There is no corporate liquidation

A nonliquidating distribution

There is doubt as to whether

For example, gain on the sale of inventory. Although these receivables may not appear on the books, records of some type will exist to keep track of billings.

There are special rules dealing with the distribution of an installment obligation in a corporate liquidation. For instance, a fully depreciated luxury auto with a high resale value.

For S corporations, two separate rules deal with the distribution of installment obligations in liquidation. There is doubt as to whether the S Corporation election is valid. The Tax Court applies a three-pronged test to determine whether a complete liquidation has taken place see Joseph Olmstead v. Like any sale of stock, the shareholder receives capital gain treatment on the difference between the amount received by the shareholder in the distribution and the cost or other basis of the stock. The purpose of this chapter is to assist revenue agents in identifying issues related to such liquidation transactions.

For S corporations two

If the corporation has valuable claims for which it will bring suit during this period, it has retained assets and therefore continues to exist. If the plan is not formal or is ambiguous, there may be uncertainty as to which distributions are made pursuant to the plan. The Government has been successful in establishing that such arrangements constitute a reorganization. There is an entity level tax, such as the built-in gains tax. Commissioner of Internal Revenue, U.

If dividends were paid to foreign parties, verify that Form was filed. In that situation, there is a deemed sale of the assets by the corporation. If the S corporation is not required to report the deferred gain when it distributes the installment obligation i. The examiner should be alert to the possibility of recapturing depreciation, investment credit and any other recapture provisions that may be applicable to a liquidating corporation.

Once an issue is identified the examiner should conduct further research. There is then a deemed distribution of the sales price in liquidation of the S corp. Proof of a distribution in complete liquidation not only depends on an intent to liquidate but also requires acts which demonstrate and effect that intent. The costs will affect the shareholder's gain or loss upon liquidation Rev.