Slayer CPA
SectionsBlogLog In
Tax Compliance and Planning/Blueprint/2.C

Owner-entity transactions

Area 2: Entity Tax Compliance (30-40%)

Your Progress

0 of 102 questions attempted

Topics

  • Guaranteed payments and self-employment
  • Reasonable compensation analysis
  • Loans and property transactions with entities

Lessons

  • Owner-Entity Transactions

Study Frameworks

Section 302 Stock Redemption Tests

Section 302 Redemption Analysis
Constructive Ownership (IRC 318)
Family attribution: spouse, children, grandchildren, parents
Entity attribution: partnerships, corporations, trusts, estates
Must apply before testing redemption treatment
Sale/Exchange Treatment Tests (any one is sufficient)
Substantially disproportionate (302(b)(2))
After: <50% of total voting power
After: voting stock % < 80% of before %
After: common stock % < 80% of before %
Complete termination (302(b)(3)) — all stock redeemed; family attribution can be waived
Not essentially equivalent to a dividend (302(b)(1)) — meaningful reduction in interest (facts and circumstances)
Dividend Treatment (Default)
If no test is met: treated as IRC 301 distribution
Taxable as dividend to extent of E&P
Basis of redeemed shares added to remaining shares

Section 302 Redemption — Dividend vs. Sale Treatment

After applying IRC 318 constructive ownership rules, was the shareholder's entire interest completely terminated (302(b)(3))?
Yes
Sale/exchange treatment — gain/loss = redemption proceeds minus stock basis
No
Is the redemption substantially disproportionate (302(b)(2))? (After: <50% voting power AND voting % < 80% of before %)
Yes
Sale/exchange treatment — gain/loss = redemption proceeds minus stock basis
No
Is the redemption not essentially equivalent to a dividend (302(b)(1))? (Meaningful reduction in proportionate interest — facts and circumstances)
Yes
Sale/exchange treatment — gain/loss = redemption proceeds minus stock basis
No
Dividend treatment (IRC 301) — distribution taxed as dividend to extent of E&P; basis of redeemed shares transfers to remaining shares

IRC Section Quick Reference

SectionTopicKey Rule
IRC 83(b)Property transferred for servicesElection to recognize income at grant (not vesting); must file within 30 days
IRC 199AQBI deduction20% deduction for pass-through income; W-2/UBIA limitation above threshold; SSTB phase-out
IRC 267Related party lossesLosses disallowed between related parties; deferred until gain recognition by transferee
IRC 302Stock redemptionsSale treatment if substantially disproportionate, complete termination, or meaningful reduction
IRC 318Constructive ownershipFamily, entity, and option attribution rules for determining stock ownership
IRC 332Subsidiary liquidationTax-free liquidation to 80%+ parent corporation; carryover basis under 334(b)(1)
IRC 336Liquidating distributionsCorporation recognizes gain/loss as if sold at FMV; exception for 332 liquidations (IRC 337)
IRC 351Corporate formationTax-free transfer of property for stock if transferors have 80% control immediately after
IRC 409ADeferred compensationStrict timing rules for deferral elections and distributions; 20% penalty + interest for violations
IRC 465At-risk rulesLosses limited to amount taxpayer has at risk (cash + recourse debt + qualified nonrecourse for real estate)
IRC 469Passive activity lossesPassive losses only offset passive income; $25K rental allowance; released on disposition
IRC 704(c)Partnership contributed propertyBuilt-in gain/loss allocated to contributing partner; prevents shifting pre-contribution gain/loss
IRC 721Partnership formationNo gain/loss on contribution of property to partnership; carryover basis
IRC 743(b)Partnership basis adjustmentOptional step-up in basis of partnership assets on transfer of partnership interest (requires 754 election)
IRC 754Basis adjustment electionPartnership election for inside basis adjustments on transfers (743b) and distributions (734b)
Practice These Topics(102 questions)