Transcript Document
Chapter
6
Corporate
Liquidating Distributions
Slide 7-2
In General
A liquidating corporation is essentially taxed as
if it had sold all of its assets
Shareholders of liquidating corporations are
essentially taxed as if they sold their stock
Corporate
Liquidating Distributions
Non-Subsidiary Liquidations
Slide 7-4
Liquidating Distributions
[Reg. §1.332-2(c)] A liquidating distribution is
defined as a distribution that is
(1) made by a liquidating corporation in
complete cancellation or redemption of all of its
stock in accordance with a plan of liquidation, or
(2) one of a series of distributions in complete
cancellation or redemption of all of its stock in
accordance with a plan of liquidation
Shareholders’ Treatment
Slide 7-5
[IRC §331(a)] Distributions received in
complete liquidation of a corporation are treated
as amounts realized on the sale or exchange of
the corporation’s stock
Distribution amount is cash plus FMV of other
property received less liabilities assumed
Slide 7-6
Shareholders’ Treatment
Gains (losses) on sales of corporate stock are
generally capital gains (losses) [IRC §1221]
Loss on qualified small business stock is an
ordinary loss up to $100,000 (MFJ)/$50,000
(other) [IRC §1244(a)]
Shareholders’ Treatment
Slide 7-7
Basis of property received as a liquidating
distribution is FMV [IRC §334(a)]
Holding period of property received as a
liquidating distribution begins on the day after
the distribution [IRC §1223(1)]
Slide 7-8
Corporation’s Treatment
The corporation recognizes gain or loss on the
distributions it makes in complete liquidation as
if the property was sold at its fair market value
[IRC §336(a)]
Slide 7-9
Corporation’s Treatment
If property is distributed subject to a liability or
the shareholder assumes a liability in connection
with the distribution, the FMV of the property is
treated as not less than the amount of the
liability [IRC §336(b)]
Examples 1 & 2
Slide 7-10
Corporation’s Treatment
[IRC §336(d)(1)(A)(i)] Losses cannot be
recognized on distributions to related parties if
the distribution is not pro rata
Related party defined [IRC §267]
Example 3
Slide 7-11
Corporation’s Treatment
[IRC §336(d)(1)(A)(ii)] Losses cannot be
recognized on distributions to related parties if
distribution is disqualified property
Disqualified property defined [IRC §336(d)(1)(B)]
Related party defined [IRC §267]
Slide 7-12
Corporation’s Treatment
For purposes of determining the loss on a
distribution of property in complete liquidation,
the adjusted basis of certain property is reduced
Amount of reduction [IRC §336(d)(2)(A)]
Description of property [IRC §336(d)(2)(B)]
Tax avoidance purpose [IRC §336(d)(2)(B)(i)(II)]
Example 4
Slide 7-13
Corporation’s Treatment
Any remaining tax attributes of the liquidating
corporation are generally lost such as:
NOL carryovers
Earnings and profits
Capital loss carryovers
Tax credits
Excess charitable contributions