Subchapter C Part II - Corporate Liquidations

Question 1

Subpart A - Effects on Recipients

Answer 1

331-334

Question 2

Gain or Loss to Shareholder in Corporate Liquidations

Answer 2

331
Amounts received in complete liquidation shall be treated as payment in exchange for stock.
Amount received net of liabilities assumed.

Question 3

Complete Liquidations of Subsidiaries (Effect to SH corp)

Answer 3

332
No G/L recognized by SH corporation on liquidation of Subsidiary corp.

Parent corp must own 80% of total voting power and 80% of total value of all outstanding subsidiary stock from time liquidation plan is adopted until final distribution.

Liquidation must occur with one taxable year, or the liquidation plan must specify that it will be completed within three years.

Question 4

Basis of Property Received in Liquidations

Answer 4

334
If G/L is recognized on receipt of property received in complete liquidation, basis shall be FMV. Do not decrease for liabilities assumed.

If liquidation is of subsidiary and 332 applies, basis is generally same as it was in subsidiary’s hands.

Question 5

Subpart B - Effects on Corporation

Answer 5

336-338

Question 6

Gain or Loss Recognized on Property Distributed in Complete Liquidation by Corp

Answer 6

336
G/L generally recognized by liquidating corporation as though property is sold for FMV. FMV treated as not less than associated liabilities assumed by SH.

Related Persons Loss Limitations: No loss recognized by corp on distributions to related person if either (1) distribution is not pro rata among SH; or (2) property was acquired by corp in 351 transaction or as capital contribution within 5 years of distribution.

Tax Avoidance Loss Limitation: Precontribution built-in losses limited upon certain liquidations when part of a plan the principal purpose of which is to recognize losses.

Loss limitations less used in light of 362 loss limitation upon formation.

No loss to minority SH in 332 liquidations.

Question 7

Nonrecognition for Property Distributed to Parent in Complete Liquidation of Subsidiary by sub

Answer 7

337
No G/L on distributions of property to controlling parent corp in complete liquidation to which 332 applies.

Note: Recapture attributes preserved. (1245 & 1250)

Any transfer to parent in satisfaction of indebtedness after liquidation has begun is treated as distribution in liquidation.

Any transfer to tax-exempt parent does not receive nonrecognition unless such property distributed is used in the production of taxable income to the parent. (unrelated business income)

Question 8

Certain Stock Purchases Treated as Asset Acquisitions

Answer 8

338

Question 9

Subpart D - Definition and Special Rule

Answer 9

346

Question 10

Definition of Complete Liquidation and Special Rule

Answer 10

346