First section 336(d)(1) states that ''No
loss shall be recognized to a liquidating corporation on the distribution
of any property to a related person (within the meaning of
Section 267) if such distribution is not pro-rata,
or such property is disqualified property.''
The definition of a related-party here is similar to the one used in the section
318 stock attribution rules except it includes any stock owned by siblings.
Thus, you must keep in mind that a corporation and
shareholder are related if the shareholder owns,
directly or indirectly, more than 50 percent in value of the corporation's stock.
Why is this so important?
Because if the other conditions are satisfied,
a corporation cannot recognize a loss in
a liquidating distribution if the shareholder
owns more than 50 percent in value of the stock.
In other words, you must also pay attention to
the ownership percentages of shareholders regarding the two conditions,
a pro-rata distribution is where each shareholder
receives their proportionate share of the asset distributed.
Therefore, a non pro-rata distribution exists when
shareholders receive something other than their proportionate share.
Disqualified property is that which is acquired by
the liquidating corporation in the section 351
exchange or contribution of capital during
the five year period ending on the date of the distribution.
Note that the related party loss limitation rule applies even
when the section 362(e)(2) rules do not apply,
such as when property has a built-in gain upon initial transfer to the corporation.