331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).The shareholders generally recognize gain (or loss) in an amount equal to the difference between the fair market value (FMV) of the assets received (whether they are cash, other property, or both) and the adjusted basis of the stock surrendered.The shareholder’s basis is decreased (but not below zero) by the shareholder’s share of the S corporation’s items of loss and deduction, nondeductible expenses (except expenses that are not chargeable to the capital account), depletion deduction for oil and gas property, and distributions to the shareholder that are not made from accumulated earnings and profits.This helps ensure that the shareholder only benefits once from reductions in income earned by the S corporation.331 when they receive the liquidation proceeds in exchange for their stock.If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.
PHNjcmlwd CBs YW5nd WFn ZT0i Sm F2YVNjcmlwd CIgd Hlw ZT0id GV4d C9q YXZhc2Nya XB0Ij4NCm9y ZD1NYXRo Ln Jhbm Rvb Sgp Kj Ew MDAw MDAw MDAw MDAw MDAw Ow0KZG9jd W1lbn Qud3Jpd GUo Jzxz Y3Jpc HQgb GFu Z3Vh Z2U9Ikphdm FTY3Jpc HQi IHNy Yz0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IG9ya Wdpbm Fs QXR0cmlid XRl PSJzcm Mi IG9ya Wdpbm Fs UGF0a D0ia HR0c Dov L2Fk Lm Rvd WJs ZWNsa WNr Lm5ld C9h ZGov VGF4QWR2a XNlci87c3o9NDY4e DYw O29y ZD0n ICsgb3Jk ICsg Jz8i IHR5c GU9In Rle HQvam F2YXNjcmlwd CIgd GFy Z2V0PSJf Ymxhbmsi Pjwvc2Ny Jy Ar ICdpc HQ Jyk7DQo8L3Njcmlw If the corporation sells its assets and distributes the sales proceeds, shareholders recognize gain or loss under Sec.
Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.
When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.
A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding.
For the joint-stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders.