Ab liquidating corp
If property is distributed, the amount of the distribution is considered to be the property’s fair market value (FMV) (Sec. The tax attributes of the distribution are generally determined as if the distribution had been made in cash. The gain passes through to the shareholders and increases their basis in their stock.When appreciated property (property that has an FMV in excess of its adjusted basis) is distributed, gain is recognized in the same manner as if the S corporation had sold the property to the shareholders at its FMV (Sec. No loss is allowed, however, if the distributed property has an FMV that is less than the corporation’s tax basis in such property. 336, a loss can be recognized if the distribution is in liquidation of the corporation.) The shareholder’s basis in the distributed property is its FMV (Sec. , a gain of ,000 (FMV of ,000 less basis of zero) will be recognized at the corporate level.For these purposes, the term “related person” includes an S corporation and a shareholder who owns (directly or indirectly) more than 50% of its stock, as well as an S corporation and another corporation (C or S corporation) if the same persons own more than 50% of the stock of each corporation (Sec. However, this would reduce the shareholder’s future depreciation deductions because he or she would have to forgo depreciation on the nondepreciable portion. This case study has been adapted from , 24th Edition, by Andrew R. Landlords in particular are assessing rights under their respective leases.The Bankruptcy Code has special rules relating to leases, some of which benefit a landlord, but others that significantly limit a landlord’s rights.To summarize, distribution of the equipment to to recognize ordinary income of ,000.Distribution of an appreciated asset to a shareholder is treated at the corporate level as if it had been sold to her at its FMV.
To assume and assign the lease, any amounts past due under the lease must be cured by prompt payment, any other pecuniary damages must be satisfied and the assignee of the leased premises must provide the lessor with adequate assurance of the ability to perform the lease in the future.In many liquidating Chapter 11 retail bankruptcies, the debtor retains a lease broker to try to maximize the value of their leased property while at the same time limiting landlord’s claims arising from the breach of the lease caused by store closures.However, Bon Ton does not appear to have retained a real estate broker.The Tax Court ruled that the value of the property was 5 million, the amount the corporation would have received had it sold the property in its entirety to the shareholders at its FMV.
Even though the corporation in this case was a C corporation, the same premise should apply to an S corporation. Although there is no authority exactly on point, it appears that stock basis and AAA are reduced by the unrecognized loss when an S corporation distributes property having an adjusted basis that exceeds its FMV.Furthermore, since Distributions of appreciated property can cause tax at the corporate level if the corporation is subject to the built-in gains tax. Immediately after the transfer, the shareholders received interests in the limited partnership valued at a total of million.