Liquidating distribution or dividend
In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.The company was “administratively dissolved” some time after, for example, effective January 25, 2008, due to its failure to timely pay state franchise taxes.At issue is whether the company’s status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that “…where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved…” In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.If it is considered terminated, the company would have been viewed as having completely liquidated, and both it and its shareholders would have experienced the tax consequences attendant to the situation. In other words, in most cases, the liquidation of a corporation commonly engenders two levels of taxation: tax will be imposed at both the corporate and distributee shareholder levels.* The De Facto Company Closure A complete liquidation is not always accompanied by a formal or legal company shutdown. Thus, unless dissolution brings about an automatic transfer of the corporation’s assets to its shareholders, the corporation, even though dissolved, continues its existence.A fine line exists between definitions of a corporate liquidation and dissolution.But for tax purposes, the defining line can make a big difference.As a result, you will not know the purchase or redemption price at the time you submit your purchase order or redemption request.The price at which your purchase is executed could be higher than our NAV per share at the time you submit your purchase order, and the price at which your redemption is executed could be lower than our NAV per share at the time you submit your redemption request.
The net asset value per share is shown as of the close of business on the date specified.In March 2014 I received a 1099-DIV from the company showing the cash in Block 8, and the value of the stock in Block 9.The "gain" on the sale was roughly 00 more than the original purchase price. You may not need to report this income, and in any even it is not reported as a dividend.Witness the situation described in recent letter from the Internal Revenue Service (LTR 200806006, November 7, 2007), which addresses a seeming anomaly related to the tax code.The anomaly is corporate dissolution without liquidation.