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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.
Internal Revenue Service Form 1099-DIV, Dividends and Distributions, is a recordkeeping document that shows stock distributions received during the year.
Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.
Generally, shareholders are allowed to recover their entire basis before recognizing gain (Rev. On the other hand, filing a request for prompt assessment when there is only one shareholder might not be warranted.
This case study has been adapted from , 25th Edition, by Albert L.
However, the IRS has stated that a shareholder that assumes such a liability will receive capital loss treatment when the liability is ultimately paid by the shareholder (Rev. The corporation recognizes gain or loss for the receivable when it distributes the receivable to the shareholder.
The shareholder does not recognize and report additional income as it collects the receivable because the shareholder has already included this amount in its gain or loss computation when it received the liquidating distribution. The full amount (100%) of all distributions made after basis has been recovered are recognized as gain.
Liquidation marks the point when a corporation has committed to closing its doors.
It’s the final step in a corporate termination and the point at which IRS tax consequences start to apply.
331 when they receive the liquidation proceeds in exchange for their stock.
If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.
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.