Amount capital dividend liquidating share

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 determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.

If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.

The term liquidating dividend refers to the process of providing shareholders with a partial or full distribution of their capital investment in the company.

Liquidating dividends are typically paid when a company is going out of business or has sold a portion of the enterprise.

If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.

331 for the difference between the FMV and the shareholder’s basis in the stock).

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As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal. The corporation is treated as selling the distributed assets for FMV to its shareholders, with the resulting corporate-level tax consequences.

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