Liquidating an s corp

Distribution of Cash In either a liquidating or a nonliquidating distribution, a distribution of cash to the shareholder will only decrease the shareholder’s stock basis by the amount of cash distributed.

Accordingly, if the corporation has any outstanding debts, it should pay off those debts with cash to reduce the amount of cash to be distributed to the shareholder.

This will leave the corporation as an existent business entity but with no assets. Plan Two In this plan, to avoid the tax consequences of I. Basically, the QSUB election effectively liquidates the corporation.

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§1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I.

Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution.

• Nonrecognition of Gain from Property Distributed in Liquidation of Subsidiary — Pursuant to I.

§332(a) only applies if either 1) the distribution of assets by the corporation is in complete cancellation or redemption of all its stock, and the transfer of assets occurs within the taxable year; or 2) the distribution is one of a series of distributions by the corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within three years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such a transfer is not completed within such period, or if the taxpayer does not continue to be the “owner of stock” until the completion of such a transfer, no distribution under the plan must be considered a distribution in complete liquidation. §337(a), no gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any property in a complete liquidation to which I.

• Termination of QSUB Election — One thing to be wary of regarding the QSUB election is I.

When LLC3, Inc., makes the QSUB election and the corporation liquidates, the corporation will not recognize any gain or loss because LLC3, Inc., will own at least 80 percent of the total voting power of the stock of the corporation and have a value of at least 80 percent of the total value of the stock of corporation. §1362(d), which pertains to the termination of the QSUB election, especially I.

When the cash is finally distributed to the shareholder, there will be less cash to reduce the shareholder’s stock basis, leaving a larger stock basis to minimize the tax liability, if any, from the liquidating distribution of the other assets.

Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I.

Instead, a shareholder’s receipt of the payments on the note is treated as receipt of payment for the shareholder’s stock and he or she would not owe any taxes on the note until the shareholder actually receives each payment. If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. §453B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the corporation distributes the note in a nonliquidating distribution, the corporation will recognize gain to the extent that the fair market value of the note at the time of distribution exceeds the difference between the face value of the note and the amount of income the corporation would receive if the note were satisfied in full. If one or more people contribute property to a corporation solely in exchange for stock in that corporation, and immediately after the exchange the person(s) own more than 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, then neither the corporation nor the contributing person(s) will have a tax liability from that exchange. Neither the corporation nor LLC, Inc., will have a tax liability from the exchange.

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