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Non-liquidating Distributions Differences

1. What is the difference between debt and equity? (5 points)

2. What is the difference between common and preferred stock? (5 points)

3. What are the tax consequences to a corporation that distributes property to stockholders if the property distributed is less than the corporation's basis in the property? (5 points)

4. What are the tax consequences to a corporation that distributes property to stockholders if the property distributed is more than the corporation's basis in the property? (5 points)

5. What does "earnings and profits" mean in the context of corporate distributions? (5 points)

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In my own words
Question 1
Differences are:
1. Debt needs to be repaid with interest while equity is kept until liquidation of the corporation
2. Debt requires periodic interest payment while equity receives dividends which is on the discretion of the Board
3. Debt sometimes requires collateral while equity doesn't
4. Interest payments for debt are tax deductible ...

Solution Summary

The difference between debt and equity is determined. The tax consequences to a corporation that distributes property to stockholders if the property distributed is more than the corporation's basis in the property is given.

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