Liquidating distribution tax
Liquidating distribution tax - kenny wormald dating history
Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.
When a corporation liquidates all of its assets to shareholders, it generally recognizes a taxable gain or loss, though a number of rules exist that limit a corporation's ability to report losses.(See Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders at Para. When a corporation decides to shut down, it might liquidate its remaining assets, and even some of its debts, to shareholders.Company management, however, was blissfully unaware of this development and continued to file the business’s federal corporate income tax return and pay all federal income taxes.Eventually, company officers learned of their plight and reincorporated the business in the same state.In the event the outstanding debt on distributed property is more than the property is worth, the minimum fair market value you can assign to it is the outstanding debt.
For example, suppose the company vehicle is worth ,000 rather than ,000.If you own shares in a corporation that makes liquidating distributions to you, the IRS treats the transaction as a sale or exchange of your stock.This means that you may have a gain or loss to report on your return.At issue is whether the company’s status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that “…where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved…” In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.If it is considered terminated, the company would have been viewed as having completely liquidated, and both it and its shareholders would have experienced the tax consequences attendant to the situation. In other words, in most cases, the liquidation of a corporation commonly engenders two levels of taxation: tax will be imposed at both the corporate and distributee shareholder levels.* The De Facto Company Closure A complete liquidation is not always accompanied by a formal or legal company shutdown. Thus, unless dissolution brings about an automatic transfer of the corporation’s assets to its shareholders, the corporation, even though dissolved, continues its existence.The tax treatment of liquidating distributions of debt to shareholders impacts the amount of gain or loss shareholders report on their tax returns.