Analyze the effects of liquidation on the liquidating corporation
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.
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Law360, New York (July 31, 2013, PM EDT) -- Asset purchases present some interesting tax complications and opportunities.
In general, the basic tax issue in an asset sale is that any gain on the assets sold is usually taxed at the corporate level of the seller.
The anomaly is corporate dissolution without liquidation.
The fate of a liquidating company’s shares depends on the type of liquidation the company is undergoing.During a Chapter 11 bankruptcy, the company continues its daily operations, but all significant business decisions are made by the bankruptcy trustee. However, the stock is usually de-listed from the major exchanges since the company no longer meets the listing requirements.This usually has a significant impact on the stock’s price and liquidity.331 when they receive the liquidation proceeds in exchange for their stock.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, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).