If the stock surrendered in the liquidation qualifies as Sec. Thus, accumulated earnings and profits (AE&P) or accumulated adjustments accounts (AAA) are not relevant to the characterization of the liquidating distribution.1244 stock, the shareholder may be able to claim an ordinary loss rather than a capital loss. Since the existence of AE&P has no impact on the characterization of a liquidating distribution, an S corporation with AE&P should identify liquidating distributions as such (for example, in a board of directors resolution adopting the plan of complete liquidation).
The 2008 distribution is allocated $45,000 to Block 1 (10 ÷ 30 × $135,000) and $90,000 to Block 2 (20 ÷ 30 × $135,000).
recognizes a $45,000 gain on Block 1 ($45,000 – $0 basis) and an $80,000 gain on Block 2 ($90,000 – $10,000 basis).
1368 distribution will result in dividend income, while sale or exchange treatment allows a partial stock basis offset and capital gain treatment.
Conversely, if the corporation has little or no AE&P or the distribution is less than the AAA balance, a Sec.
If the shareholder assumes known corporate liabilities or receives corporate property subject to a liability (such as the distribution of mortgaged land), the amount realized is reduced by the amount of the liability (Ford, 311 F2d 951 (Ct. It appears that the adjusted basis of stock held in a liquidating corporation is adjusted for current-year passthrough items prior to determination of gain or loss from the receipt of the liquidating distributions (see Regs. The 2007 distribution is allocated the same as before.
recognizes no gain or loss on Block 2 (,000 – ,000 basis) and has a remaining basis of ,000 in Block 2.
With a 401k plan, a business owner has the ability to make almost any kind of investment tax-free.
The ability to invest without having income taxed is one of the most incredible benefits of having a self directed Roth IRA plan.
A distribution in partial liquidation that does not qualify for sale or exchange treatment will be governed by the usual S corporation distribution rules of Sec. In certain cases, this treatment is preferable to sale or exchange treatment. 1368 treatment, the sale or exchange rules can be easily avoided, for example, by failing to adopt a plan of liquidation or delaying the distribution until two years after the tax year the plan is adopted.