Liquidated Corporation: tax consequences and example
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What are the tax consequences to a corporation that is liquidated? Provide an example.
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Solution Summary
The solution surveys the many ways that a corporation can liquidate under various code sections of the Internal Revenue Code. The area is very complex and the solution provides only a glimpse of some very difficult subject matter. The example provided is a C corporation in full liquidation. The example discloses amounts for the transaction taking property subject to debt in exchange for the stock.
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A full liquidation of a C corporation is pretty straightforward in normal circumstances. Generally cash and/or property distributed in a complete liquidation is deemed to have been sold by the corporation at fair market value (for property). Any resulting gain or loss will be recognized as a taxable event for the liquidating corporation under Code Sec 331.
Shareholders would receive a liquidating dividend sometimes called a return of capital. The individual makes his/her own determination about a capital gain or loss transaction to be reported on the individual return. The classification of long or short term will depend upon the length of time the person has held the stock.
If the ...
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