What is Section 332 liquidation?
In short
When a parent corporation owning at least 80% of a subsidiary's voting power and value liquidates the subsidiary, neither the parent nor the subsidiary recognizes gain or loss on the distributions to the parent.
Key takeaways
- The parent takes over the subsidiary's basis in its assets and its tax attributes, such as net operating losses and earnings and profits.
- Minority shareholders are taxed under the normal complete liquidation rules.
- The subsidiary recognizes gain, but not loss, on distributions to minority shareholders.
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
A shareholder owns 70% of a corporation's stock. Following a redemption, she owns 52%. Ignoring attribution, does the redemption qualify as substantially disproportionate?