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Liquidating distributions also has tax implications for the corporation that may need to be reported to the Internal Revenue Service on the company's final return.If you own shares in a corporation that makes liquidating distributions to you, the IRS treats the transaction as a sale or exchange of your stock.This means that you may have a gain or loss to report on your return.Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.
For the purpose of calculating the resulting gain or loss from the deemed stock sale, your tax basis in the shares exchanged for the liquidating distribution is your original cost or investment.
When you assume corporate liabilities or receive property with an outstanding debt balance, you reduce the gross proceeds by the total amount of debt included in your liquidating distribution.
For example, suppose your distribution includes ,000 in cash and a company vehicle worth ,000 for which the corporation still owes ,000.
Part of dissolving your corporation involves liquidating corporate assets since the corporation can’t own assets when it is no longer in business.
Although your corporate bylaws or state laws may spell out the liquidation and dissolution process, the methods used are generally similar between corporations.