Reform of Corporate Distributions in Subchapter C

56 Pages Posted: 13 Feb 2018

See all articles by Bret Wells

Bret Wells

University of Houston Law Center

Date Written: February 12, 2018

Abstract

Subchapter C’s corporation distribution provisions contain significant complexity aimed at obsolete bail-out concerns that needlessly create schizophrenic outcomes in today’s context. Subchapter C’s corporation distribution provisions were designed in an era when dividends were taxed at a different rate than were long-term capital gains, but now in this era it is important to note that Section 1(h)(11) provides that dividends received by individuals generally are taxed at the same rate as long-term capital gains, and the American Taxpayer Relief Act of 2012 made this tax rate parity permanent. Thus, unlike most of the US income tax history, individuals now are entitled to receive the same preferential tax rate for qualified dividends as long-term capital gains. When one examines subchapter C’s provisions that deal with corporate distributions in light of this relatively new reality, the statutory picture reveals significant complexity aimed at obsolete bail-out concerns that now only serve to create schizophrenic outcomes in today’s context. Thus, it is important to view these relics for what they now represent: a public nuisance regardless of whether one seeks to promote the classic double taxation of corporate earnings and profits or one seeks to promote a dividends paid deduction form of corporate-shareholder integration. Now that the historic bail-out of earnings and profits at capital gains rates is no longer a critical policy factor, the subchapter C distribution provisions should be rethought in terms of the policy factors that are relevant for today’s context. This paper sets forth a reform proposal that attempts to reform Subchapter C’s corporate distribution provisions for the current era.

Keywords: Section 301, Section 302, Section 303, Section 305, dividend, redemptions

Suggested Citation

Wells, Bret, Reform of Corporate Distributions in Subchapter C (February 12, 2018). 37 Virginia Tax Review 365 (2018); U of Houston Law Center No. 2018-A-2. Available at SSRN: https://ssrn.com/abstract=3122523

Bret Wells (Contact Author)

University of Houston Law Center ( email )

4604 Calhoun Road
Houston, TX 77204-6060
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
103
rank
245,602
Abstract Views
252
PlumX Metrics