Federal Corporate Tax Textbook Notes: Complete Liquidations
Corporate Tax Chapter 5: Complete Liquidations
(Textbook: Corporate, Partnership, Estate and Gift Taxation (2013 Ed.) by Pratt, Kulsard)
I. Introduction
• Ch. 3 & 4: distributions of property and stock as well as those relating to redemptions and partial liquidations o Corp. continues to operate all or part of its business
• Ch. 5: complete liquidation
• Reasons: o Business’s profitability, or lack thereof, no longer justifies continuing the corp. o Shareholders simply seek the corp’s cash and other assets to meet other needs o Liquidation often occurs in conjunction with a sale of the corporation’s business
Corporation may sell the assets and subsequently distribute the sale proceeds to its shareholders in complete liquidation
Corporation may distribute its assets to its shareholders in complete liquidation
Buyer may purchase the target’s stock and subsequently liquidate its new subsidiary to obtain subsidiary’s assets
Shareholders and management may wish to discard the corp. form to avoid tax problems like doubt taxation or risk of incurring accumulated earnings tax or the personal holding company tax (special penalty taxes imposed on corps that have improperly accumulated earning)
If the corp. is suffering losses, another form of business such as a partnership would enable deduction of the losses by the owner o “Collapsible Corporations” discussed in this chapter
II. Complete Liquidations in General
• Definition of complete liquidation of a corp. - if the distribution is one of a series of distributions in redemption of all of the stock of the corp. pursuant to a plan
• Applies only if the corp. is in a “status of liquidation” o Exists when corp. ceases to be a going concern and is engaged in activities whose sole function is the winding up of its business affairs
• Formal written plan indicating the intention to liquidate is not required o Factors merely suggesting the intention to liquidate are sufficient
• Not necessary for
(Textbook: Corporate, Partnership, Estate and Gift Taxation (2013 Ed.) by Pratt, Kulsard)
I. Introduction
• Ch. 3 & 4: distributions of property and stock as well as those relating to redemptions and partial liquidations o Corp. continues to operate all or part of its business
• Ch. 5: complete liquidation
• Reasons: o Business’s profitability, or lack thereof, no longer justifies continuing the corp. o Shareholders simply seek the corp’s cash and other assets to meet other needs o Liquidation often occurs in conjunction with a sale of the corporation’s business
Corporation may sell the assets and subsequently distribute the sale proceeds to its shareholders in complete liquidation
Corporation may distribute its assets to its shareholders in complete liquidation
Buyer may purchase the target’s stock and subsequently liquidate its new subsidiary to obtain subsidiary’s assets
Shareholders and management may wish to discard the corp. form to avoid tax problems like doubt taxation or risk of incurring accumulated earnings tax or the personal holding company tax (special penalty taxes imposed on corps that have improperly accumulated earning)
If the corp. is suffering losses, another form of business such as a partnership would enable deduction of the losses by the owner o “Collapsible Corporations” discussed in this chapter
II. Complete Liquidations in General
• Definition of complete liquidation of a corp. - if the distribution is one of a series of distributions in redemption of all of the stock of the corp. pursuant to a plan
• Applies only if the corp. is in a “status of liquidation” o Exists when corp. ceases to be a going concern and is engaged in activities whose sole function is the winding up of its business affairs
• Formal written plan indicating the intention to liquidate is not required o Factors merely suggesting the intention to liquidate are sufficient
• Not necessary for