Liquidating distributions corporation
Nonliquidating corporate distributions are distributions of cash and/or property by a continuing corporation to its shareholders.
At the shareholder level, a nonliquidating corporate distribution can produce a variety of tax consequences, including taxable dividend treatment, capital gain or loss, or a reduction in stock basis.
This allows partners to defer recognition of gain in appreciated property that they receive from the partnership.
In contrast, distributions of appreciated property by C corporations and S corporations are treated as though the property were sold to the shareholder at fair market value.
If the S corporation distributes appreciated property to a shareholder, the corporation must recognize gain as if the property were sold to the shareholder at fair market value.
The primary difference between C corporations and S corporations is that C corporations are taxed twice on earned income: : once at the corporate level when the income is earned, and again at the shareholder level when the income is distributed.
The rules governing distributions from C corporations differ from the rules that apply to distributions from S corporations.
When multiple properties are distributed, the corporation computes gain on an asset-by-asset basis (Rev. Gain attributable to capital assets and certain property used in a trade or business (Sec. Corporations generally report nonliquidating distributions to shareholders on Form 1099-DIV, Dividends and Distributions (Sec. has held his stock for three years, and his stock basis is ,000. The corporation cannot afford to redeem the stock entirely for cash because its cash balance of ,000 must be used primarily to service real estate debt.
However, the shareholders agree that does not care which tract of land he receives in redemption of his stock because he plans to sell the land immediately. Unfortunately, a corporation cannot recognize a tax loss on a nonliquidating distribution of depreciated property (i.e., where the property’s FMV is less than the adjusted basis).