R3- Corporate Liquidation

Question 1

Corporate Liquidation taxation effect

Answer 1

Double Taxation

Question 2

Two types of liquidation are?

Answer 2

1. Corporation sells assets and distributes cash

2. Corporation distributes assets to the shareholders

Question 3

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

Answer 3

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

Question 4

What happens if Corp distributes assets?

Answer 4

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

Question 5

What is tax free reorganization?

Answer 5

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

Question 6

What are rules for Worthless Stock- Section 1244 Stock ?

Answer 6

• 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

Question 7

Small Business Stock-

Answer 7

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