A return of capital received because of a partial or complete liquidation (going out of business) of a corporation. The basis of the stock on which liquidation distributions are paid is reduced by the amount of the distributions. Any amount received in excess of basis in the stock is taxable. In a liquidation that results in cancellation of the stock, a loss can be claimed the year the final distribution is received if total distributions are less than the taxpayer's basis. Report liquidation distributions on Schedule D, IRS Form 1040.
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