When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.If the stock is a capital asset in the hands of the shareholder, the shareholder has a capital gain or loss on the exchange.They do not increase their basis in the property received on liquidation because doing so would give them a double tax benefit.
Any excess proceeds can be distributed to shareholders.
If there are concerns that the company’s affairs are not being properly conducted, a shareholder or creditor can request a court appointed provisional liquidator to oversee the company’s assets, liabilities and distribution process through completion.
331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).
For example, a plan of liquidation documented in the corporate minutes could state that multiple liquidating distributions will occur and explain the business reasons for this. It does not extend the time in which an assessment can be made beyond three years from the date the return was filed (Regs. If the IRS assesses an additional tax liability after the assets have been divided among the shareholders, disagreements could arise regarding who is responsible for the deficiency. The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.
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.
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.