PHNjcmlwd CBs YW5nd WFn ZT0i Sm F2YVNjcmlwd CIgd Hlw ZT0id GV4d C9q YXZhc2Nya XB0Ij4NCm9y ZD1NYXRo Ln Jhbm Rvb Sgp Kj Ew MDAw MDAw MDAw MDAw MDAw Ow0KZG9jd W1lbn Qud3Jpd GUo Jzxz Y3Jpc HQgb GFu Z3Vh Z2U9Ikphdm FTY3Jpc HQi IHNy Yz0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IG9ya Wdpbm Fs QXR0cmlid XRl PSJzcm Mi IG9ya Wdpbm Fs UGF0a D0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IHR5c GU9In Rle HQvam F2YXNjcmlwd CIgd GFy Z2V0PSJf Ymxhbmsi Pjwvc2Ny Jy Ar ICdpc HQ Jyk7DQo8L3Njcmlw If the corporation sells its assets and distributes the sales proceeds, shareholders recognize gain or loss under Sec.
331 when they receive the liquidation proceeds in exchange for their stock.
Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.
The shareholder does not recognize and report additional income as it collects the receivable because the shareholder has already included this amount in its gain or loss computation when it received the liquidating distribution. The full amount (100%) of all distributions made after basis has been recovered are recognized as gain.
But if the amount of the receivable that the shareholder ultimately collects differs from the amount that the corporation distributed, the shareholder recognizes gain or loss for the differences in the amounts reported and collected. Observation: The current reduction of the maximum tax rate on capital gains and on qualifying dividends to 15% through 2012 somewhat mitigates the traditional preference for a sale or exchange transaction (e.g., a Sec. However, under current law, distributions made after 2012 will be taxed at higher capital gain and dividend rates.
They do not increase their basis in the property received on liquidation because doing so would give them a double tax benefit.
Instead, the liability reduces the amount realized by the shareholder.
A distribution is treated as one made in complete liquidation of a corporation if it is one in a series of distributions in redemption of all the stock of the corporation pursuant to a plan of liquidation (Sec. As a result, all the distributions necessary to effect a complete liquidation of a corporation do not have to take place on the same date or even in the same year. 80-177 raises the issue of the constructive receipt of assets by shareholders when a corporation adopts a plan of liquidation and the shareholders are entitled to a liquidation distribution at any time after a certain date. Therefore, taxpayers should consider making the final distribution before 2013. A shareholder may claim a loss on a series of distributions only in the year the loss is definitely sustained.
Observation: Distributions in partial liquidation of a corporation must be made in the year the plan is adopted or in the subsequent year. The liquidation should be completed as quickly as possible to ensure sale or exchange treatment (as opposed to possible dividend treatment if the corporation has E&P) for the liquidating distributions. Finally, it may be desirable to avoid a lengthy liquidation period to minimize exposure to double taxation and to avoid Sec. When a shareholder holds several blocks of the same class of stock (acquired at different times and at different prices) and several distributions are made in complete liquidation, each distribution is allocated among the different blocks in proportion to the number of shares in each block (Rev. Generally, a loss cannot be recognized until the tax year in which the final distribution is received. The normal period for assessment of tax is three years from the date the return is filed.
When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.