From you analysis of Section 306 in the e-Activity, differentiate between the tax
treatment of earnings and profit on the distributing corporation of both a sale of
Section 306 stock and redemption of Section 306 stock- Suggest the most important
reasons for this differentiation in tax treatment- Discuss the methods that corporations
may use to circumvent the restrictions-

Per the text, the personal holding company (PHC) tax penalizes taxpayers who enter
into tax-motivated transactions designed to shelter passive income of closely held
corporations from higher individual tax rates- Suppose you represent a professional
athlete who is the majority owner of a corporation- The corporation has several
personal service contracts with advertising agencies and endorsements for you client
in addition to passive income- Propose a plan in which you mitigate the potential for
the PHC tax on the client’s corporation-