General Utilities Doctrine

General Utilities Doctrine

A former provision in U.S. tax law allowing a corporation to liquidate its assets at a profit and pass on the profit to its shareholders without paying a corporate tax. Shareholders, however, remained responsible for taxes on what amounted to a special dividend. The general utilities doctrine allowed shareholders to avoid double taxation in the liquidation of assets. It was abolished by the Tax Reform Act of 1986.

General Utilities Doctrine

An Internal Revenue Service provision that permits a firm to liquidate its assets at more than book value and to pass the proceeds of the liquidation through to stockholders without making the firm pay income taxes on the gains. Rather, stockholders receiving the distribution are required to report the gain (but not the entire liquidation) as income. The General Utilities Doctrine was repealed in 1986 tax reform. As a result of the repeal, any gain from liquidation is taxed twice: once to the liquidating firm and again to the stockholders.
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References in periodicals archive ?
The IRS issued more regulations in June that take aim at transactions that attempt to avoid the repeal of the General Utilities doctrine.
IRS prohibits corporations from circumventing gain on appreciated property using partnerships
Previously, the General Utilities doctrine had, with some exceptions, allowed a corporation to distribute appreciated property to its shareholders without recognizing gain.
Final regs. allow sec. 336(e) elections for S corps
The General Utilities doctrine reflects a tension that has existed throughout tax law history--that is, whether double taxation of corporate income is good policy.
Who's afraid of the big bad tax-free liquidating distribution? Ideological debates on taxation and the repeal of General Utilities
In general, two taxes are due under sections 336 and 301 of the Internal Revenue Code upon dissolution of a C corporation because of the repeal of the so-called General Utilities doctrine by Tax Reform Act of 1986.
Turning back the clock: taxpayers avoid general utilities repeal through rescission
The LDR was adopted in 1991 in order to prevent the investment adjustment system of the consolidated return regulations from circumventing the repeal of the General Utilities doctrine.
CONSOLIDATED RETURN DEVELOPMENTS
The avoidance of capital gains tax was based upon the General Utilities doctrine.
The valuation discount for potential capital gains tax
The General Utilities doctrine grew out of General Utilities 6.
Sec. 336(e) election regulations are issued
The Tax Reform Act of 1986 repealed the General Utilities doctrine by requiring corporate-level gain recognition on a corporation's sale or distribution of appreciated property, regardless of whether it occurs in a liquidating or non-liquidating context.
Rite Aid: a tough pill for the government to swallow
In 1986, Congress repealed the last element of the General Utilities doctrine.
Calculating gain on corporate distributions
It held that as a result of the repeal of the General Utilities doctrine, a tax liability upon liquidation or sale for built-in capital gains was not too speculative.
Taxpayers win in valuing stock of closely held companies
Under the 1986 act, the General Utilities doctrine was repealed, with a few exceptions: distributions in kind, sale of investment assets and the Section 1231 element as to assets used in a trade or business.
Section 331 liquidations
99-514, Congress repealed the General Utilities doctrine, which had allowed a C corporation to make a tax-free liquidating distribution to its shareholders prior to the sale of the company (General Utilities & Operating Co.
Recent amendment to sec. 1374 provides limited opportunity for S corps

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