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 ?

* Repeal of the collapsible corporation rules (Sec.

Tax provisions in the Fiscal Cliff Act

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.

Securing capital gains in a public offering

341, the notorious collapsible corporation provisions.

Determining FMV. (From The IRS)

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.

Going public? Don't forget a section 341(f) consent

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.

TEC initiatives. (DC Currents)

If a corporation falls under the collapsible corporation rules, the impact on the availability of Sec.

Interaction between Sec. 1202 and other provisions

If the liquidated corporation meets the definition of a collapsible corporation, any shareholder gain will be consdered ordinary income.

Liquidating a corporation: how to structure a plan of liquidation to avoid unanticipated tax liabilities