What happens when a C corporation distributes property?

If the corporation distributes property that has depreciated (i.e., property with a built-in loss), Code § 311(b) does not apply. Instead, the distribution is governed by the general nonrecognition rule of Code § 311(a), which prevent the corporation from recognizing loss on a transfer of depreciated property. Tax Consequences of Liquidation

When is a stock redemption considered a disproportionate distribution?

Substantially Disproportionate Distribution – If the shareholder’s voting interest is reduced by more than 20 percent andthe interest that the shareholder retains after the redemption is not a controlling interest, the distribution is treated as a stock redemption.[9]

Why are distributions from C corporations treated as redemptions?

On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A redemption allows the shareholder to offset his basis in a way that is not available with ordinary distributions, which only allow a basis offset if the corporation has no accumulated earnings and profits.

How are assets sold in a plan of liquidation taxed?

If the corporation distributes the assets to the shareholders in kind pursuant to a plan of liquidation, it is treated as having sold the assets to the shareholder for fair market value. If the corporation instead sells the assets and distributes the remaining cash to the shareholder, it is taxed on the sale.

How are C corporations taxed on appreciated property?

If the corporation distributes appreciated property, the corporation is taxed on the gain under Code § 311 (b). But that section only covers gain on distributions of appreciated property. If the corporation distributes property that has depreciated (i.e., property with a built-in loss), Code § 311 (b) does not apply.

What happens when a shareholder assumes a liability?

Important Note: If a shareholder assumes a liability or takes property subject to a liability, the amount of the distribution is reduced by the amount of the liability. [4] Special rules also apply at the corporate level. [5] Special rules apply to distributions to a shareholder in exchange for the shareholder’s stock (redemptions).