{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

August 25mgmt127b

August 25mgmt127b - $ S/H MGMT 127B Complete Liquidation or...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
S/H Property Corp $ S/H Property Corp Parent Corp. CORP Basis: $3 FMV: $10 Google $1 Billion $1 billion As if they paid $1 billion Acq Google Basis: 3 FMV: 10 CORP YouTube Inside Basis Shareholder 10% $60 of income Income: $6 S/H n Stock: ution of $10 + Income of $6 = $16 = $5 received = $11 August 25, 2008 MGMT 127B Complete Liquidation or Shut Down With a complete liquidation or shutdown, the corporation sells off property or hands off property in kind to the owners.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
If we sell property a double tax exists. At the corporate level, a sale has taken place on an appreciated asset, and therefore, the corporation will pay tax. When the proceeds are handed out to shareholders, a second tax occurs, this time on the individual level. When we liquidate, instead of selling the property, why don’t we directly hand the property to the shareholder?
Image of page 2
From a practical standpoint, this is very difficult because we don’t want you to avoid the double tax. Example You have assets worth $100 and a basis of $27. If it were sold, the corporation would have a gain of $73. When a company distributes property that has appreciated, it is taxed on the appreciation as if it had sold it to make sure that the corporate level tax gets paid. If it distributes property at a loss, then the loss would be recognized at the corporate level as well. When the company distributes property with a basis of $27 and a FMV of $100, it will recognize a gain of $73. Say that the shareholder has basis in the property of $10. When $100 of property is distributed to the shareholder, they recognize the gain in excess of their cost. Therefore, the shareholder would recognize a gain of $90 ($100 of gain less $10 of cost). The $90 of gain recognized by the shareholder would be treated as a capital gain. The above case demonstrates the general rules of complete liquidations. However an exception exists. What if a corporation isn’t distributing property to people, but to other corporations?
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern