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					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
                                                   Slide 7-5

         Shareholders’ Treatment
[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)]
                                                Slide 7-7

         Shareholders’ Treatment

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

				
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