Academic journal article Journal of Accountancy

New Rule on Stock Transactions

Academic journal article Journal of Accountancy

New Rule on Stock Transactions

Article excerpt

A proposed regulation, designed to increase compliance by corporate taxpayers, could create both tax planning opportunities and pitfalls for companies.

The existing regulation under IRC section 1032 allows a corporation to issue its own stock, or options to buy its stock, in exchange for cash or property without recognizing either gain or loss. Previously, the Treasury had extended the section 1032 rules to stock issued in a tax-free triangular reorganization (a series of transactions in which a parent creates a subsidiary to acquire a target company) and certain consolidated return transactions. The proposed regulation would extend the nonrecognition treatment to additional transactions, thereby further liberalizing the tax-free nature of section 1032.

Under the proposed regulation, no gain or loss would be recognized when a corporation (the transferor) receives property in exchange for stock, or options to acquire stock, it obtained from another corporation (the issuer) in a nontaxable transaction. The transferor corporation would be treated as having purchased the stock from the issuer for its fair market value immediately before the disposition.

The regulation would also extend this treatment to stock a company transfers in exchange for services. There is a corresponding amendment to the regulations under IRC section 83. …

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