Liquidating distributions c corporation
WHETHER PLANNING FOR A LIQUIDATION of their own professional practices or advising clients about the liquidation of a commercial organization, CPAs will find that the problems and the solutions associated with each are likely to be the same.
awyers advise CPAs to have employment and noncompete agreements in their accounting practices.
In a firm or corporate liquidation, or when a shareholder redeems his or her interest, it’s not uncommon for the business to distribute property as well as money in exchange for the capital stock a shareholder held.
When a firm or corporation distributes to its shareholders all of its assets, both tangible and intangible, and ceases doing business, the IRS says there is a taxable distribution of its intangible goodwill.The question of who “owns” the client relationships and customer-based intangibles turns on whether an employment or noncompete agreement is in effect at the time of the distribution.The Tax Court has held that in the absence of an effective employment or noncompete agreement at the time of liquidation distributing customer-based intangibles to the shareholders is not a taxable event to either the corporation or to the individuals ( In Real Life, Sometimes the Good Guys Win Consider the case of William Norwalk and Robert De Marta when they liquidated their Fremont, California, CPA firm and traded the equipment, office furniture and their client list to a large regional firm in exchange for a partnership interest.The shareholder, who treats the fair market value of the property as received in exchange for his or her stock, also recognizes a gain (IRC section 331(a)).The critical issue for tax planning is whether the assets distributed are considered property under IRC section 336 and whether the corporation owns them.