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What happens under a complete liquidation?
shareholders surrender all of their stock in the corporation and receive their pro rata shares of any remaining after all creditors have been paid
Reasons for a complete liquidation
to avoid double taxation
to procure cash and other assets for alternative purposes
to sell the corporation’s assets to a buyer unwilling to purchase the stock
to abandon ship
to recognize capital losses at the shareholder level where they are deductible up to $3,000
to avoid corporate penalty taxes
What is the tax effect on the liquidating corporation and its former shareholders?
depends on whether the liquidating corporation is an at least 80% owned subsidiary of a parent corporation
If liquidating corporation is NOT an at least 80% owned subsidiary:
gains/losses are recognized
If liquidating corporation IS an at least 80% owned subsidiary:
gains/losses are not recognized
Note
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