Collapsible corporation financial definition of collapsible corporation
A former tax-planning tool allowing conversion of ordinary income to capital gains through the vehicle of a corporation set up and then quickly “collapsed” by a sale or exchange of the stock or a liquidation.Today,the vehicle has been largely penalized out of existence by the IRS.If the corporation is collapsed and the stock sold within 3 years of formation,sale proceeds will be treated as ordinary income although such a holding period would otherwise qualify for capital gains treatment.See also thin corporation.
References in periodicals archive
341, the notorious collapsible corporation
When a corporation and its founding shareholders issue a public offering of stock before it has generated a substantial amount of taxable income--a situation common in the high-tech industries--there is a good chance the entity will be considered a collapsible corporation
The AICPA agrees with the proposed legislation that other areas on which Congress might concentrate simplification efforts to reduce complexity for a broad range of taxpayers include (1) capital-gain taxation; (2) education incentives; (3) repeal of the collapsible corporation
provisions; and (4) rationalization of the estimated tax safe harbors.
If a corporation falls under the collapsible corporation
rules, the impact on the availability of Sec.
26) A collapsible corporation
basically entails a distribution of property by a corporation to its shareholders before the corporation realizes a substantial part of the taxable income to be derived from such property.