The shareholder will also have tax consequences from the liquidation.
First, if the corporation distributes appreciated or depreciated assets as art of the liquidation, the S corporation’s gain or loss from the deemed sale of assets is passed through to the shareholder, The shareholder will also be taxed on the liquidation itself.
The amount so recharacterized roughly corresponds to the amount of ordinary income the partnership would have if it sold the §751(a) property, thus preventing a partner from converting into a capital gain the ordinary income that would pass through if the partnership sold the property. Step 7: Determine the Federal Income Tax Consequences of the Portion of the Partnership Distribution That Is Not a § 751(b) Exchange 9. Partnership Property Subject to Basis Reduction Under § 1017 c.
To view this Portfolio, take a free trial to Bloomberg Tax Bloomberg Tax This Portfolio is available with a subscription to Bloomberg Tax, a comprehensive research solution including over 500 Tax Management Portfolios, practice tools, primary sources and timely news. 720-2nd, Partnership Transactions—Section 751 Property, analyzes the federal income tax consequences of (1) a sale or exchange of a partnership interest where the partnership owns a §751(a) property (i.e., unrealized receivables and inventory items) and (2) a distribution from a partnership owning §751(b) property (i.e., unrealized receivables and inventory items which have appreciated substantially in value) where such distribution has the effect of changing the proportionate interests of the partners in the §751(b) property. Review of Overall Results of the Application of § 751(b) G. Tax Reporting Obligations - Statements Required to Be Filed by Partnership and Distributee Partners I. Other Property Subject to Recapture by Reference to § 1245 3. Oil, Gas, Geothermal, and Other Mineral Property d. Stock of Domestic International Sales Corporations f.
The portfolio recognizes that much of the analysis under §751(b) for complex situations has become more uncertain over time because guidance under §751(b), primarily in the form of regulations published in 1956, has lagged behind legislative and regulatory developments in related areas. S., University of Virginia, Mc Intire School of Commerce (1985), Beta Alpha Psi; J. Author, Selected Federal Income Tax Issues Arising in Technology Ventures and Business Transactions Involving Technology or Facilitated by the Internet — A Transactional Perspective; with Steven R.
Thus, the portfolio explains different approaches for analyzing the application of §751(b) in situations where other provisions, such as §704(c), are involved. Lainoff, “The Final Functional Currency Regime for U. Taxpayers Operating in Hyperinflationary Environments: Mandatory DASTM”, 12 Tax Management Int'l J. Member, Virginia State Bar, District of Columbia Bar, United States Tax Court, and American Bar Association.
Instead, liquidation of an S corporation is governed by the same rules that apply to liquidation of a C corporation.Sale of a partnership interest generally gives the selling partner capital gain. Examples of the Seven-Step Application of Section 751(b) 1. Method of Accounting (Including Long-term Contract Method) 5. Adjusted Tax Basis of Unrealized Receivables for Services C. Property Subject to Other Ordinary Income Recapture or Characterization Listed in § 751(c) a. Section 751, however, recharacterizes a portion of the amount realized as ordinary income to the partner, at times even in the absence of realized gain. Example 23: Distribution of Excess Other Property Resulting in the Recognition of Ordinary Income and Capital Gain to the Distributee Partner 2. Rights to Payment for Goods Delivered or to Be Delivered 1. Distributions to the shareholder are not included in the shareholder’s gross income to the extent that the distribution does not exceed the shareholder’s basis in the stock.Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.