Chap 16 - Chapter 16 Corporate Distributions in Complete...

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Chapter 16 Corporate Distributions in Complete Liquidations ©2011 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com
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Chapter 16 Exhibits 1. Complete Liquidations—Overview 2. Complete Liquidations—Effect on Liquidating Corporation 3. Complete Liquidations—Effect on Shareholder 4. Complete Liquidations—Examples CCH Federal Taxation Comprehensive Topics 2 of 16 Chapter 16, Exhibit Contents
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Complete Liquidations—Overview Why a complete liquidation? In a complete liquidation, shareholders surrender all of their stock in the corporation and receive their pro rata shares of any remaining assets after all creditors have been paid. Why do this? For any one of several reasons: 1. To avoid double taxation—the corporate tax on earnings, and the tax on dividends received by individual shareholders. 2. To procure cash and other assets for alternative purposes. 3. To sell the corporation’s assets to a buyer unwilling to purchase the stock. CCH Federal Taxation Comprehensive Topics 3 of 16 Chapter 16, Exhibit 1a
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Complete Liquidations—Overview 4. To “abandon ship”—future prospects look dismal, and on-going losses cannot provide tax benefits to the corporation or its shareholders without future profits to offset. 5. To recognize capital losses at the shareholder level where, unlike corporations, they are deductible up to $3,000. Moreover, shareholders may wish to use the capital losses to offset capital gains from their personal investments. 6. To avoid corporate penalty taxes such as the personal holding company tax or the accumulated earnings tax. CCH Federal Taxation Comprehensive Topics 4 of 16 Chapter 16, Exhibit 1b
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Complete Liquidations—Overview What is the tax effect to the liquidating corporation and its former shareholders? The answer depends on whether the
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Chap 16 - Chapter 16 Corporate Distributions in Complete...

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