Corporate Redemptions and Liquidations

Question 1

What is a redemption of stock? What are the rules for stock proceeds received?

Answer 1

Shareholder sells stock back to the corporation.

Rules:

• Capital gain treatment: After distribution, has to own less than 80% of his or her total interest (60% before * 80%) does that equal less than the ownership remaining?
• Capital gain treatment: own less than 50% of total voting power

If you don’t meet this rule, you will have to be taxed as ordinary income (dividend income)

Question 2

How does the family attribution rules work?

Answer 2

If you sell all your stock, you can elect to waive family attribution rules which means that you provide a written statement that you will have NO interest in the company for the next 10 years.

If you sell all your stock, you would have capital gain treatment UNLESS you have a family interest. In this case you would need to do the statement to get that waived.

Question 3

What is a partial liquidation?

Answer 3

You have at least two active messiness for last five yours and ONE is liquidated and not the other

Redemption treatment can be obtained in this situation

Question 4

What are liquidations?

Answer 4

Occurs when an entity to cease to be a going concern and distributes its assets.

Any expenses incurred are deducted on the last corporate return. They are not selling expenses, unless it only relates to that specific asset.

Question 5

What is the consequence of a liquidation to a corporation?

Answer 5

Gain or loss is recognized to a liquidating corporation on the distribution of property in complete liquidation.

For purpose of computing gain/loss the FMV of the property will not be less than any liability that is attached to the property

Question 6

When can a loss be recognized in a liquidation?

Answer 6

Loss may not be recognized if:

• Asset was contributed within the last 5 years
• The property is distributed to a related party