c corp. termination, tax treatment

Technical topics regarding tax preparation.
#1
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Taxpayer owns a LLC taxed as c corp. He decides to close the business. He has retained earnings on balance sheet and cash leftover. Can anyone help answer the following questions?
1. Is liquidating the business and distributing the cash to himself the best way tax-wise?
2. If the company has earnings and profits, will that impact the tax treatment of liquidating distribution?
My understanding is that On shareholder level, capital gain/loss needs to be recognized by subtracting stock's basis from cash received.
My confusion is that if there is earnings and profits remaining, will that cause some of the cash distribution be treated as dividend to shareholder?

3. Is stock always treated as capital asset?
4. Is the tax treatment of c corp liquidation the same whether it is a corporation or llc taxed as c corp.?
5. Also, the dissolution date for tax purpose is not the same as the date business dissolution procedures are finished on state level, right?

Thank you!
 

#2
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1. Perhaps, if the owner has basis in he stock and the stock has been held more than a year.
2. In a complete liquidation of a US Corp with a US shareholder, nothing is treated as a dividend
3. Virtually always - is there a reason for the question?
4. “C” Corp is a tax classification. So I’d say “yes”.
5. I don’t follow. In which state is the company incorporated?
Last edited by HenryDavid on 16-Jul-2021 6:43pm, edited 1 time in total.
 

#3
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Since it’s an LLC, the entity could dissolve for tax purposes only with a check-the-box election.

Form 966 may be required.
 

#4
Nilodop  
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He decides to close the business.. Did he sell or abandon the asses and did he pay the liabilities?

He has retained earnings on balance sheet and cash leftover.. Is cash the only asset? What's on the balance sheet?

1. Is liquidating the business and distributing the cash to himself the best way tax-wise?. Yes unless he plans to use the LLC/C corp. in some other way, such as a new business.

2. If the company has earnings and profits, will that impact the tax treatment of liquidating distribution?. Don't see how it would.

My understanding is that On shareholder level, capital gain/loss needs to be recognized by subtracting stock's basis from cash received. . Right unless 1244 applies or 1202 applies.

My confusion is that if there is earnings and profits remaining, will that cause some of the cash distribution be treated as dividend to shareholder?. Not in a complete liquidation.

3. Is stock always treated as capital asset?. Usually.

4. Is the tax treatment of c corp liquidation the same whether it is a corporation or llc taxed as c corp.? . No, it would differ if the LLC had been taxed as a a DRE, a partnership, or an S corp.

5. Also, the dissolution date for tax purpose is not the same as the date business dissolution procedures are finished on state level, right?. Dissolution date would be the same. Liquidation date might not be.
 

#5
Nilodop  
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Since it’s an LLC, the entity could dissolve for tax purposes only with a check-the-box election. . That would be a liquidation, not a dissolution.
 

#6
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I think “dissolve” may still be correct in the complete corporation - going - away context

Liquidation often used in reference to stock
 

#7
JR1  
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Either way, welcome to the land of the double tax. And now you know why C corps suck.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#8
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Thank you, everyone for the helpful guidance!
 

#9
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Nilodop wrote:He decides to close the business.. Did he sell or abandon the asses and did he pay the liabilities?

He has retained earnings on balance sheet and cash leftover.. Is cash the only asset? What's on the balance sheet?

1. Is liquidating the business and distributing the cash to himself the best way tax-wise?. Yes unless he plans to use the LLC/C corp. in some other way, such as a new business.

2. If the company has earnings and profits, will that impact the tax treatment of liquidating distribution?. Don't see how it would.

My understanding is that On shareholder level, capital gain/loss needs to be recognized by subtracting stock's basis from cash received. . Right unless 1244 applies or 1202 applies.

My confusion is that if there is earnings and profits remaining, will that cause some of the cash distribution be treated as dividend to shareholder?. Not in a complete liquidation.

3. Is stock always treated as capital asset?. Usually.

4. Is the tax treatment of c corp liquidation the same whether it is a corporation or llc taxed as c corp.? . No, it would differ if the LLC had been taxed as a a DRE, a partnership, or an S corp.

Can you elaborate how it is different for a c corp which used to be a DRE? Thanks!


5. Also, the dissolution date for tax purpose is not the same as the date business dissolution procedures are finished on state level, right?. Dissolution date would be the same. Liquidation date might not be.
 

#10
Nilodop  
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No I can't. You got me.
 


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