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 The General Utilities Doctrine was repealed in 1986 tax reform.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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive ?

repeal of the General Utilities doctrine in 1986, (14) taxpayers had the

REFORM OF CORPORATE DISTRIBUTIONS IN SUBCHAPTER C

The General Utilities doctrine was repealed by the Tax Reform Act of 1986, P.L.

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, named for the (1935) Supreme Court decision (1) allowing a corporation to distribute appreciated assets to shareholders without reporting a taxable gain, was once known as one of seven fundamental principles of American corporate taxation.

Who's afraid of the big bad tax-free liquidating distribution? Ideological debates on taxation and the repeal of General Utilities

(1.) 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. The LDR was also meant to prevent the losses of a subsidiary from being duplicated in the form of a parent's investment losses.

CONSOLIDATED RETURN DEVELOPMENTS

The avoidance of capital gains tax was based upon the General Utilities doctrine. Under the General Utilities doctrine, a corporation could avoid recognition of gain on the distribution of appreciated property to its shareholders.

The valuation discount for potential capital gains tax

99-514, as part of the repeal of the General Utilities doctrine. 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. As a result, corporations must recognize gain when they distribute appreciated assets to stockholders, regardless of whether they structure the transaction as a property dividend or as a stock redemption.

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

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