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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.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.Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.
As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal. The corporation is treated as selling the distributed assets for FMV to its shareholders, with the resulting corporate-level tax consequences.
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.
No such requirement exists for distributions made in a complete liquidation of a corporation. The IRS indicates it will normally not issue a ruling or determination letter on the tax effects of a corporate liquidation accomplished through a series of distributions made over a period in excess of three years from adoption of the plan of liquidation (Rev. 541 personal holding corporation (PHC) status for the corporation after the assets are sold. However, there have been some exceptions to this rule (e.g., in the year the last substantial distribution was made because the amount of the final distribution was then determinable with reasonable certainty) (Rev. A corporation can accelerate the period in which the IRS can assess tax by requesting a prompt assessment of tax (Sec. Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), is used to request a prompt assessment.
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.
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This is usually the case in bankruptcy liquidations.