(b)(ii)(A); Sec. 924(a)(4)). Second, the distribution is attributed to exempt income from the marketing of agricultural or horticultural products (or the providing of related services) by a qualified cooperative that is a shareholder of the FSC (Regs. Sec. 1.926(a)-1(b)(ii)(B)). (35) Regs. Sec. 1.926(a)-1(b)(1)(ii)(C). (36) The author thanks Stewart S. Karlinsky, Ph.D., CPA, Public Accounting Consortium Professor of Taxation and Graduate Tax Director, Department of Accounting and Finance, San Jose State University, San Jose, Cal., for bringing this issue to his attention. (37) Sec. 1059(c)(1) and (2). (38) Sec. 1059(a). (39) William F. Hill, 113 Sup. Ct. 941 (1993)(71 AFTR2d 93-578, 93-1 USTC [paragraph]50,037), rev'g 945 F2d 1529 (Fed. Cir. 1991)(68 AFTR2d 91-5564, 91-2 USTC [paragraph]50,475), aff'g 21 Cl. Ct. 713 (1990)(66 AFTR2d 90-5799, 90-2 USTC [paragraph]50,560).
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Title Annotation:adjusted current earnings
Author:Gramlich, Jeffrey D.
Publication:The Tax Adviser
Date:Nov 1, 1993
Previous Article:Revenue Reconciliation Act of 1993; Voluntary Compliance Resolution program; fiduciary responsibilities; distribution rules; excise taxes.
Next Article:Tax treatment of living benefits under life insurance policies.

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