Liquidation

Liquidation means:
a procedure in which shareholders surrender all of their shares in a corporation and receive, after all creditors are paid, their pro rata share of any remaining assets and accumulated earnings and profits. A company in liquidation is a company in the process of being dissolved or wound up, and its assets, if any, after payment of its debts, distributed to the shareholders. Liquidation is deemed to occur when a corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders. Liquidating distributions are taxable at both the corporate and the share-holder level. One exception (IRC (check if this IRC provision is current here) §332) allows a parent company owning at least 80% of a subsidiary company to liquidate the subsidiary with no gain or loss recognized for distributions to the parent.

Some provisions concerning liquidation are detailed in the following sections of the Internal Revenue Code:

• Section 331- Gain or loss to shareholders in complete liquidation.

• Section 332. Complete liquidation of subsidiaries.

• Section 334. Basis of property received in liquidation.

• Section 336. Gain or loss recognized on property received in complete liquidation.

• Section 33 7. Nonrecognition to parent in complete liquidation of subsidiary.

• Section 338. Treatment of certain stock purchases as asset acquisitions.