There is no corporate liquidation

Capital loss on series of liquidating distributions

In other words, the shareholder can treat the payments received on the note, rather than the note itself, as consideration received for the stock in liquidation. On the shareholder level, a complete liquidation can be thought of as a sale of all outstanding corporate stock held by the shareholders in exchange for all of the assets in that corporation. There are special rules dealing with the distribution of an installment obligation in a corporate liquidation.

Many cashbasis corporations

The purpose of this chapter is to assist revenue agents in identifying issues related to such liquidation transactions. The S corporation reports the gain on the final S corporation return, which flows-through to the old shareholder s. Nondeductible and noncapital expenditures must reduce the S Corporation's basis, per Treas.

Some corporations adopt plans of liquidation which on the surface appear to meet the various statutory requirements for liquidations. There is then a deemed distribution of the sales price in liquidation of the S corp. If there is a valid S election, there is generally no S corporation statute and the statute is controlled at the shareholder level. For S corporations, two separate rules deal with the distribution of installment obligations in liquidation.

There is an entity level tax, such as the built-in gains tax. Distributions made before there is evidence to support an intention to liquidate should be taxable as dividends ordinary income to a shareholder.

If the plan is not formal or is ambiguous, there may be uncertainty as to which distributions are made pursuant to the plan. Once an issue is identified the examiner should conduct further research. However, there are two situations where the S corporation statute must be protected. Proof of a distribution in complete liquidation not only depends on an intent to liquidate but also requires acts which demonstrate and effect that intent.

Often, a fully depreciated asset will have a higher fair market value than its book value. Many cash-basis corporations will have substantial accounts receivable, as in the case of professional corporations. At the corporate level, the corporation recognizes gain or loss on the liquidation in an amount equal to the difference between the fair market value and the adjusted basis of the assets distributed.

There is doubt as to whether the S Corporation election is valid. The gain on liquidation may be ordinary. In that situation, there is a deemed sale of the assets by the corporation.

Often a fully depreciated asset will

There is no corporate liquidation. The expenses of selling the assets are normally charged against the gain for each asset. The following audit techniques are not intended as an exhaustive list, but rather, as guidance to the identification and development of some of the more common issues. Commissioner of Internal Revenue, U.

Also, a liquidation followed by reincorporation of the working assets could be a device to recognize losses. The costs will affect the shareholder's gain or loss upon liquidation Rev.