When multiple properties are distributed, the corporation computes gain on an asset-by-asset basis (Rev. Gain attributable to capital assets and certain property used in a trade or business (Sec. Corporations generally report nonliquidating distributions to shareholders on Form 1099-DIV, Dividends and Distributions (Sec. has held his stock for three years, and his stock basis is ,000. The corporation cannot afford to redeem the stock entirely for cash because its cash balance of ,000 must be used primarily to service real estate debt.
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Nonliquidating corporate distributions are distributions of cash and/or property by a continuing corporation to its shareholders.
At the shareholder level, a nonliquidating corporate distribution can produce a variety of tax consequences, including taxable dividend treatment, capital gain or loss, or a reduction in stock basis.
ANSWER Distributions are treated as follows: (1) dividends to the extent of corporate E&P, (2) return of capital to the extent of the shareholder s stock basis, and (3) gain from the sale of stock.
When a corporation makes a nonliquidating distribution to a shareholder, the shareholder must answer the following three questions: What is the amount of the distribution?
4 C H A P T E R CORPORATE NONLIQUIDATING DISTRIBUTIONS LEARNING OBJECTIVES After studying this chapter, you should be able to 1 Calculate corporate current earnings and profits (E&P) 2 Distinguish between current and accumulated E&P 3 Determine the tax consequences of nonliquidating distributions 4 Determine the tax consequences of stock dividends and the issuance of stock rights 5 Discern when a stock redemption should be treated as a sale and when it should be treated as a dividend 6 Explain the tax treatment of preferred stock bailouts 7 Determine the applicability and tax consequences of Sec.
304 to stock sales 4-1 4-2 Corporations Chapter 4 CHAPTER OUTLINE Nonliquidating Distributions in General Earnings and Profits (E&P) Nonliquidating Property Distributions Stock Dividends and Stock Rights Stock Redemptions Preferred Stock Bailouts Stock Redemptions by Related Corporations Tax Planning Considerations Compliance and Procedural Considerations A corporation may distribute money, property, or stock to its shareholders.
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Understanding Taxation of Business Entities is new to the Lexis Nexis Understanding Series.
The book similarly would be useful to accountants who are pursuing a master of science in taxation, as well as accountants practicing in the area of business entity taxation.