[evp490]

I’m having some trouble understanding when shareholders recognize a gain on distribution.

In a liquidating distribution, shareholders recognize gain as Cash+FMV in excess of tax basis. But some other times a shareholder only recognizes gain as Cash in excess of basis. Does that only concern non liquidating distributions?

[spatel15]

FMV related to property dividends I think.

And neither deal really with liquidating dividends. Liquidating dividends relate more to dividends upto basis. Excess of basis refers to capital gains distributions. Liquidating distributions are both together.

So first it comes from E&P, then from liquidating the basis i.e. ROC distribution, and lastly cap.gains.

I'd go so far to say if they are saying it's a liquidating dividend and referring to excess all in one sentence, then well, Becker/whatever are just phenomenal at ignoring universal language; just my opinion.

[spatel15]

I'm a firm believer that a liquidating distribution greatly differs from a liquidating dividend.

Liquidating Dividends, to me imply, well one, it's more from perspective of the shareholder; i.e. liquidation of the shareholder's basis.

Distributions in liquidation, to me, imply bankruptcy or other sort of reorganization, i.e. perspective of the corp; i.e. liquidation of the corp itself.

Again, I'm taking more of an other-than-accounting view on this stuff. And often, AICPA actual does take into consideration this kind of stuff. Becker not so much.

[hopefulCPA]

Can someone please help further elaborate on the answer to this question as I'm also having a bit of confusion? Thanks.

FAR - 78
BEC - 87
REG - 76
AUD - 94

[spatel15]

Both sentences refer to liquidating distributions. The reason is that they mention BOTH “gain” and “in excess of basis.” Distributions that are not liquidating, will not mention either, for our purposes. More importantly, liquidating distributions are not from E&P, for our purposes.

The only difference between the two sentences is that the second sentence implies that “property” or something other-than-cash was distributed. Since there's a subjective element to valuing these types of items, IRS wants to clarify this, so no one cheats the system. The specific reference to FMV methodology can apply to both “non-liquidating” and liquidating distributions.

Why “FMV” is sometimes mentioned:

#1 If you only receive cash, then it's easy, you're getting cash, there's no valuation decision needed.. (explanation for First Sentence)

#2 With property dividends, what value do you use to determine whether there's a gain i.e. distributions in excess of basis?

The firm's historical cost? Or maybe the firm's net book value?…No sir/maam?

IRS says that distributed property is valued at FMV, because that's what it's worth. (explanation for Second Sentence)

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EXTRA Notes for those who care about more than “passing” (Pretty sure it's unnecessary):

1.”Nonliquidating” distribution is way too broad, and shouldn't really be considered the opposite of liquidating distributions. such terms not exactly mutually exhaustive, see #2

2. Gains can occur from non-liquidating distributions, which is the correct use of the term “capital gain distributions,” these arise from “regulated investment companies.” Most books keep misusing the term; “excess of basis is taxed at capital gains” is more appropriate when referring to distributions in excess of basis.

3. Liquidating Distributions are specific for Corps only. Becker, and maybe others, refer to Liquidating Distributions for partnerships as well. I don't believe IRS uses that term anymore either. They are considered partnership distributions for buyouts, and liquidation payments for deaths.

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