cash received from sale or redemption foreign company stocks

Technical topics regarding tax preparation.
#1
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Taxpayer has small number of shares of a foreign corporation, 2% ownership. Recently, he returns half of the stock holding to the company which will sells the stock to a new shareholder.
What is the tax treatment of the cash he received from the transaction? Will the proceeds be treated as stock sales or stock redemption?
Thank you!
 

#2
sjrcpa  
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taxp2345 wrote: he returns half of the stock holding to the company

What does this mean?
If it is an administrative function to facilitate the sale of the shares, I think it is ignored.
Client has a sale of stock and a capital gain or loss.
 

#3
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sjrcpa wrote:
taxp2345 wrote: he returns half of the stock holding to the company

What does this mean?
If it is an administrative function to facilitate the sale of the shares, I think it is ignored.
Client has a sale of stock and a capital gain or loss.


Thanks for the prompt response. I think it is just for administrative function. Thank you!
 

#4
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sjrcpa wrote:
taxp2345 wrote: he returns half of the stock holding to the company

What does this mean?
If it is an administrative function to facilitate the sale of the shares, I think it is ignored.
Client has a sale of stock and a capital gain or loss.


May I ask an additional question? If taxpayer returns the stocks to the company for $100 and the company later sells the stocks to a new shareholder for $120. How will that be treated from taxpayer's standpoint? Thank you!
 

#5
Nilodop  
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Do you mean he sold the stock to the compamy for $100? Then it's not just administrative. Or did the company sell it for $120 and take $20 for their services?
 

#6
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Nilodop wrote:Do you mean he sold the stock to the compamy for $100? Then it's not just administrative. Or did the company sell it for $120 and take $20 for their services?


This question is just a hypothetical one.
So, I want to know what is the tax treatment if taxpayer sells/returns stocks back to the company at one price and company then sells to a new shareholder at a higher price. The difference of the two prices are not for company's service to facilitate the sale and not administrative. Will the taxpayer's return of stock be considered stock redemption or stock sale? Maybe this won't happen in real world? Thanks!
 

#7
Nilodop  
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Anything can happen in the real world.

If there is not a step transaction, but rather a real "sale" of his stock to the corporation, it's a sale. That assumes there is NO connection between the steps, e.g., no pre-planned or pre-obliged further step, and NO relationship between or among the parties. It's a redemption, with whatever tax effects result from that. Then the sale by the corp. to another person is treated (at least under U.S.law) as an issuance by the corp., again taxed (or not) based on the country's law.

But if the above described "facts" are absent, i.e., there is a plan or obligation that ties the steps together, and/or there are other connections/relationships, all bets are off and we'd need more facts.

There is theoretically the possibility of a tax to all parties.
 

#8
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Nilodop wrote:Anything can happen in the real world.

If there is not a step transaction, but rather a real "sale" of his stock to the corporation, it's a sale. That assumes there is NO connection between the steps, e.g., no pre-planned or pre-obliged further step, and NO relationship between or among the parties. It's a redemption, with whatever tax effects result from that. Then the sale by the corp. to another person is treated (at least under U.S.law) as an issuance by the corp., again taxed (or not) based on the country's law.

But if the above described "facts" are absent, i.e., there is a plan or obligation that ties the steps together, and/or there are other connections/relationships, all bets are off and we'd need more facts.

There is theoretically the possibility of a tax to all parties.


Thank you for the explanation! I learn new things everyday from this forum. Thank you!
 


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