Chapter 6 Flashcards
How does liquidation affect corporation?
General rule to recognize G/L on distribution to shareholders as if the property had been sold.
How does liquidation affect shareholder? General Rule
Liquidating distribution treated as sale of stock.
Capital G/L is recognized
amount of money + FMV of non-cash property minus the adjusted basis
What is liquidation status?
corp ceases to be an ongoing concern, all business is for the purpose of winding down
How is liquidation status determined?
The BOD must approve a plan of liquidation, otherwise distributions are taxable dividends
Controlled subsidiary rule Sec 332
1) parent company recognizes no G/L when an 80% controlled subsidiary company liquidates into parent corp
2) must be complete cancellation of subsidiary stock
3) timing - must be in plan of liquidation
What is adjusted basis of property received by shareholder in liquidation
FMV - liabilities assumed by shareholder
How does liquidation affect shareholder? (Small business Exception)
Sec 1244 stock loss by individual is ordinary loss to the limit of $50,000 (single) / $100,000 (mfj)
Shareholder assumes liability, how is G/L determined?
Use FMV of property, unless liability > FMV, then use amount of liability as property basis
What is parent company basis of property received in liquidation of controlled subsidiary?
same as subsidiary company’s basis…property just slides into parent company
Corporate Dissolution or Liquidation Form?
Form 966
must be filed within 30 days of liquidation plan
Form for non-dividend distribution?
Form 5452
Form 1099-DIV must be issued when?
To every shareholder receiving $600 or more during a calendar year in liquidation of stock
Liquidating vs non-liquidating distribution - how is corporation amount determined?
Use FMV to determine distribution amount
non-liquidating: recognize gain, not loss
liquidating: recognize both G/L as if property was sold (any liability assumed by shareholder reduces distribution amount)
