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784, analyses the tax considerations in connection with the liquidation of a corporation.The principal focus of the Portfolio is on liquidations after the repeal of the General Utilities doctrine by the Tax Reform Act of 1986.An eligible entity with two or more members may elect to be classified as either a corporation or a partnership.An eligible entity with only one member may elect to be classified as either a corporation or a disregarded entity. 2009-41 provides that if certain requirements are met, an eligible entity may file a late classification election within 3 years and 75 days of the requested effective date of the election.Generally, the effective date of a check-the-box election cannot be more than 75 days prior to the date on which the election is filed. These requirements may be met if: The conversion from a corporation into a partnership or disregarded entity pursuant to a check-the-box election results in a deemed liquidation of the corporation on the day immediately preceding the effective date of the election.Distributions of property in liquidation of the corporation generally are treated as taxable events, as if the shareholders sold their stock back to the corporation in exchange for the corporation’s assets.The Portfolio also discusses the tax treatment of liquidations before the repeal of that doctrine., the Portfolio considers the tax consequences to both the liquidating corporation and its shareholders.The Portfolio highlights traps for unwary taxpayers and discusses planning opportunities in connection with a corporate liquidation.
The Portfolio also discusses the relationship between the liquidation rules and (the election to treat a stock purchase as a purchase of assets). Basic Requirements of Nontaxable Subsidiary Liquidations III.Corporate shareholders may prefer that the distribution be treated as a dividend, allowing the corporation to take advantage of the special dividends-received deduction under Code § 243 (which allows the dividends to only be taxed once at the corporate level).On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.Miscellaneous Considerations in a Subsidiary Liquidation Detailed Analysis VIII. Liquidations of Corporations Other than 80% Owned Corporate Subsidiaries IX.
A corporation will not recognize any gain or loss on a distribution of cash to its shareholders. But if the corporation distributes appreciated property, the corporation must recognize gain as if the property were sold to the shareholder at fair market value. Important Note: These two rules operate as a loss disallowance system.