Van De Kamp, 040484 CAAGO, AGO 84-105

Docket Nº:AGO 84-105
Case Date:April 04, 1984
Court:California
 
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JOHN K. VAN DE KAMP Attorney General
ANTHONY S. DA VIGO Deputy Attorney General
AGO 84-105
No. 84-105
California Attorney General Opinion
Office of the Attorney General State of California
April 4, 1984
         THE HONORABLE MILTON MARKS, MEMBER OF THE CALIFORNIA STATE SENATE, has requested an opinion on the following question:          Is Revenue and Taxation Code section 24514, subdivision (a), paragraph (3), constitutional as applied to a corporation which has among its shareholders an alien who is a resident of a country with which the United States has a tax treaty containing a nondiscrimination clause?          CONCLUSION          Revenue and Taxation Code section 24514, subdivision (a), paragraph (3), may not be constitutionally applied to a corporation which has among its shareholders an alien who is a resident of a country with which the United States has a tax treaty containing a nondiscrimination clause.          ANALYSIS          Revenue and Taxation Code1 sections 24512,[2] 24513,3 and 24514 provide essentially that no gain or loss from the sale or exchange of its property shall be recognized to a corporation distributing all of its assets in complete liquidation within a 12-month period. Section 24514, subdivision (a), paragraph (3), excepts from the provisions above cited any such sale or exchange by a corporation "all of whose shareholders are not United States persons." Specifically, subdivision (a), paragraph (3), as added by the Statutes of 1981, chapter 279, section 15, provides as follows:
"(a) This section and Sections 24512 and 24513 shall not apply to any sale or exchange— "..................... "(3) Made by a corporation all of whose shareholders are not United States persons (as defined in Section 7701(a)(30) of the Internal Revenue Code of 1954). 4 In the case, however, of a corporation having both United States person and non-United States person shareholders (within the meaning of the preceding sentence) this section and Sections 24512 and 24513 shall apply only to the extent the gain or loss from the sale or exchange represents the United States persons' shareholder interest in the corporation."
         The effect of this provision is to impose a capital gains tax on a liquidating corporation which has among its shareholders a non-United States person and which otherwise would have qualified for special tax treatment under section 24512, when a shareholder received the assets of the corporation on liquidation. The intent and purpose of those provisions5 are discussed in the analysis to Assembly Bill No. 461 of the 1981-82 Regular Session by the Senate Committee on Revenue and Taxation. That analysis reads, in pertinent part, as follows:
"Current Law. "If a corporation makes a qualified liquidation wherein assets are distributed to shareholders, there is no tax on the exchange to the corporation. The basis of the property distributed is adjusted with respect to the shareholders so that when the shareholders dispose of the property they pay higher tax. However, if the shareholder is not a California resident, there is no jurisdiction over such person to impose a tax when the property is sold or exchanged. This results in revenue loss to the State. "Proposed Law. "Provides that in a liquidation situation the corporation must pay taxes on the gain attributable to property distributed to a
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