Example of nonliquidating distribution
A does not care which tract of land he receives in redemption of his stock because he plans to sell the land immediately.The other shareholders feel that the tracts will appreciate at about the same rate, so they are willing to distribute any of the tracts. If J distributes Tract I or Tract 2 to A to redeem his stock, the corporation must recognize a ,000 gain.If money is left after paying bondholders, stockholders are paid a portion of the money.
As a return of capital, this distribution is typically not taxable for shareholders.This would allow H to recognize a ,000 tax loss that would mostly offset the ,000 taxable gain from distributing the appreciated land. Structuring the redemption in this fashion would not cause any adverse tax effects for E. She would recognize a gain of ,000 (5,000 FMV of assets distributed to her less 0,000 basis in her redeemed shares) regardless of which corporate assets she receives. A liquidating dividend is a type of payment that a corporation makes to its shareholders during a partial or full liquidation.
His basis in the land would equal its FMV on the date of distribution, or $600,000. Recognizing Corporate-Level Loss Unfortunately, a corporation cannot recognize a tax loss on a nonliquidating distribution of depreciated property (i.e., where the property's FMV is less than the adjusted basis).