Collapsible Corporation

Collapsible Corporation

Collapsible Corporation means:
a business entity (like a corporation or company) dissolved before realizing a substantial portion of the taxable income to be derived from the property. The U.S. Internal Revenue Service treats gain on the sale or liquidation of the corporation as ordinary income to the stockholder. Former IRC (check if this IRC provision is current here) §341(b).

Example of Collapsible Corporation:

Learn more about tax examples, explanations and calculations here.

Jane forms a business entity (like a corporation or company) and is the sole stockholder. The corporation builds 50 houses and estimates that each is worth $10,000 more than it costs. Jane liquidates the corporation and claims a $500,000 capital gain on the corporate stock. The U.S. Internal Revenue Service (IRS) claims the gain is ordinary income because of the existence of a collapsible corporation.

See also Capital Gain in the American Legal Encyclopedia and Capital Gain in the World Legal Encyclopedia.


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