(g)(3) of this section the amendments made by section 225 of Pub. 88–272 do not apply if there is a complete liquidation of such corporation and if the distribution of all the property under such liquidation occurs before Written determinations for this section These documents, sometimes referred to as "Private Letter Rulings", are taken from the IRS Written Determinations page; the IRS also publishes a fuller explanation of what they are and what they mean. It appears that the IRS updates their listing every Friday.
88–272 inserted “(other than a distribution referred to in paragraph (2)(B) of section 316(b))”. 90, provided that in the case of corporations referred to in former subsec.
Although a corporation is allowed to recognize tax losses when depreciated property is distributed to shareholders in complete liquidation of the corporation (Sec. At the shareholder level the stock redemption or non-cash distribution can result in a variety of tax consequences: taxable dividends or capital gain taxes. Lets say XYZ Inc (S Corp) has three unrelated shareholders. One in NJ with adjusted cost basis of 5K and one in NY with adjusted cost basis of 7K.
Each shareholder owns 100 shares of XYZ Inc stock @ 0 per share. After 5 years, one of the shareholders wants to leave the corporation and requests the corporation to buy back his 100 shares for 12K.
For purposes of clause (i), any property described in clause (i)(I) acquired by the liquidated corporation after the date 2 years before the date of the adoption of the plan of complete liquidation shall, except as provided in regulations, be treated as acquired as part of a plan described in clause (i)(II). to become effective upon the exercise of such option agreement (or modification thereto), and the assets are sold pursuant to the exercise of the option (as originally executed or subsequently modified provided that the purchase price is not thereby increased), or in the event that the optionee does not acquire substantially all the assets of the corporation, the optionor corporation sells substantially all its assets to another purchaser at a purchase price not greater than that contemplated by such option agreement pursuant to an effective plan of liquidation, and For purposes of subparagraph (A), a distribution, or sale, or exchange, of a distributee corporation (within the meaning of section 337(c)(3) of the Internal Revenue Code of 1986) shall be treated as satisfying the requirements of subparagraph (A) if its subsidiary satisfies the requirements of subparagraph (A).
The Secretary may prescribe regulations under which, in lieu of disallowing a loss under subparagraph (A) for a prior taxable year, the gross income of the liquidating corporation for the taxable year in which the plan of complete liquidation is adopted shall be increased by the amount of the disallowed loss. 100–647, § 1006(e)(21)(A), substituted “liabilities” for “liabilities in excess of basis” in heading. For purposes of section 56 of the Internal Revenue Code of 1986 (as amended by this Act), any gain or loss not recognized by reason of this paragraph shall not be taken into account in determining the adjusted net book income of the corporation.
The shareholder will recognize 2K long-term capital gain upon redemption of his stock (12K stock value (8K FMV of land 4K Cash) – 10K stocks cost basis)).For purposes of determining the amount of loss recognized by any liquidating corporation on any sale, exchange, or distribution of property described in subparagraph (B), the adjusted basis of such property shall be reduced (but not below zero) by the excess (if any) of— the acquisition of such property by the liquidating corporation was part of a plan a principal purpose of which was to recognize loss by the liquidating corporation with respect to such property in connection with the liquidation. 100–647, § 1018(d)(5)(D), substituted “liquidations which are part of a reorganization” for “certain liquidations to which part III applies” in heading and amended text generally. For purposes of the preceding sentence, an S corporation shall not be treated as a member of a controlled group unless such corporation was a C corporation for its taxable year which includes The provisions of this subsection shall also apply in the case of a transaction described in section 338 of the Internal Revenue Code of 1986 where the acquisition date (within the meaning of such section 338) is before Rules similar to the rules of this subsection shall apply for purposes of applying section 1374 of the Internal Revenue Code of 1986 (as amended by section 632) in the case of a qualified corporation which makes an election to be an S corporation under section 1362 of such Code before For purposes of this section, a corporation shall be treated as completely liquidated if all of the assets of such corporation are distributed in complete liquidation, less assets retained to meet claims.Other property shall be treated as so described if the adjusted basis of such other property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence. Prior to amendment, text read as follows: “This section shall not apply with respect to any distribution of property to the extent there is nonrecognition of gain or loss with respect to such property to the recipient under part III.” Subsec. The amendments made by this subtitle shall not apply to any liquidation (or deemed liquidation under section 338 of the Internal Revenue Code of 1986) of a diversified financial services corporation incorporated under the laws of Delaware on For purposes of the preceding sentence, an election under section 338(g) of the Internal Revenue Code of 1986 (or an election under section 338(h)(10) of such Code qualifying as a section 337 liquidation pursuant to regulations prescribed by the Secretary under section 1.338(h)(10)–1T(j)) made in connection with a sale or exchange pursuant to a court order described in subparagraph (B) shall be treated as a sale of [or] exchange.The corporation does not recognize gain when it distributes cash to its shareholders. On the other hand, if a corporation distributes property in connection to stock redemption, this may result in corporate-level capital gain and/or ordinary income.Also when a shareholder in exchange for cash, redeems a corporation stock, the corporation recognizes no gain. Generally a corporation will recognize capital gains when it distributes capital assets or Sec 1231 assets.