Tax treatment loss liquidating distributions

In the case of any liquidation to which section 332 applies, no loss shall be recognized to the liquidating corporation on any distribution in such liquidation. in the case of stock or voting trust certificates acquired from an employee or retiree of such corporation, the spouse, child, or estate of such employee or retiree or a trust created by such employee or retiree which is described in section 1361(c)(2) of the Internal Revenue Code of 1986 (or treated as described in such section by reason of section 1361(d) of such Code), and Written determinations for this section These documents, sometimes referred to as "Private Letter Rulings", are taken from the IRS Written Determinations page; the IRS also publishes a fuller explanation of what they are and what they mean. It appears that the IRS updates their listing every Friday.

The preceding sentence shall apply to any distribution to the 80-percent distributee only if subsection (a) or (b)(1) of section 337 applies to such distribution. Note that the IRS often titles documents in a very plain-vanilla, duplicative way.

For purposes of subparagraph (A), the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Stock owned (or treated as owned) by the estate of any decedent or by any trust referred to in subparagraph (B)(iii) with respect to such decedent shall be treated as owned by 1 person and shall be treated as owned by such 1 person for the period during which it was owned (or treated as owned) by such estate or any such trust or by the decedent.

Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence. All members of the same controlled group (as defined in section 267(f)(1) of such Code) shall be treated as 1 corporation for purposes of determining whether any of such corporations met the requirement of paragraph (5)(B) and for purposes of determining the applicable percentage with respect to any of such corporations.

When the transaction results in a gain, the seller's tax burden is determined by a number of factors, including whether or not the transaction is taxable, whether the seller is taxable or tax-exempt, whether the gain is taxed as ordinary income or a capital gain, the seller's holding period (how long the sold stock/assets were held by the seller before sale), and the applicable tax rate. The basis to be used in calculating taxes depends on how the transaction is structured. 100–647, § 1006(e)(3), substituted “an election may be made” for “such corporation may elect” in concluding provisions. Except as otherwise provided in this section, the amendments made by this subtitle [subtitle D (§§ 631–634) of title VI of Pub. 99–514, enacting this section and section 337 of this title, amending sections 26, 311, 312, 332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248, 1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealing former sections 333, 336, and 337 of this title] shall apply to—, and to which the amendments made by section 632 (other than subsection (b) thereof) do not apply, paragraph (1) of section 1374(b) of the Internal Revenue Code of 1954 (as in effect on the date before the date of the enactment of this Act [, a ruling request was submitted to the Secretary of the Treasury or his delegate with respect to a transaction of a kind described in section 336 or 337 of the Internal Revenue Code of 1954 (as in effect before the amendments made by this subtitle). 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. 99–514, to which such amendment relates, see section 1019(a) of Pub. 100–647, set out as a note under section 1 of this title.When a parent company develops a subsidiary internally, rather than through acquisition, the parent's inside and outside bases in the assets and stock of the subsidiary, respectively, are equal.Since most taxable acquisitions are structured as stock purchases without a Section 338 election, the buyer's outside basis in an acquired subsidiary usually exceeds its inside basis in that subsidiary (since the acquirer's basis in the target's stock would be stepped up for tax purposes, while the acquirer's basis in the target's assets would be carried over).

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