Effects of liquidation on the liquidating corporation
As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.
To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.
In this course you will acquire the tools to plan and implement beneficial S corporation-related tax strategies.
Because the income of S corporations is taxed to the owners when the income is earned, a mechanism is needed to ensure that the shareholder is not taxed again when the earnings are distributed.
The corporation does not recognize gain or loss when it distributes cash to shareholders or when it redeems stock in exchange for cash payments (Sec. When a corporation makes a nonliquidating distribution of corporate property other than cash (including a distribution to redeem stock), the corporation recognizes gain if the property’s fair market value (FMV) exceeds its adjusted tax basis in the corporation’s hands (Sec. Specifically, the corporation recognizes gain as if it had sold the appreciated property for FMV to the recipient shareholder. The portion of the corporation’s gain attributable to recapture items (e.g., depreciation recapture) is ordinary income, as is gain attributable to the distribution of inventory and unrealized receivables. Form 5452, Corporate Report of Nondividend Distributions, is used to report nondividend distributions to shareholders.
When multiple properties are distributed, the corporation computes gain on an asset-by-asset basis (Rev. Gain attributable to capital assets and certain property used in a trade or business (Sec. Corporations generally report nonliquidating distributions to shareholders on Form 1099-DIV, Dividends and Distributions (Sec. has held his stock for three years, and his stock basis is ,000. The corporation cannot afford to redeem the stock entirely for cash because its cash balance of ,000 must be used primarily to service real estate debt.
Instead, gain or loss is delayed until you sell the property.
The value of marketable securities, such as stock investments that are traded on a public stock exchange, and decreases to your share of the partnership's debt are both treated as cash distributions.
The distribution may have no tax effect, or it may trigger corporate-level capital gain and/or ordinary income.
The corporate-level tax consequences of a nonliquidating corporate distribution depend on whether the distribution consists of cash or property (other than cash). The form breaks total distributions down into taxable and nontaxable categories.
S corporations play an increasingly important role in tax planning for closely held corporations and their shareholders.
Among the most complicated issues that CPAs face are those involving accounting and taxation for the termination, liquidation and sale of an interest in an S corporation.