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Corporations: Distributions in
Complete Liquidation and an
Overview of Reorganizations
Comprehensive Volume
2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LiquidationsIn General
Corporation winds up affairs, pays debts, and
distributes remaining assets to shareholders
Produces sale or exchange treatment to shareholder
Liquidating corporation recognizes gains and
losses upon distribution of its assets, with certain
exceptions
LiquidationsEffect on Corporation
(slide 1 of 3)
LiquidationsEffect on Corporation
(slide 2 of 3)
LiquidationsEffect on Corporation
(slide 3 of 3)
LiquidationsEffect on Shareholder
(slide 1 of 2)
LiquidationsEffect on Shareholder
(slide 2 of 2)
Liquidations: Parent-Subsidiary
Situations (slide 1 of 4)
Parent corporation does not recognize gain or
loss on liquidation of subsidiary
Also, subsidiary recognizes no gain or loss on
property distributions to its parent
Liquidations: Parent-Subsidiary
Situations (slide 2 of 4)
To qualify:
Parent must own at least 80% of voting stock and
value of subsidiarys stock
Subsidiary must distribute all property in complete
cancellation of all its stock within the taxable year
or within 3 years from close of tax year in which
first distribution occurred
Subsidiary must be solvent
Liquidations: Parent-Subsidiary
Situations (slide 3 of 4)
Liquidating distributions to minority
shareholders
Subsidiary corporation treated same way as in
nonliquidating distribution
Distributing corp recognizes gain but not loss
Liquidations: Parent-Subsidiary
Situations (slide 4 of 4)
Basis of property received by parent
Has same basis as subsidiarys basis (unless
election is made under 338)
Parents basis in subsidiarys stock disappears
Parent acquires tax attributes of subsidiary
e.g., NOLs, business credit carryovers, capital loss carryovers,
subsidiarys E & P
Tax Consequences
Parent corp has basis in subsidiarys assets = basis
in subsidiarys stock
Subsidiary may, but need not, be liquidated
ReorganizationsIn General
Refers to any corporate restructuring that may
be tax-free under 368
To qualify, must meet certain general
requirements:
Must be a plan of reorganization
Must meet continuity of interest and continuity of
business enterprise tests
Must have a sound business purpose
Tax-free status can be denied under step transaction
doctrine
2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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