River Corporation owns all 900,000 shares of Lake Corporations common stock. Lake also has 250,000 shares of
Question:
River Corporation owns all 900,000 shares of Lake Corporation’s common stock. Lake also has 250,000 shares of preferred stock, which are owned by unrelated persons. Each share of common stock is worth $38 and has two votes, and each share of preferred stock is worth $26 and has one vote. River has filed consolidated tax returns with Lake for many years. Lake would like to provide stronger performance incentives for its management and is considering a plan under which it would compensate its management in part with newly issued shares of its common stock. There is concern, however, that the resulting dilution in River’s ownership would preclude Lake from continuing to file a consolidated tax return with River. Determine and advise management as to the maximum number of common shares Lake can issue to its management that would allow it to continue to file a consolidated tax return with River.
Step by Step Answer:
Federal Taxation 2021 Corporations, Partnerships, Estates & Trusts
ISBN: 9780135919460
34th Edition
Authors: Timothy J. Rupert, Kenneth E. Anderson, David S. Hulse