What are the tax consequences for liquidating a corproation
Important Tax Disclosure IRS Circular 230 Legend: Any advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding U. federal, state, or local tax payments or penalties.Unless otherwise specifically indicated, you should assume that any statement in this website or articles that relating to any U. federal, state, or local tax matter was written in connection with the promotion or marketing.If you give a vehicle to a charitable organization, for example, the fair market value of that vehicle represents the cash value and counts toward the gift tax.This is true of any asset you either give outright or sell to the recipient at a below-market value.So what happens if a corporation (C Corp or S Corp) distributes property or stock other than cash to a departing shareholder?The corporation will recognized gain (not loss) if the fair market value (FMV) of the property exceeds its adjusted cost basis (Sec. The depreciation recapture of certain capital assets will trigger ordinary income and/or special unrecaptured sec. Basically the non-cash distribution is treated as if the corporation (C Corp or S Corp) had sold that property to the exiting shareholder. Unfortunately, a corporation (C Corp or S Corp) cannot recognize any losses on a distribution of appreciated property (i.e., where the property’s FMV is less than the adjusted cost basis).The IRS does not consider a gift to be the same as income to the recipient, and the recipient does not have to include the amount in its own taxable income, whether or not it's a for-profit corporation.The phrase "ordinary course of business" applies to gifts given to a corporation.
The shareholder will recognize 2K long-term capital gain upon redemption of his stock (12K stock value (8K FMV of land 4K Cash) – 10K stocks cost basis)).
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market.
Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.
A for-profit company generally is subject to federal and state taxes on the income it receives from clients and customers.
A nonprofit is tax exempt, as long as it holds to certain IRS guidelines.