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 provisions.

Determining FMV. (From The IRS)

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

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

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.

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