ACC 499/634 Advanced Business Taxation Fall 2015

QUESTION

ACC 499/634
Advanced Business Taxation
Fall 2015

Tax Research Assignment

Due: October
15th

Currently,
Claire and her mother, Susan, are equal owners of Wilson Designs, Inc., a
company that designs and manufactures bridal gowns. As President and Chief Financial Officer,
Claire basically runs the business while her mother has always headed up the
creative side as Vice President of Creative Design.

After 30 plus
years in the business, Susan has decided that it is time to at least
œsemi-retire and hand the ownership of the business completely over to
Claire. Susan plans to remain active in
the design aspect of the business by offering her services to the company as an
independent design consultant. She will
be compensated as an independent contractor on a per project basis. Susan will keep her current office so that
she will have a place to work.
Consistent with her status as an independent contractor, she will not
receive healthcare or any other employee benefits.

In order to
accomplish this transition, Wilson Designs, Inc. will redeem all of Susans
shares in the corporation. Susan will
file the required agreement not to acquire any prohibited interest in Wilson
Designs, Inc. for ten years.

Required: It is Susans understanding that the
redemption will qualify for sale or exchange treatment under the Code as a
complete termination of her interest in the corporation. She has come to you to verify the tax
consequences of this transaction (disregard the tax consequences to the
corporation”which uses its own tax consultants). Prepare a professional memorandum in response
to Susans inquiry. Fully research the
relevant authorities which will extend beyond the Code and the Regulations to
include administrative decisions and case law.

ANSWER

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