What is a liquidating dividend

Posted by / 24-Mar-2020 00:38

What is a liquidating dividend

Unfortunately, no clear-cut guidance exists regarding the period over which liquidating distributions can be made. Shareholders should maintain documentation that multiple distributions are liquidating distributions whenever multiple distributions are necessary (especially if they will span several tax years and, therefore, result in tax deferral). The request limits the time for assessing tax or beginning a court action to collect the tax to 18 months from the date the request is filed. One example of a situation when a request for prompt assessment might be appropriate is the liquidation of a corporation because of shareholder differences. Keller, and Robert Popovitch, published by Thomson Tax & Accounting, Fort Worth, Texas, 2012 (800-323-8724; ppc.thomson.com).

If the property distributed is worth less than the amount of the liability itself, the FMV of the property is treated as no less than the amount of the liability (Sec. The assumption of a contingent or unknown liability is disregarded in determining the property’s FMV. A corporation, whether it uses the cash or accrual basis, may have earned income that it has not collected before the liquidation takes place.

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.

Sharon owns 1,000 shares in the Tablet Universe Company and the company just announced that it is paying a liquidating dividend.

Sharon has only received regular dividends before and is not familiar with a liquidating dividend. Regular dividends are distributions of the company's profit that the company pays to its shareholders or owners.

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If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.