However, the IRS has stated that a shareholder that assumes such a liability will receive capital loss treatment when the liability is ultimately paid by the shareholder (Rev. The corporation recognizes gain or loss for the receivable when it distributes the receivable to the shareholder.
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.
Shareholders that do not have a strong preference on whether distributions in 2012 are taxed as dividends or capital gain/loss may prefer sale or exchange (capital) treatment in 2012 if they: Shareholders that assume corporate liabilities or receive property subject to corporate liabilities take the liabilities into account in computing their gain or loss.
They do not increase their basis in the property received on liquidation because doing so would give them a double tax benefit.
Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.
No such requirement exists for distributions made in a complete liquidation of a corporation. The IRS indicates it will normally not issue a ruling or determination letter on the tax effects of a corporate liquidation accomplished through a series of distributions made over a period in excess of three years from adoption of the plan of liquidation (Rev. 541 personal holding corporation (PHC) status for the corporation after the assets are sold. However, there have been some exceptions to this rule (e.g., in the year the last substantial distribution was made because the amount of the final distribution was then determinable with reasonable certainty) (Rev. A corporation can accelerate the period in which the IRS can assess tax by requesting a prompt assessment of tax (Sec. Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), is used to request a prompt assessment. EARNINGS BASED VALUATIONS – Discounted Cash Flows (“DCF”) This method requires a formal business model and discounts free cash flows after excluding depreciation and allowing for expenditure on capital items.As a prerequisite, it requires long term forecasts.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%.Unfortunately, no clear-cut guidance exists regarding the period over which liquidating distributions can be made. Shareholders should maintain documentation that multiple distributions are liquidating distributions whenever multiple distributions are necessary (especially if they will span several tax years and, therefore, result in tax deferral). The request limits the time for assessing tax or beginning a court action to collect the tax to 18 months from the date the request is filed. One example of a situation when a request for prompt assessment might be appropriate is the liquidation of a corporation because of shareholder differences. Keller, and Robert Popovitch, published by Thomson Tax & Accounting, Fort Worth, Texas, 2012 (800-323-8724; ppc.thomson.com).