R3- Corporate Liquidation Flashcards

1
Q

Corporate Liquidation taxation effect

A

Double Taxation

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2
Q

Two types of liquidation are?

A
  1. Corporation sells assets and distributes cash

2. Corporation distributes assets to the shareholders

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3
Q

What happens if Corporation sells assets and distributes cash?
How is it taxed?

A
  1. Corporation recognizes gain on sale of assets
    SP of Assets
    - Basis
    =Gain or loss
  2. Shareholder recognizes gain to the extent of basis of stock
    Proceeds
    - Basis
    =Gain or Loss
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4
Q

What happens if Corp distributes assets?

A
  1. Corporation recognizes gain or loss as if it is sold for FMV
    FMV
    -Basis
    =gain or loss
  2. Shareholder recognize gain or loss to the extent of FMV of assets rec’d exceeds the basis
    SP
    -Stock Basis
    =Gain or Loss
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5
Q

What is tax free reorganization?

A
  • Some part of company will continue
  • Parent subsidiary liquidation
  • Non-taxable for Corp and Shareholder
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6
Q

What are rules for Worthless Stock- Section 1244 Stock ?

A
  • When a stock becomes worthless
  • an original stockholder can be treated as ordinary loss- fully tax deductible, instead of capital loss
  • Upto 50,000 Single, 100,000 for MFJ
  • Any loss in excess would offset capital gains
  • Max of 3000 per year
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7
Q

Small Business Stock-

A

a non corporate shareholder
who holds qualified small business stock for more than 5 yrs
may generally exclude 50%
of the gain on sale of such stock

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