This information is essential because the tax liability of corporation and shareholder is based on the gain recognized from the liquidating distributions. §336(a), a distribution in a complete liquidation of a corporation is treated as if the distributed property were sold to the distributee. In a typical transaction, the gain recognized, if any, is the difference between the basis (the cost) and the fair market value of the asset being sold or distributed. When a corporation distributes an asset to a shareholder, the shareholder’s stock basis increases by the gain recognized in that distribution and decreases by the fair market value of the asset being distributed. §336, unless the liquidation is part of a reorganization plan, gain or loss is recognized to a liquidating corporation upon the distribution of property in complete liquidation as if the property were being sold to the distributee at its fair market value.

an S corporation is a small business corporation created through an I. In our hypothetical, we have an S corporation that owns a warehouse, a promissory note, and cash. §1239(b)(1) and §1239(c)(1)(A), a corporation and a person are related persons if the person owns more than 50 percent of the value of the outstanding stock of the corporation. §1239 would apply so that any gain recognized would be taxed as ordinary income. An attempt to allocate more of the gain to the land to avoid I.

tax election and is governed by subchapter S, unless contradicted by subchapter C or otherwise indicated. S corporations are advantageous to small businesses because the business itself is not subject to federal taxation (although, some states subject S corporations to taxation); only the S corporation shareholders are subject to federal taxation. §1239, any gain allocated to the land is taxed as capital gain, and any gain allocated to the property is taxed as ordinary income.

Distribution of Cash In either a liquidating or a nonliquidating distribution, a distribution of cash to the shareholder will only decrease the shareholder’s stock basis by the amount of cash distributed.

Accordingly, if the corporation has any outstanding debts, it should pay off those debts with cash to reduce the amount of cash to be distributed to the shareholder.

When the cash is finally distributed to the shareholder, there will be less cash to reduce the shareholder’s stock basis, leaving a larger stock basis to minimize the tax liability, if any, from the liquidating distribution of the other assets.

Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I. §1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I. Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution. §453B(a)(1), if a note is sold or exchanged, gain or loss shall result to the extent of the difference between the basis of the note and the amount realized. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. Nonliquidating Distribution of Note Due to the tax treatment of a nonliquidating distribution of a note, it may be advisable for the corporation to distribute the note before it distributes the warehouse in a liquidating distribution. Planning the Liquidation of the Corporation We have three plans to minimize the tax liability of the corporation from the liquidating distributions. This plan may be beneficial if the shareholder has enough stock basis so that no gain is recognized on the distribution of the cash and the note but does not have enough basis to avoid recognition of gain on the distribution of the warehouse. After the contribution, the corporation will own 100 percent of LLC, Inc., thus, satisfying the requirements for I. Because we are transferring an interest in an entity, and not an interest in real property, no Florida documentary stamp tax or recording fee above the

Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I.

§1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I.

Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution.

§453B(a)(1), if a note is sold or exchanged, gain or loss shall result to the extent of the difference between the basis of the note and the amount realized. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. Nonliquidating Distribution of Note Due to the tax treatment of a nonliquidating distribution of a note, it may be advisable for the corporation to distribute the note before it distributes the warehouse in a liquidating distribution. Planning the Liquidation of the Corporation We have three plans to minimize the tax liability of the corporation from the liquidating distributions. This plan may be beneficial if the shareholder has enough stock basis so that no gain is recognized on the distribution of the cash and the note but does not have enough basis to avoid recognition of gain on the distribution of the warehouse. After the contribution, the corporation will own 100 percent of LLC, Inc., thus, satisfying the requirements for I. Because we are transferring an interest in an entity, and not an interest in real property, no Florida documentary stamp tax or recording fee above the [[

Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I. §1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I. Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution. §453B(a)(1), if a note is sold or exchanged, gain or loss shall result to the extent of the difference between the basis of the note and the amount realized. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. Nonliquidating Distribution of Note Due to the tax treatment of a nonliquidating distribution of a note, it may be advisable for the corporation to distribute the note before it distributes the warehouse in a liquidating distribution. Planning the Liquidation of the Corporation We have three plans to minimize the tax liability of the corporation from the liquidating distributions. This plan may be beneficial if the shareholder has enough stock basis so that no gain is recognized on the distribution of the cash and the note but does not have enough basis to avoid recognition of gain on the distribution of the warehouse. After the contribution, the corporation will own 100 percent of LLC, Inc., thus, satisfying the requirements for I. Because we are transferring an interest in an entity, and not an interest in real property, no Florida documentary stamp tax or recording fee above the $0.70 minimum should be owed. §453B(b), the basis of the note shall be the excess of the face value of the note over an amount equal to the income that would be returnable were the obligation satisfied in full. Every asset that is distributed will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the asset distributed. Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the note was received. If the fair market value of the note is less than the value of the shareholder’s stock, less gain will be recognized in a nonliquidating distribution of the note than compared to a liquidating distribution. §351, provided certain conditions are met, no gain or loss is recognized when a contribution is made to a corporation solely in exchange for stock. In this plan, after the C corporation election by the LLC, the corporation will contribute the warehouse into LLC, Inc., solely in exchange for LLC, Inc., stock. The corporation will effectively contribute itself into LLC, Inc. Instead, a shareholder’s receipt of the payments on the note is treated as receipt of payment for the shareholder’s stock and he or she would not owe any taxes on the note until the shareholder actually receives each payment. If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. §453B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the corporation distributes the note in a nonliquidating distribution, the corporation will recognize gain to the extent that the fair market value of the note at the time of distribution exceeds the difference between the face value of the note and the amount of income the corporation would receive if the note were satisfied in full. If one or more people contribute property to a corporation solely in exchange for stock in that corporation, and immediately after the exchange the person(s) own more than 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, then neither the corporation nor the contributing person(s) will have a tax liability from that exchange. Neither the corporation nor LLC, Inc., will have a tax liability from the exchange.

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Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I.

§1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I.

Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution.

§453B(a)(1), if a note is sold or exchanged, gain or loss shall result to the extent of the difference between the basis of the note and the amount realized. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. Nonliquidating Distribution of Note Due to the tax treatment of a nonliquidating distribution of a note, it may be advisable for the corporation to distribute the note before it distributes the warehouse in a liquidating distribution. Planning the Liquidation of the Corporation We have three plans to minimize the tax liability of the corporation from the liquidating distributions. This plan may be beneficial if the shareholder has enough stock basis so that no gain is recognized on the distribution of the cash and the note but does not have enough basis to avoid recognition of gain on the distribution of the warehouse. After the contribution, the corporation will own 100 percent of LLC, Inc., thus, satisfying the requirements for I. Because we are transferring an interest in an entity, and not an interest in real property, no Florida documentary stamp tax or recording fee above the $0.70 minimum should be owed.

§453B(b), the basis of the note shall be the excess of the face value of the note over an amount equal to the income that would be returnable were the obligation satisfied in full. Every asset that is distributed will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the asset distributed. Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the note was received. If the fair market value of the note is less than the value of the shareholder’s stock, less gain will be recognized in a nonliquidating distribution of the note than compared to a liquidating distribution. §351, provided certain conditions are met, no gain or loss is recognized when a contribution is made to a corporation solely in exchange for stock. In this plan, after the C corporation election by the LLC, the corporation will contribute the warehouse into LLC, Inc., solely in exchange for LLC, Inc., stock. The corporation will effectively contribute itself into LLC, Inc.

Instead, a shareholder’s receipt of the payments on the note is treated as receipt of payment for the shareholder’s stock and he or she would not owe any taxes on the note until the shareholder actually receives each payment. If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. §453B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the corporation distributes the note in a nonliquidating distribution, the corporation will recognize gain to the extent that the fair market value of the note at the time of distribution exceeds the difference between the face value of the note and the amount of income the corporation would receive if the note were satisfied in full. If one or more people contribute property to a corporation solely in exchange for stock in that corporation, and immediately after the exchange the person(s) own more than 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, then neither the corporation nor the contributing person(s) will have a tax liability from that exchange. Neither the corporation nor LLC, Inc., will have a tax liability from the exchange.

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Distribution of Warehouse If the corporation were to distribute the warehouse in a liquidating distribution, any gain recognized would be ordinary gain pursuant to I.

§1250, is depreciable nonresidential real property. You also run the risk that the IRS will challenge the disproportionate allocation of gain as an attempt to game the system. The cash distribution will only decrease the shareholder’s stock basis by the amount of cash distributed. §1239, we contribute the warehouse to a newly formed limited liability company (LLC) after we elect to have the LLC treated as a C corporation so we can take advantage of I.

Other distributions of property will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the property received in the distribution.

§453B(a)(1), if a note is sold or exchanged, gain or loss shall result to the extent of the difference between the basis of the note and the amount realized. Effectively, a liquidating distribution of the note is treated as if the note is exchanged for stock, and gain or loss must be recognized to the extent the value of shareholder’s stock exceeds the basis. Nonliquidating Distribution of Note Due to the tax treatment of a nonliquidating distribution of a note, it may be advisable for the corporation to distribute the note before it distributes the warehouse in a liquidating distribution. Planning the Liquidation of the Corporation We have three plans to minimize the tax liability of the corporation from the liquidating distributions. This plan may be beneficial if the shareholder has enough stock basis so that no gain is recognized on the distribution of the cash and the note but does not have enough basis to avoid recognition of gain on the distribution of the warehouse. After the contribution, the corporation will own 100 percent of LLC, Inc., thus, satisfying the requirements for I. Because we are transferring an interest in an entity, and not an interest in real property, no Florida documentary stamp tax or recording fee above the $0.70 minimum should be owed.

]].70 minimum should be owed.

§453B(b), the basis of the note shall be the excess of the face value of the note over an amount equal to the income that would be returnable were the obligation satisfied in full. Every asset that is distributed will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the asset distributed. Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the note was received. If the fair market value of the note is less than the value of the shareholder’s stock, less gain will be recognized in a nonliquidating distribution of the note than compared to a liquidating distribution. §351, provided certain conditions are met, no gain or loss is recognized when a contribution is made to a corporation solely in exchange for stock. In this plan, after the C corporation election by the LLC, the corporation will contribute the warehouse into LLC, Inc., solely in exchange for LLC, Inc., stock. The corporation will effectively contribute itself into LLC, Inc.

Instead, a shareholder’s receipt of the payments on the note is treated as receipt of payment for the shareholder’s stock and he or she would not owe any taxes on the note until the shareholder actually receives each payment. If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. §453B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the corporation distributes the note in a nonliquidating distribution, the corporation will recognize gain to the extent that the fair market value of the note at the time of distribution exceeds the difference between the face value of the note and the amount of income the corporation would receive if the note were satisfied in full. If one or more people contribute property to a corporation solely in exchange for stock in that corporation, and immediately after the exchange the person(s) own more than 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, then neither the corporation nor the contributing person(s) will have a tax liability from that exchange. Neither the corporation nor LLC, Inc., will have a tax liability from the exchange.

.70 minimum should be owed. §453B(b), the basis of the note shall be the excess of the face value of the note over an amount equal to the income that would be returnable were the obligation satisfied in full. Every asset that is distributed will increase the shareholder’s stock basis by the gain recognized in the distribution and decrease shareholder’s stock basis by the fair market value of the asset distributed. Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the note was received. If the fair market value of the note is less than the value of the shareholder’s stock, less gain will be recognized in a nonliquidating distribution of the note than compared to a liquidating distribution. §351, provided certain conditions are met, no gain or loss is recognized when a contribution is made to a corporation solely in exchange for stock. In this plan, after the C corporation election by the LLC, the corporation will contribute the warehouse into LLC, Inc., solely in exchange for LLC, Inc., stock. The corporation will effectively contribute itself into LLC, Inc. Instead, a shareholder’s receipt of the payments on the note is treated as receipt of payment for the shareholder’s stock and he or she would not owe any taxes on the note until the shareholder actually receives each payment. If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. §453B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the corporation distributes the note in a nonliquidating distribution, the corporation will recognize gain to the extent that the fair market value of the note at the time of distribution exceeds the difference between the face value of the note and the amount of income the corporation would receive if the note were satisfied in full. If one or more people contribute property to a corporation solely in exchange for stock in that corporation, and immediately after the exchange the person(s) own more than 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, then neither the corporation nor the contributing person(s) will have a tax liability from that exchange. Neither the corporation nor LLC, Inc., will have a tax liability from the exchange.