[CPAmber11]

The question below relates to shareholders only but I am wondering if the corporation would recognize a capital gain or loss in a similar situation? Or is it an ordinary loss?

What is the usual result to the shareholders of a distribution in complete liquidation of a corporation?
a. Ordinary gain or loss.
b. Capital gain or loss.
c. No taxable effect.
d. Ordinary gain to the extent of cash received.
Explanation
Choice “b” is correct.
Rule: Shareholders treat property received in a complete liquidation of a corporation as full payment for their stock. Therefore, the shareholder must recognize capital gain or loss equal to the difference between the fair market value of the property received and the basis of the stock surrendered.
Choices “c”, “d”, and “a” are incorrect, per the above rule.

[Namstut]

If the corporation sells assets and distributes cash to shareholders then the corporation will recognize gain or loss on the sale of asset (the difference between the Sale Price and the Basis of the sold property.

If the corporation distributes assets to stockholders it is treated as if it sold the assets for the FMV and gain or loss will be recognized (the difference between the FMV of the asset distributed and the Basis of the asset).

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[Author]

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