Why do companies issue liquidating dividends
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.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.
A distribution is treated as one made in complete liquidation of a corporation if it is one in a series of distributions in redemption of all the stock of the corporation pursuant to a plan of liquidation (Sec. As a result, all the distributions necessary to effect a complete liquidation of a corporation do not have to take place on the same date or even in the same year. 80-177 raises the issue of the constructive receipt of assets by shareholders when a corporation adopts a plan of liquidation and the shareholders are entitled to a liquidation distribution at any time after a certain date. Therefore, taxpayers should consider making the final distribution before 2013. A shareholder may claim a loss on a series of distributions only in the year the loss is definitely sustained.
Generally, shareholders are allowed to recover their entire basis before recognizing gain (Rev. On the other hand, filing a request for prompt assessment when there is only one shareholder might not be warranted.
This case study has been adapted from , 25th Edition, by Albert L.
The advantages of paying dividends include assuring investors of a reliable earnings source and letting them reap the monetary benefits of the stock’s growth without selling it.
More often than not, shareholders prefer the certainty of regular dividend payments, instead of larger capital gains in the future.