Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.
trina rapper dating kenyon martin - Liquidating distribution tax
Witness the situation described in recent letter from the Internal Revenue Service (LTR 200806006, November 7, 2007), which addresses a seeming anomaly related to the tax code.
The anomaly is corporate dissolution without liquidation.
It can be recognized only after the corporation has made its final distribution, or at least its last substantial distribution. Contributor Robert Willens, founder and principle of Robert Willens LLC, writes a regular tax column for
The last substantial distribution can be used only if, at that time, the amount of the final distribution is both de minimis and determinable with “reasonable certainty.” (See in this regard Rev. Footnotes *Except in instances where the liquidation is governed by Section 332(a), and Section 337(a).
(See Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders at Para.
When a corporation decides to shut down, it might liquidate its remaining assets, and even some of its debts, to shareholders.
For example, suppose your distribution includes ,000 in cash and a company vehicle worth ,000 for which the corporation still owes ,000.
In this situation, you calculate your gain or loss using ,000 as the gross proceeds -- the cash plus the car's value minus the outstanding debt on the car.
For the purpose of calculating the resulting gain or loss from the deemed stock sale, your tax basis in the shares exchanged for the liquidating distribution is your original cost or investment.
If the shares were purchased from a previous shareholder, your tax basis is the amount you paid.
Further, shareholders are permitted to recover their entire basis in a block before reporting gain. More to the point, notwithstanding the dissolution and reincorporation, no new corporation is deemed to come into existence so the corporate taxpayer is not required to apply for a new Employer Identification Number.