To the extent that a distribution is made from the corporation’s earnings and profits, it is taxed to the shareholder as a dividend. The portion of the distribution that is not considered a dividend is applied first to reduce the shareholder’s basis in the corporation’s stock. Any remaining portion is treated as gain from the sale or exchange of property (capital gain). Important Note: If a shareholder assumes a liability or takes property subject to a liability, the amount of the distribution is reduced by the amount of the liability. Special rules also apply at the corporate level. Special rules apply to distributions to a shareholder in exchange for the shareholder’s stock (redemptions).
A corporation will not recognize any gain or loss on a distribution of cash to its shareholders. But if the corporation distributes appreciated property, the corporation must recognize gain as if the property were sold to the shareholder at fair market value. Important Note: These two rules operate as a loss disallowance system.
If the corporation distributes appreciated property, the corporation is taxed on the gain under Code § 311(b).
When property (rather than cash) is distributed, the amount of the dividend equals the fair market value (FMV) of the property on the date of the distribution, reduced by any liabilities assumed by the recipient or to which the property is subject (Sec. In addition, as is the case with cash dividends, the distribution must be from current or accumulated E&P to be classified as a dividend.
The recipient shareholder's basis in appreciated property received in a distribution equals the property's FMV (Sec. The shareholder's holding period begins on the date of distribution. The regulations are designed to harmonize the tax treatment of economically similar transactions.
If the partnership distributes property -- anything other than cash and property treated as cash -- during its liquidation, it has no immediate tax effect.
Instead, gain or loss is delayed until you sell the property.
LLCs on the Web Business Filings Incorporated, is a comprehensive fee-based service that will help site visitors form an LLC in any of the 50 states.
The site includes free access to a wealth of information, including a glossary of terms, the answers to frequently asked LLC questions and detailed state-by-state incorporation procedures.
oday, limited liability companies can be found everywhere.