Tax reporting liquidating trust

Posted by / 13-Dec-2019 23:33

Instead, the liability reduces the amount realized by the shareholder.

If the property distributed is worth less than the amount of the liability itself, the FMV of the property is treated as no less than the amount of the liability (Sec. The assumption of a contingent or unknown liability is disregarded in determining the property’s FMV. A corporation, whether it uses the cash or accrual basis, may have earned income that it has not collected before the liquidation takes place.

If the stock is a capital asset in the hands of the shareholder, the shareholder has a capital gain or loss on the exchange.

The maximum tax rate for both long-term capital gains (realized after May 5, 2003, and before 2013) and dividends (for tax years beginning after 2002 and before 2013) is 15%.

331 for the difference between the FMV and the shareholder’s basis in the stock).

The shareholder does not recognize and report additional income as it collects the receivable because the shareholder has already included this amount in its gain or loss computation when it received the liquidating distribution. The full amount (100%) of all distributions made after basis has been recovered are recognized as gain.

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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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.

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Distributions Historical Breakdown Distributions to stockholders are characterized for federal income tax purposes as: (i) ordinary income; (ii) non-taxable return of capital; or (iii) long-term capital gain.