Daisy Corporation is the sole shareholder of Ostrich Corporation, which it hopes to sell within the next three years. The Ostrich stock (basis of $25 million) is currently worth $30 million, but Daisy believes that it would be easier to find a buyer if it was worth less.To lower the value of its stock, Ostrich distributes $4 million cash to Daisy (sufficient E & P exists to cover the distribution).At a later date, Daisy sells Ostrich for $26 million.
a.Because Daisy is the sole shareholder of Ostrich, it has a 100% dividends received deduction on the $4 million cash distribution.Thus, Daisy Corporation is not taxed on the $4 million distribution, and it has a gain on the sale of its stock in
a.What are the tax consequences to Daisy on the sale?
b.What would be the tax consequences if Ostrich had not first distributed the $4 million in cash and Daisy sold the Ostrich stock for $30 million?

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The Answer of Daisy Corporation is the sole shareholder of Ostrich Corporation, which it hopes to sell within the next three years. The Ostrich stock (basis of $25 million) is currently worth $30 million, but Daisy believes that it would be easier to find a buyer if it was worth less.To lower the value of its stock, Ostrich distributes $4 million cash to Daisy (sufficient E & P exists to cover the distribution).At a later date, Daisy sells Ostrich for $26 million.
a.Because Daisy is the sole shareholder of Ostrich, it has a 100% dividends received deduction on the $4 million cash distribution.Thus, Daisy Corporation is not taxed on the $4 million distribution, and it has a gain on the sale of its stock in
a.What are the tax consequences to Daisy on the sale?
b.What would be the tax consequences if Ostrich had not first distributed the $4 million in cash and Daisy sold the Ostrich stock for $30 million?

Daisy Corporation Is the Sole Shareholder of Ostrich Corporation, Which