* Repeal of the
collapsible corporation rules (Sec.
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.
341, the notorious
collapsible corporation provisions.
When a corporation goes public, its founders should ensure their stock gains are eligible for capital gains treatment rather than ordinary income treatment (for more than 5% shareholders), which occurs when the corporation is judged a "
collapsible corporation." This designation often applies to corporations that have not earned significant taxable income.
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.
If the liquidated corporation meets the definition of a
collapsible corporation, any shareholder gain will be consdered ordinary income.
collapsible corporations: Companies that reside in electronic networks rather than physical buildings, allowing them greater flexibility to change in size and configuration as market conditions dictate
