0:19
In our prior module,
you learned that when a corporation makes
a non-liquidating distribution such as a stock redemption,
it will typically continue business operations as a going concern.
In a complete liquidation, however,
corporate existence and each shareholder's ownership interest terminates.
Along these lines, a complete liquidation is generally
treated much like a complete termination stock redemption.
As a result, the corporation recognizes a gain or
loss on the distribution of property in complete liquidation.
However, wait for it,
there are of course, several exceptions to this rule.
In this lesson, you will learn about
the corporate tax treatment of complete liquidations,
which involves a general rule that is subject to
several exceptions known as the anti-stuffing rules.
This lesson specifically, examines the general rule and then,
applies the concepts to Sunchaser Shakery.
You will learn about the anti-stuffing rules in the next lesson.
The corporate tax treatment of complete liquidations is governed by Code Section 336,
gain or loss recognized on property in complete liquidation.
In particular, subsection A states that,
except as otherwise provided in this section or section 337,
which considers subsidiaries, more on that later,
gain or loss shall be recognized to
a liquidating corporation on the distribution of property in complete liquidation,
as if such property were sold to the distributee at its fair market value.
Similar to non-liquidating distributions,
if any property distributed in the complete liquidation is subject to
a liability or the shareholder assumes
a liability of the corporation in connection with the distribution,
the fair market value of such property shall be
treated as not less than the amount of such liability.
That is the fair market value used to calculate the gain
or loss cannot be less than the amount of the liability.
Said another way, to calculate gain or loss,
use the greater of the fair market value or the amount of the liability.
A corporation will certainly incur cost in connection with the liquidation.
Expenses such as legal and accounting services
for drafting and implementing a liquidation plan,
are deductible under Section 162,
as ordinary and necessary business expenses.
However, any selling expenses incurred in connection with the sale of property,
such as brokerage commissions and legal costs of title transfers,
reduce the amount realized on the disposition. Just like always.
40:56
Boom.
Homestretch.
Yeah. Whenever you're good.
This module shifted focus from corporate operations to liquidations,
which occur at the end of a corporation's life cycle.
In general, a liquidation occurs for tax purposes when the corporation ceases to
be a going concern and exists only for the purpose of winding up its affairs.
In general, because a liquidation terminates
a C corporation's existence and its shareholders ownership interests,
sale or exchange tax treatment applies to
both the liquidating corporation, and the shareholders.
However, there are several exceptions to this general rule,
most of which involve losses.
Along these lines, the lessons in this module examined
both the corporate and shareholder tax effects of complete liquidations,
as well as problems created in the liquidation of a subsidiary corporation.
The next model examines corporate reorganizations,
which can involve a variety of business realignments,
such as acquisitions, combinations, consolidations, divisions etc.
This model also completes the course on
the federal income taxation of subchapter C corporations,
and their shareholders. Wow.
All 42.
Wow. Nice.
Pretty lessons.
If you take out the first 20?
The first 20, it's like two hours and 20 minutes.
Michael P Donohoe, PhD, CPAAssociate Professor of Accountancy and PwC Faculty Fellow
