Distribution of Stock and Section 306 Stock

25 Pages Posted: 11 Aug 2011 Last revised: 28 Feb 2012

See all articles by Douglas A. Kahn

Douglas A. Kahn

University of Michigan Law School

Jeffrey H. Kahn

Harry M. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program

Terrence G. Perris

Squire, Sanders & Dempsey LLP

Date Written: August 11, 2011

Abstract

The contributed material consists of a chapter on stock dividends and preferred stock bailouts from the Concise Hornbook, Principles of Corporate Taxation (2010). The material explains what is meant by a “stock dividend”and explores the historical tax treatment of those dividends as well as the current treatment. The chapter notes how alternative devices might be used to accomplish consequences that are effectively the same as those that flow from a stock dividend and how the tax laws deal with those equivalent transactions. The several exceptions to exclusion from income are described and illustrated by the use of examples. The rules regarding the determination of the basis of both the old and new stock are examined. The previous use of preferred stock to bail out a corporation’s earnings is demonstrated, and the current rules to prevent the abusive use of so-called “preferred stock bailouts” are examined and illustrated.

Keywords: Stock Dividend, Preferred Stock, Bailout, 306

JEL Classification: H20, H25

Suggested Citation

Kahn, Douglas A. and Kahn, Jeffrey H. and Perris, Terrence G., Distribution of Stock and Section 306 Stock (August 11, 2011). PRINCIPLES OF CORPORATE TAXATION (Concise Hornbook Series), p. 120, 2011, U of Michigan Public Law Working Paper No. 247, FSU College of Law, Public Law Research Paper No. 544, FSU College of Law, Law, Business & Economics Paper No. 12-2, Available at SSRN: https://ssrn.com/abstract=1908424 or http://dx.doi.org/10.2139/ssrn.1908424

Douglas A. Kahn (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4043 (Phone)

Jeffrey H. Kahn

Harry M. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

Terrence G. Perris

Squire, Sanders & Dempsey LLP

4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
United States

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