Which of the Following Statements Is Incorrect Regarding Tax Planning

question 68

Multiple Choice

Which of the following statements is incorrect regarding tax planning opportunities for qualifying stock redemptions?

• A) A corporation that uses installment obligations to finance a redemption can deduct the related interest expense.
• B) With a "bootstrap acquisition," a third party first acquires a small amount of a corporation's stock, and then the corporation redeems the remaining stock of the other shareholders.
• C) For the shareholders of a family-owned corporation, the disproportionate redemption represents the best opportunity for a qualifying stock redemption.
• D) The not essentially equivalent redemption is of limited utility and should be considered only as a last resort.
• E) None of these.

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Definitions:

Recent Lava Flows

Molten rock that has erupted from a volcano and solidified on the earth's surface in the recent geological past.

Angular Unconformity

A geological feature where newer layers of sediment or rock rest upon older layers that have been tilted or folded, indicating a significant change in depositional environments.

Rocks Folded

refers to the bending and curving of rock layers under pressure, without the layers breaking.

Flat-lying Layers

Horizontal strata of sedimentary rock that have not been significantly tilted or disturbed since their deposition.