Liquidating and nonliquidating distribution
By contrast, liquidating distributions are treated as though the shareholder had sold her S corporation stock to the S corporation in exchange for the distribution from the S corporation. Note: Since the ordinary distribution rules do not apply, the S corporation’s accumulated earnings and profits or accumulated adjustments accounts do not determine the character of the distribution.S corporations with accumulated earnings and profits should take advantage of this distinction by clearly identifying liquidating distributions in the documents authorizing the liquidation.The beginning basis for debt is the amount the shareholder loaned to the corporation.Stock Basis Rules Under the proposed regulations, the basis of stock is adjusted in the following order: Increases a.If the corporation distributes the assets in kind to a shareholder under a plan of liquidation, it is treated as having sold the assets to the shareholder for fair market value.
This is done through a system of rules that track and adjust the shareholder’s stock basis.
This allows partners to defer recognition of gain in appreciated property that they receive from the partnership.
In contrast, distributions of appreciated property by C corporations and S corporations are treated as though the property were sold to the shareholder at fair market value.
Distribution source and shareholders' basis for their corporate investment determine the tax consequences of distributions from S corporations.
The regulations being proposed under IRC Secs 13 provide the particulars of adjustments to stock basis and distributions to S corporation stockholders.