C12-Chp-06-1B-Corp Liquidations-2012

C12-Chp-06-1B-Corp Liquidations-2012 - Chapter 6B....

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Chapter 6B. Corporate Liquidations Howard Godfrey, Ph.D., CPA Professor of Accounting Edited February 3, 2010 Copyright Howard Godfrey, 2010
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The student should be able to: 1. Understand the difference between a complete liquidation and dissolution. 2. Apply general shareholder gain and loss recognition rules for a corporate liquidation. 3. Determine when the liquidating corporation recognizes gains and losses on a liquidating distribution.
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The student should be able to: 4. Determine when the § 332 and § 337 nonrecognition rules apply to the liquidation of a subsidiary corporation. 5. Determine the effect of a liquidation on liquidating corporation's tax attributes. 6. Understand different tax treatments for open & closed liquidation transactions. 7. Determine when a liquidating corp. recognizes gains and losses on retirement of debt.
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Remember: Under § 351, usually no tax cost is involved in forming a corporation. The tax costs of liquidating a corporation may be substantial. Note on the next slide that four ways are shown for Big to acquire Local Corp. (plus 2 more ways with debt). Some may involve liquidating Local.
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Cash $500 Cash $100 Other Assets 400 Other Assets 300 Total $900 Total $400 Debt $400 Debt $100 Com. Stock 200 Com. Stock 100 Ret. Earn. 300 Ret. Earn. 200 Total $900 Total $400 Ways to Acquire Local Corporation Big Corporation Local Corporation Big Stockholders Local Stockholders
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Ways to Acquire Local – Cont’d Please explain the process involved in each of the types of acquisitions illustrated on the preceding slide. Which ones may likely involve liquidating Local Corporation?
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Overview of a Corporate Liquidation. A. The Shareholder. When a corporation is liquidated, the liquidating distribution is treated as an amount received in exchange for the shareholder's stock. Gain or loss is recognized to the extent that money and FMV of property received exceeds the adjusted basis of the stock surrendered. Basis of property received is its FMV on the liquidation date. Long-term capital gains of individuals are taxed at a maximum 15% rate as are qualified dividends (temporarily).
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The Corporation. Liquidating corp. recognizes gain or loss on distribution of property to shareholders. § 336 Gain or loss is the amount of gain or loss that would have been recognized if the property were sold to the distributee. Tax attributes of the corporation disappear on liquidation. The tax attributes of a controlled subsidiary generally carry over to its parent corporation.
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Understand the difference between a complete liquidation and dissolution.
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Definition of a Complete Liquidation. The term "complete liquidation" as defined in Reg. § 1.332-2(c) indicates that distributions made by a liquidating corp.
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This note was uploaded on 03/09/2012 for the course ACCT 6120 taught by Professor Godfrey,h during the Spring '08 term at UNC Charlotte.

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C12-Chp-06-1B-Corp Liquidations-2012 - Chapter 6B....

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