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Complete Liquidations and Related Problems
Bittker, Boris Eustice, James
Bittker, Boris
Eustice, James
Abstract
In the absence of a statutory provision prescribing its tax consequences, the complete liquidation of a corporation might be looked upon as a transfer by each stockholder of his stock in exchange for the liquidating distribution. His profit or loss (i.e., the difference between the adjusted basis of his stock and the value of the liquidating distribution) would then be reported either as capital gain or loss or as ordinary income or loss, depending upon whether the stock was a capital asset in his hands and on whether the transaction was regarded as a sale or exchange within the meaning of section 1222. Another possibility, in the absence of statute, would be to treat the liquidating distribution as a dividend (taxable as ordinary income) to the extent of the corporation's earnings and profits; and to treat the balance of the liquidating distribution as a payment in exchange for the stock, with gain or loss to be computed accordingly.