What is Complete liquidation (corporation)?
In short
In a complete liquidation, a corporation distributes all its assets to its shareholders and goes out of existence. The corporation recognizes gain or loss as if it had sold its assets, and shareholders recognize gain or loss on their stock.
Key takeaways
- Shareholders treat what they receive as payment for their stock (capital gain or loss) and take a fair market value basis in property received.
- A parent owning at least 80% of a subsidiary can liquidate it tax-free under Section 332, taking over the subsidiary's basis and tax attributes.
- Some losses on distributions to related parties are disallowed.
Where it's tested
TCP: Distributions, Redemptions & Liquidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a complete liquidation of a C corporation under Section 331, the shareholder: