When Negative Adjustments Are Made to the Stock Basis of the Subsidiary

question 79

Short Answer

When negative adjustments are made to the stock basis of the subsidiary that exceed the basis as of the beginning of the tax year, an) account is created rather than giving the parent a negative tax basis in the stock.

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Definitions:

Retained Earnings

The portion of net income that is kept by a company rather than distributed to its shareholders as dividends, to be reinvested in the business or pay off debt.

Treasury Stock

Shares that were once in circulation but were bought back by the issuing company, decreasing the amount of stock outstanding.

Par Common Stock

The nominal or face value assigned to a share of common stock by the company's corporate charter.

Fair Market

The price at which an asset would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.