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:

Historical Cost

The original monetary value of an asset, reflecting its cost at the time of acquisition, without adjustments for inflation.

Inventories

Assets held for sale, in the process of production for sale, or in the form of materials or supplies to be consumed in the production process.

Physical Capital Concept

The view that capital is a tangible asset, such as equipment or machinery, that is used in the production of goods and services.