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 ------------------------------------------------------------------------                                                                  Other                                       Accumulated  Previously  earnings                                       DISC income     taxed       and                                                      income     profits------------------------------------------------------------------------Balance January 1, 1976..............  ...........  ..........      $50Increase for 1976....................        $10          $8Increase for 1977....................         10           8Increase for 1978....................         10           8                                      ----------------------------------  Balance January 1, 1979............         30          24         50Deficit for 1979 of $70:  Charge No. 1.......................  ...........  ..........     (50)  Charge No. 2.......................       (20)                                      ----------------------------------    Balance January 1, 1980..........         10    ..........        0------------------------------------------------------------------------

Example 2.  Assume the same facts as in example 1, except that effective for taxable years beginning with 1979, X revokes its election to be treated as a DISC. Under §1.995–3, X has $30 of accumulated DISC income which is to be deemed distributed $10 per year in 1980, 1981, and 1982. The deficit in earnings and profits for 1979 is charged to the divisions of X's earnings and profits pursuant to paragraph (b) of this section in the manner set forth in the table below:

 ------------------------------------------------------------------------                                                                  Other                                       Accumulated  Previously  earnings                                       DISC income     taxed       and                                                      income     profits------------------------------------------------------------------------Balance January 1, 1979..............        $30         $24        $50Deficit for 1979 of $70:.............  Charge No. 1.......................  ...........  ..........     (50)  Charge No. 2.......................  ...........      (20)    ........                                      ----------------------------------    Balance January 1, 1980..........         30           4          0------------------------------------------------------------------------

Example 3.  Assume the same facts as in example 2, except that the deficit in earnings and profits for 1979 is $120. Assume further that for 1980, 1981, and 1982, during which years X's shareholders are receiving scheduled installments of the deemed distributions of accumulated DISC income under §1.995–3, X, a former DISC, has neither earnings and profits nor a deficit in earnings and profits. The $120 deficit for 1979 is charged to the divisions of X's earnings and profits pursuant to paragraph (b) of this section in the manner set forth in the table below:

 ----------------------------------------------------------------------------------------------------------------                                                                                             Other                                                                  Accumulated  Previously  earnings  Accumulated                                                                  DISC income     taxed       and      earnings                                                                                 income     profits  and profits----------------------------------------------------------------------------------------------------------------Balance January 1, 1979.........................................        $30         $24        $50        $104Deficit for 1979 of $120........................................  ...........  ..........  ........      (120)  Charge No. 1..................................................  ...........  ..........     (50)   ...........  Charge No. 2..................................................  ...........      (24)    ........  ...........  Charge No. 3..................................................  ...........  ..........     (46)   ...........                                                                 -----------------------------------------------    Balance January 1, 1980.....................................         30           0       (46)        (16)Deemed distributions in 1980 under § 1.995-3...............       (10)          10    ........  ...........                                                                 -----------------------------------------------    Balance January 1, 1981.....................................         20          10       (46)        (16)----------------------------------------------------------------------------------------------------------------

Example 4.  Assume the same facts as in example 3, except that on December 31, 1980, X makes an actual distribution of $10 out of previously taxed income. On January 1, 1981, X has $20 of accumulated DISC income, no previously taxed income, and a deficit of $36 in other earnings and profits. The deficit of $16 in accumulated earnings and profits remains the same.

[T.D. 7324, 39 FR 35120, Sept. 30, 1974]

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