Federal Tax

Corporate Liquidations (Portfolio 784)

  • Corporate Liquidations analyzes the tax considerations in connection with the liquidation of a corporation.


Tax Management Portfolio, Corporate Liquidations, No. 784, analyses the tax considerations in connection with the liquidation of a corporation. The principal focus of the Portfolio is on liquidations after the repeal of the General Utilities doctrine by the Tax Reform Act of 1986. The Portfolio also discusses the tax treatment of liquidations before the repeal of that doctrine.

Addressing liquidations of subsidiaries under §332 (where the parent corporation owns at least 80% of the stock of the subsidiary) as well as liquidations of corporations that do not qualify under §332, the Portfolio considers the tax consequences to both the liquidating corporation and its shareholders. The Portfolio highlights traps for unwary taxpayers and discusses planning opportunities in connection with a corporate liquidation. The Portfolio identifies issues arising in the context of deemed liquidations, and the special problems that can occur as a result of the interplay of the liquidation provisions with the S corporation rules and the consolidated return regulations. The Portfolio also discusses the relationship between the liquidation rules and §338(the election to treat a stock purchase as a purchase of assets). Finally, the Portfolio reviews the issues arising from the liquidation of insolvent subsidiaries and the existence of intercorporate debt in subsidiary liquidations.

Table of Contents

I. Introduction
II. Basic Requirements of Nontaxable Subsidiary Liquidations
III. Subsidiary Liquidations Not Qualifying Under § 332
IV. Tax Treatment of Intercorporate Debt in a Liquidation of a Subsidiary
V. Distributions to Minority Shareholders and to Tax-Exempt 80% Distributees
VI. Tax Basis and Holding Period to Parent of Property Received in Liquidation of a Subsidiary
VII. Miscellaneous Considerations in a Subsidiary Liquidation Detailed Analysis
VIII. Liquidations of Corporations Other than 80% Owned Corporate Subsidiaries
IX. Coordination with Nonliquidating Distributions
X. Stock Purchase Treated as Asset Acquisition
XI. Subchapter S Corporations
XII. Foreign Investment in Real Property Tax Act

Lisa Zarlenga
Co-Chair of Tax Group
Steptoe & Johnson LLP
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