Source: https://www.bna.com/stock-sales-section304-p7711/
Timestamp: 2019-04-19 20:35:44+00:00

Document:
Tax Management Portfolio, Stock Sales Subject to Section 304, No. 768-3rd, discusses the tax rules governing a stock sale where: (1) a person sells stock of a parent corporation to its subsidiary (a “parent-subsidiary” stock purchase), and (2) a person controls each of two corporations and sells stock of one corporation to the other corporation (a “brother-sister” stock purchase). Section 304 governs these transactions and treats them as stock redemptions, not as stock sales to third persons, thus bringing into play the redemption provisions, the most important of which is §302.
Congress originally enacted §304 (and its statutory predecessor) to prevent the bailout of corporate earnings and profits as capital gain or return of capital via a sale of stock of one corporation to a related corporation, thereby avoiding the ordinary income tax on dividends. When capital gains are taxed at preferential rates, many individual taxpayers structure transactions to avoid the grasp of §304 in order to obtain the preferential rate for capital gains; even when the rates on capital gains and dividends are the same, the basis offset allowed for sales and exchanges motivates taxpayers to avoid dividend treatment. However, for many corporate taxpayers (especially in the international arena) §304 may be used to generate tax benefits in the context of stock sales (e.g., the §243 dividends received deduction and the §902 deemed-paid tax credit).
This Portfolio examines the judicial and legislative background of §304 and provides a detailed discussion of the rules of §304. As a part of this discussion, the separate rules applicable to parent-subsidiary and brother-sister stock purchases are compared, and the interrelation of §304 with other sections of the Code is explored.
Arsalan Hamidi, MS (Taxation), University of Illinois at Urbana-Champaign; BBA, Kennesaw State University; Adjunct Professor, Kennesaw State University, Tax and Accounting Program; Member of (AICPA) American Institute of Certified Public Accountants. Mr. Hamidi is a Managing Director for LumiNational LLC and serves as a strategic advisor for private equity clients on tax matters related to mergers and acquisitions.
Lindsey M. Dowling, B.S., University of Colorado, Boulder. Ms. Dowling is a Managing Director for LumiNational LLC and serves as a strategic tax advisor to large to mid-size multinational corporations, professional advisory firms, and private equity clients on corporate tax matters encountered at the various stages of a company's life-cycle. She advises clients on tax matters encountered in connection with corporate life-cycle events including but not limited to: acquisitions, dispositions, debt financings, debt restructurings, legal entity rationalization and tax function rationalization and integration. Lindsey started her career with PwC in Boston, and most recently she served as the head of the tax function in the private sector, collaborating with the corporate treasury function in implementing tax infrastructure, resolving tax issues associated with critical business decisions, and managing the tax function over complex bankruptcies and transactions.
George C. Koutouras, LL.M. (Taxation), Georgetown University Law Center; J.D., University of Detroit School of Law; B.S.A., University of Michigan; bar membership, Michigan and Illinois; formerly Attorney/Advisor to Special Trial Judge Stanley J. Goldberg, United States Tax Court; Managing Director, Alvarez & Marsal Taxand, LLC; Co-Author, 767-2nd T.M., Redemptions, 564 T.M., Related Party Transactions and 782-3rd T.M., Boot Distributions and Assumption of Liabilities; Adjunct Professor, University of Illinois Urbana-Champaign Master of Tax Program.
c. When Is Control Tested?

References: §302
 §304
 §304
 §304
 §243
 §902
 §304
 §304
 §304