Liquidating s corp Woman naked over
If the S corporation has AE&R the shareholders may want to forgo distributions prior to commencement of the liquidating distributions, because once the AAA is exhausted, preliquidation distributions are treated as dividend income to the extent of AE&P.Determining the Basis of Property Received The shareholder's basis in assets received is their FMV at the time of the distribution.If the shareholder assumes known corporate liabilities or receives corporate property subject to a liability (such as the distribution of mortgaged land), the amount realized is reduced by the amount of the liability (Ford, 311 F2d 951 (Ct. It appears that the adjusted basis of stock held in a liquidating corporation is adjusted for current-year passthrough items prior to determination of gain or loss from the receipt of the liquidating distributions (see Regs. T has a basis of ,000 in Block 1 (which represents 10 shares) and a basis of ,000 in Block 2 (which represents 20 shares).The corporation distributes ,000 cash to Tin return for his stock.T recognizes a ,000 gain on Block 1 (,000 - ,000 basis), which reduces his basis in that block to zero.T recognizes no gain or loss on Block 2 (,000 - ,000 basis) and has a remaining basis of ,000 in Block 2.A distribution in partial liquidation that does not qualify for sale or exchange treatment will be governed by the usual S corporation distribution rules of Sec. In certain cases, this treatment is preferable to sale or exchange treatment. 1368 treatment, the sale or exchange rules can be easily avoided, for example, by failing to adopt a plan of liquidation or delaying the distribution until two years after the tax year the plan is adopted.If the S corporation has a large AE&P amount but a nominal AAA balance, a Sec.
This can result in the shareholders reporting more than 12 months of passthrough income in a single year.
Basis is not affected by the shareholder's assuming corporate liabilities or receiving corporate property that is subject to a liability (See. Structuring a Partial Liquidation for Best Tax Results A distribution in partial liquidation of the S corporation will also qualify for sale or exchange treatment under Sec.
302 if the distribution is pursuant to a plan and occurs within the tax year the plan is adopted or the following tax year and the "safe harbor" of Sec. Under the safe harbor, the assets, or proceeds from the sale of the assets, of a trade or business conducted by the S corporation during the previous five-year period must be distributed to the terminating shareholder, and the S corporation must continue conducting a trade or business that it conducted during the same prior five-year period.
1368 distribution allows full stock basis offset at the shareholder level, while sale or exchange treatment allows only part of the shareholder's stock basis to offset the distribution.
Handling Passthrough Items in the Year of Liquidation The liquidation process itself does not terminate the company's S election.