June owned all the stock of Corporation A. Over the years, the corpora- tion had
ID: 2418830 • Letter: J
Question
June owned all the stock of Corporation A. Over the years, the corpora- tion had been very successful but had never paid any dividends, although it had substantial earnings and profits. June wanted to expand into another line of business as a sole proprietor but did not have the cash to do so. June decided to form B, a new corporation. She contributed all the stock of A to B. B borrowed $100,000 from a bank using A stock as collat- eral. B then distributed all of its stock and the $100,000 to June. How should June treat the distribution of the stock and the $100,00
Explanation / Answer
The Sole proprietorship is not a legal entity. It is the individualship.
The $ 100000 received will be taxable in the hands of June and the stock will be treated as the current liabilities.