Start Tax implications liquidating corporation

Tax implications liquidating corporation

A: A Cash Liquidation Distribution is a non-taxable distribution until such time that the total Cash Liquidation Distributions received exceed the cost basis of the investment.

Q: Was the initial liquidating distribution of $6.20 per share the final liquidation of my investment?

This schedule is being provided as a courtesy so that you can assist shareholders in calculating the tax basis of their shares.

Shareholders should consult their Forms 1099-DIV as provided previously for each year for dollar amounts, and shareholders must contact their tax advisors.

If the shareholder’s stock basis is large enough, the corporation can liquidate and incur no tax liability because the shareholder’s stock basis will not be depleted, only reduced, in the liquidating distributions.

After all assets have been distributed, if the shareholder’s stock basis is more than $0, there will be a capital loss in the amount by which the stock basis exceeds $0, and that loss can be used to offset any capital gains incurred in other distributions. 331 applies (pertaining to gain or loss to shareholders in complete liquidation of a corporation), the shareholder receives (in exchange for shareholder’s stock) a note acquired in respect of a sale or exchange by the corporation during the 12-month period beginning on the date a plan of complete liquidation is adopted, and the liquidation is completed during such 12-month period, then the receipt of payments under such note (but not the receipt of such note) by the shareholder must be treated as the receipt of payment for the stock.

C., a “small business corporation” is a domestic corporation that meets certain statutory criteria.

The precise tax consequences to the corporation and its sole shareholder are not possible to know without knowing the fair market values and basis of the corporation’s assets.

However, if the stock basis is depleted before the corporation distributes all of its assets, then any subsequent distributions will result in taxable gain to the extent there is gain recognized in those subsequent distributions. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. If the corporation distributes the note to a shareholder in a complete liquidating distribution, and a shareholder receives the note in exchange for shareholder’s stock within 12 months of the corporation adopting a plan of liquidation, and the liquidation is completed within that 12-month period, then the shareholder’s receipt of the note is not treated as a receipt of payment for shareholder’s stock.