Liquidating and nonliquidating distribution mobdating ru


11-Dec-2017 08:23

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That will generate capital gain and restrict your deduction for losses generated by the corporation.The rules discussed above apply to nonliquidating distributions.

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The framework for the taxation of corporate distributionsis provided by Sections 301 (a), 301 (c), and 316 of the Code.

The problem is considerably diminished if the asset is easily valued. That way the corporation (or the shareholders in an S corporation) can get the tax benefit of the loss.

For example, an auto or truck (you can use a blue book), marketable securities, etc. Moreover, the sale of business assets at a loss generally produces ordinary loss.

By virtue of these provisions, a corporate distribution is a "dividend"that must be included in gross income under § 301 (c) (1) and§ 61 (a) (7) if, and to the extent that, it comes out of "earnings andprofits" of the corporation accumulated after February 28, 1913 or outof earnings and profits of the taxable year.

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Most distributions of mostcorporations fall well within this category of taxable "dividends" andhence are taxed as ordinary income to the shareholder, subject to the exclusion of § 116 and the 4 percent dividends received credit of§ 34 if the shareholder is an individual or to the 85 percent dividendsreceived deduction of § 243 if the shareholder is a corporation.Remember that any distribution will reduce your basis in an S corporation.