Corporate nonliquidating distributions problems
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.
Conversely, if it distributes appreciated property it must recognize gain as if it had sold the property to the shareholder for its FMV. The primary difference between C corporations and S corporations is that C corporations are taxed twice on earned income: : once at the corporate level when the income is earned, and again at the shareholder level when the income is distributed.The rules governing distributions from C corporations differ from the rules that apply to distributions from S corporations.The corporate-level tax consequences of a nonliquidating corporate distribution depend on whether the distribution consists of cash or property (other than cash). The form breaks total distributions down into taxable and nontaxable categories. The corporation does not recognize gain or loss when it distributes cash to shareholders or when it redeems stock in exchange for cash payments (Sec. When a corporation makes a nonliquidating distribution of corporate property other than cash (including a distribution to redeem stock), the corporation recognizes gain if the property’s fair market value (FMV) exceeds its adjusted tax basis in the corporation’s hands (Sec. Specifically, the corporation recognizes gain as if it had sold the appreciated property for FMV to the recipient shareholder. The portion of the corporation’s gain attributable to recapture items (e.g., depreciation recapture) is ordinary income, as is gain attributable to the distribution of inventory and unrealized receivables. Form 5452, Corporate Report of Nondividend Distributions, is used to report nondividend distributions to shareholders. Worth, TX, 2008 ((800) 323-8724; The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.