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Taxation of C Corps

In: Business and Management

Submitted By josegomez1904
Words 972
Pages 4
FACTS:
Six years ago, a C Corporation, purchased 30% of the stock of Sheet Metal Corporation (SMC) for $21,800,000. This year, VTS sold the stock of SMC for $11,560,000 producing a loss of $10,240,000. VTS has current operating income of $9,550,000 and no other gains or losses from investment activities.

ISSUE:
There are several issues that derive from the fact pattern described above including: * Whether the loss is classified as ordinary or capital, and if capital, whether it is short term or long term capital loss. * Whether VTS can offset the losses incurred on the sale of SMC stock and if so, how much of the loss may be offset. * What forms should VTS use in order to report the losses.

CONCLUSION:
The losses suffered by VTS on the sale of SMC stock are considered long-term capital losses as the company held the stock for over a year. During the current year, VTS is not allowed to offset any of the losses. However, the corporation can carryback the losses 3 year and forward 5 years in order to offset any capital gains incurred during those years. VST must use report the losses on Form 1139 or Form 1120X.

SUPPORT:
The first step in this case is to calculate the amount of the loss suffered by VTS. As a general rule, under IRC § 1001(c), any gain or loss on the sale or exchange of property shall be recognized unless a specific provision allows for the gain or loss to be deferred or excluded. Furthermore, § 1001(a) estates that the loss from the sale or other disposition of property shall be the excess of the adjusted basis over the amount realized on the disposition of the asset. § 1001(b) defines the “amount realized” as the sum of any money received plus the fair market value of property (other than money) received. Moreover, § 1011(a), states that the adjusted basis equals the initial basis of the property plus or minus any…...

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