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.

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 The General Utilities Doctrine was repealed in 1986 tax reform.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