Tax treatment liquidating distribution foreign passive investment

Posted by / 10-Sep-2020 13:36

Distributions to Minority Shareholders and to Tax-Exempt 80% Distributees VI.

Tax Basis and Holding Period to Parent of Property Received in Liquidation of a Subsidiary VII.

The Portfolio also discusses the tax treatment of liquidations before the repeal of that doctrine., the Portfolio considers the tax consequences to both the liquidating corporation and its shareholders.

The Portfolio highlights traps for unwary taxpayers and discusses planning opportunities in connection with a corporate liquidation.

A corporation may liquidate by (a) paying off creditors and distributing the remaining assets in kind to the shareholders or (b) selling assets, paying off creditors, and distributing the remaining cash to the shareholders.

If the corporation distributes the assets to the shareholders in kind pursuant to a plan of liquidation, it is treated as having sold the assets to the shareholder for fair market value.[15] If the corporation instead sells the assets and distributes the remaining cash to the shareholder, it is taxed on the sale.[16] Likewise, the shareholder is treated as though the shareholders sold their stock to the corporation for the value of the assets or cash received.[17] The shareholder’s basis in property received pursuant to a plan of liquidation is the fair market value of the property at the time of the distribution.[18] [10] I.

The primary difference between C corporations and S corporations is that C corporations are taxed twice on earned income: : once at the corporate level when the income is earned, and again at the shareholder level when the income is distributed.

The rules governing distributions from C corporations differ from the rules that apply to distributions from S corporations.

On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation. Moreover, when a foreign corporation is resident in a jurisdiction with which the United States has a comprehensive income tax treaty, the dividends distributed to its individual U. shareholders are eligible for reduced qualified dividend tax rates (currently taxed at a maximum federal income tax rate of 20 percent). shareholder, for the purpose of the CFC rules, is a U. person who owns, directly, indirectly or constructively, at least ten percent of the combined voting power with respect to the foreign corporation. shareholder would not be able to repatriate its profits at qualified dividend rates. shareholders of foreign corporations are generally not subject to tax on the earnings of such corporations until the earnings are repatriated to the shareholders in the form of a dividend.Miscellaneous Considerations in a Subsidiary Liquidation Detailed Analysis VIII. Liquidations of Corporations Other than 80% Owned Corporate Subsidiaries IX.

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But that section only covers gain on distributions of appreciated property.

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