Liquidating dividend s corporation
When a corporation decides to shut down, it liquidates its assets.This means that the business sells off not just any inventory it may have, but its tools of production, building and any other assets it may have.When you receive a liquidating dividend, the amount will be reported to you on a 1099-DIV form, in either box 8 or 9.Only the amount that exceeds the taxpayer's basis in the stock is capital; this is taxed as a capital gain.In that case, each distribution is allocated ratably among the several blocks. So, the ruling concludes that the dissolution and reincorporation did not result, respectively, in a distribution or transfer of the corporation’s properties.That’s done in the same proportion that the number of shares within a block bears to the total number of shares owned by the shareholder. In addition, the dissolution and reincorporation will not affect its shareholders’ bases and holding period in its stock.In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.
But for tax purposes, the defining line can make a big difference.
In that case, the distributee shareholder is another corporation which owns at least 80 percent of the voting power and value of the liquidating entity’s stock on the date of the planned complete liquidation is adopted and all times thereafter until the receipt of the property.) **When a complete liquidation is followed by a pre-arranged transfer of all or part of its essential operating assets to a second (almost always newly-created) controlled corporation, the steps may be “collapsed” and treated as a single, unitary transaction which bears an unmistakable resemblance to a reorganization. 1.331-1(c) “…a liquidation which is followed by a transfer to another corporation of all or part of the assets of the liquidating corporation…may have the effect of…a transaction in which no loss is recognized and gain is recognized only to the extent of other property…”) In LTR 200806006, however, it is highly unlikely that, if the dissolution had caused a liquidation, such liquidation would have been “stepped together” with the reincorporation (to find a reorganization).
Such a transaction is popularly known as a liquidation/reincorporation. In the instant case, the corporate taxpayer would have been unaware of the fact that it had been completely liquidated and, thus, its eventual reincorporation, in belated response to such liquidation, could not be seen as part of a unitary transaction which encompassed both the liquidation and reincorporation.
The basis in the stock is how much the taxpayer paid to obtain the stock.
The capital gain is treated as long-term or short-term depending on whether you owned the shares for longer than a year.