Ab liquidating corp
However, Section 1231 excludes from capital gain treatment any inventory or property held primarily for sale in the ordinary course of the corporation`s trade or business.
Distributions from earnings and profits do not reduce the stock basis. Other Implications The Section 1363(d) treatment of a distribution of appreciated Section 38 property effects an early disposition (triggering investment tax credit (ITC) recapture) if it occurs prior to the expiration of the estimated life used in computing the ITC.
Current distributions of appreciated property from S corporations produce gain at the entity level whereas distributions of such property from partnerships generally permit a deferral of taxable gain. Byrd is associated with the law firm of Petree Stockton & Robinson in Raleigh, North Carolina. S Corporation Distributions Section 1363(d) requires an S corporation to recognize gain on the distribution of appreciated property to its shareholders.
No deferral of gain at the time of the distribution is available.
Except as provided under Section 1368 (see the following discussion), the distribution will reduce the distributees` bases by the amount of any money plus the fair market value of any other property distributed.` If the S corporation has no accumulated earnings and profits, Section 1368(b) provides that a distributee shareholder will have no gain with respect to the distribution itself to the extent that the amount of the distribution does not exceed the adjusted basis of his stock. Because the distribution did not exceed the accumulated adjustments account, the shareholders recognize no gain on the distribution.
However, the shareholder recognizes gain (as from the sale or exchange of the stock) on the amount of the distribution in excess of the stock basis. The basis of each shareholder`s stock, assumed to be ,000, would be increased by the ,000 gain passed through to that shareholder and decreased by the ,500 distribution to arrive at an ending basis of ,500.