9.6 - Corporate Tax Special Topics - Partial Liquidation

Question 1

Partial Liquidation - Noncorporate Shareholder

How do noncorporate shareholders treat distributions?

Answer 1

As a sale to the extent it is (in redemption) in partial liquidation of the corporation

Question 2

Complete Liquidation - Corporate Distributor

How does the corporation making the distribution recognize gains and losses?

Answer 2

Recognizes gains but not losses

Question 3

Complete Liquidation - Corporate Distributee

How does a corporation that receives a distribution in redemption for partial liquidation of another corporation treats the distribution?

Answer 3

As a dividend to the extent of E&P of the distributing corporation

Question 4

Complete Liquidation - Corporate Distributee

Is the distributee corporation eligible for the dividends received deduction (DRD)?

Answer 4

Yes

Question 5

Complete Liquidation - Contraction of the Corporation

What does partial liquidation refer to?

Answer 5

Contraction of the corporation

Question 6

Complete Liquidation - Contraction of the Corporation

What is the focus on in partial liquidation or contraction of the corporation?

Answer 6

Genuine reduction in size of the corporation

Question 7

Complete Liquidation - Contraction of the Corporation

Must partial liquidation be pursuant to a plan?

Answer 7

Yes

Question 8

Complete Liquidation - Contraction of the Corporation

When must the partial liquidation be complete?

Answer 8

Within either the tax year of plan adoption or the succeeding tax year

Question 9

Complete Liquidation - Contraction of the Corporation

Do pro rata distributions preclude partial liquidation sale treatment?

Answer 9

No

Question 10

Complete Liquidation - Contraction of the Corporation

Are shareholders required to surrender stock to the corporation during a partial liquidation?

Answer 10

No

Question 11

Safe Harbor >> Noncorporate shareholders apply partial liquidation sale treatment to distributions rec’d if the following conditions are satisfied…..

Answer 11

1 – The distribution is attributable to the corporation ceasing to conduct a trade or business that it actively conducted for at least 5 years ending with the date of the distribution;

2 – immediately after the distribution, the corporation continues to conduct at least one active trade or business it has conducted for 5 years