nearly_blind[at]yahoo.com wrote:

- quote -

To me that seems like the best alternative.

- quote -

Actually that won't work. If everyone starts with and ends up with
about the same corporate interest, the IRS will consider it a
dividend in any case and not a redemption.

- quote -

If the corporation buys back all of a shareholder's stock, then it
can qualify as a redemption and it's capital gain. Otherwise it is
unlikely to work.

Stu

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I am shareholder in a C corp
that was founded 5 years. There are
4 total and founding shareholders all of which
are company officers/directors.
The original share price was some trivial amount.

Over the last 5 years we have accumulated a significant
amount of retained earnings which has already been
(corporate) taxed in prior years.

My question is what is the most tax efficient method to
distribute these funds to the share holders?

1)
It seems we can just issue a "dividend" which
would be taxed at a personal 15% rate
(and have no tax effect on the corporation).

2)
It also seems theoretically possible to turn it into a long term
capital gain by having the corporation buy shares back at a price/
share
such that the desired funds are distributed.
It seems that a long-term gain for small company stock will be
taxed at 14% (50% is excluded and the rest is taxed at 28%).
It also seems that his will not have any corporate tax effects.

Assuming 2) is kosher, it would probably not be worth the 1% tax
rate savings because of the complication.
However, there is a possilility that we may decide to close the
business and cease operations in 2008. In that case it seems it would
be clean
for the corporation to buy back most of the shares before ceasing
operation.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >