Liquidation Distributions

Liquidation Distributions

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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The Court noted that although the partnership agreement had deficiencies with respect to the safe harbor provisions, it still had economic effect because the provisions of the local state Uniform Limited Partnership Act would apply to require that liquidation distributions be made in accordance with the capital account balance and no partner would bear more than his share of the economic costs of the special allocation because the taxpayers maintained positive capital account balances.
734 basis adjustment resulting from deferred liquidation distributions to a retiring partner or a deceased partner's successor is to be made at the time of the transaction or as the payments were made.
It would also effectively implement congressional intent in repealing the General Utilities doctrine by not only taxing corporate level gains on corporate liquidation distributions but also allowing the deduction for most losses at this level.