A Case Study in Taxation of Corporate Liquidations
Cummins, David C.
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Provides a case study to illustrate the unique challenges created where a closely-held parent corporation sells substantially all of its assets, including those of a subsidiary corporation, followed by the complete liquidation of the corporation and receipt of both the proceeds of the sale and other assets by the shareholders. Traditionally, §§ 336 and 337 of the Internal Revenue Code grants nonrecognition treatment of any gain realized by a typical corporation after it sells substantially all of its assets and completely liquidates, leaving its shareholders proceeds of the sale and other assets. Furthermore, § 331 traditionally gives such shareholders exchange treatment on their receipt of the liquidating distribution; therefore yielding capital gain treatment under the Internal Revenue Code. The author suggests §§ 336, 337, and 331 have different ramifications where a closely-held parent company sells the assets of a subsidiary and explores those different ramifications to highlight the principal themes in the statutory structure §§ 331 through 337.