Corporation Liquidates. Who Recognizes Gain?
A complete C corporation liquidation can create tax at both the corporation and shareholder levels.
Corporate level
A corporation distributing appreciated property in complete liquidation can generally recognize gain as though the property were sold at fair market value, subject to applicable exceptions.
Shareholder level
The shareholder generally compares value received with stock basis under sale-or-exchange principles.
Property basis
The shareholder's basis in property received can generally reflect fair-market-value concepts under applicable liquidation rules.
Planning
Appreciated corporate assets can produce two levels of tax, making pre-liquidation planning important.
The takeaway
Corporate-level gain on appreciated property and shareholder-level gain on stock can both arise in the same liquidation.
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FAQ
Is a liquidating distribution always an ordinary dividend?
No.
Can the corporation recognize gain on distributed appreciated property?
Yes.
Does shareholder stock basis matter?
Yes.