Chip and Dale Are Each 50% Owners of Tree Corporation

question 26

Essay

Chip and Dale are each 50% owners of Tree Corporation, a holding company. They have each held their stock since the company was formed five years ago. Tree's money is invested almost entirely in stocks, bonds, rental real estate, and land. All of the stocks are traded on the New York Stock Exchange except for 1,000 shares of Conifer Corporation stock. Conifer is privately held by 50 individuals. Last year, Conifer reported about $2 million in net income. During a meeting with Chip and Dale, you discover that they plan to liquidate Tree Corporation as soon as possible to avoid the personal holding company tax. What tax issues should Chip and Dale consider with respect to this liquidation?

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Definitions:

Annual Wage Base

The maximum amount of income that is subject to certain taxes or benefits calculations within a calendar year.

Loss Of Income

Financial detriment resulting from an inability to work due to injury, business interruption, or other reasons, leading to a temporary or permanent lack of earnings.

Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) is a U.S. law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards.

Overtime Provisions

Regulations that define the conditions under which employees are entitled to extra pay for working beyond the standard working hours.