Tax treatment of liquidating distribution
In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.The company was “administratively dissolved” some time after, for example, effective January 25, 2008, due to its failure to timely pay state franchise taxes.
If, on the other hand, a person receives stock as payment for services, the IRS requires him to claim the fair market value of the stock as income and assume the amount claimed as his basis in the stock.THE CRITICAL ISSUE FOR TAX PLANNING is whether the assets distributed are considered property under IRC code section 336 and whether the corporation owns them.THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles turns on whether there is an employment or noncompete agreement in effect at the time the intangibles are distributed.When a corporation liquidates its assets in part or in entirety, the corporation may issue liquidating distributions, also known as liquidating dividends, to its stockholders.A corporation may render noncash liquidating distributions, cash liquidating dividends or both.
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A fine line exists between definitions of a corporate liquidation and dissolution.