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Liquidating corporation

Immediately thereafter, T completes its liquidation by distributing to A its remaining cash of 0,000 (after payment of T's tax liabilities), accounts receivable of 0,000, and the million B note.A assumes T's 0,000 of unsecured liabilities and receives the distributed property subject to the obligation to make payments on the

Immediately thereafter, T completes its liquidation by distributing to A its remaining cash of $400,000 (after payment of T's tax liabilities), accounts receivable of $600,000, and the $4 million B note.A assumes T's $900,000 of unsecured liabilities and receives the distributed property subject to the obligation to make payments on the $1,100,000 underlying mortgage.These additions to basis do not affect the shareholder's holding period for the stock.

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Immediately thereafter, T completes its liquidation by distributing to A its remaining cash of $400,000 (after payment of T's tax liabilities), accounts receivable of $600,000, and the $4 million B note.

A assumes T's $900,000 of unsecured liabilities and receives the distributed property subject to the obligation to make payments on the $1,100,000 underlying mortgage.

,100,000 underlying mortgage.These additions to basis do not affect the shareholder's holding period for the stock.

The provisions of this paragraph (a) are illustrated by the following examples.

Except as otherwise provided, assume in each example that A, an individual who is a calendar-year taxpayer, owns all of the stock of T corporation. On February 1, 1998, T, an accrual method taxpayer, adopts a plan of complete liquidation that satisfies section 453(h)(1)(A) and immediately sells all of its assets to unrelated B corporation in a single transaction.

Except as specifically provided in section 453(h)(1)(C), a qualifying shareholder treats a qualifying installment obligation, for all purposes of the Internal Revenue Code, as if the obligation is received by the shareholder from the person issuing the obligation in exchange for the shareholder's stock in the liquidating corporation.

For example, if the stock of a corporation that is liquidating is traded on an established securities market, an installment obligation distributed to a shareholder of the corporation in exchange for the shareholder's stock does not qualify for installment reporting pursuant to section 453(k)(2).

Under § 1.1275-1(b), the adjusted issue price of the obligation on that date is $2,388,188 (original issue price of $2,368,450 plus accrued original issue discount of $19,738).

Accordingly, the issue price of the obligation under paragraph (a)(2)(ii)(A) of this section is ,463,188, the sum of the adjusted issue price of the obligation on that date (,388,188) and the amount of accrued but unpaid qualified stated interest (,000).Under §§ 1.446-2(e)(1) and 1.1275-2(a), ,527 of the 0,000 payment is treated as a payment of the interest and original issue discount that accrued on the obligation from July 31, 1998, to January 31, 1999 (,000 of qualified stated interest and ,527 of original issue discount).The balance of the payment (,473) is treated as a payment of principal.For purposes of the preceding sentence, if the qualifying installment obligation is subject to § 1.446-2 (e.g., a debt instrument that has unstated interest under section 483), the adjusted issue price of the obligation is determined under § 1.446-2(c) and (d).If the qualifying installment obligation is a variable rate debt instrument (as defined in § 1.1275-5), the shareholder uses the equivalent fixed rate debt instrument (within the meaning of § 1.1275-5(e)(3)(ii)) constructed for the qualifying installment obligation as of the date the obligation was issued to the liquidating corporation to determine the accruals of original issue discount, if any, and interest on the obligation.The selling price and contract price of A's stock in T is ,463,188, and the gross profit is ,363,188 (,463,188 selling price less A's adjusted tax basis of 0,000).A's gross profit ratio is thus 96 percent (gross profit of ,363,188 divided by total contract price of ,463,188).Except as provided in section 453(h)(1)(C) (relating to installment sales of depreciable property to certain closely related persons), a qualifying shareholder (as defined in paragraph (b) of this section) who receives a qualifying installment obligation (as defined in paragraph (c) of this section) in a liquidation that satisfies section 453(h)(1)(A) treats the receipt of payments in respect of the obligation, rather than the receipt of the obligation itself, as a receipt of payment for the shareholder's stock.The shareholder reports the payments received on the installment method unless the shareholder elects otherwise in accordance with § 15a.453-1(d) of this chapter.Also assume that a semi-annual accrual period is used.Under § 1.1274-2, the issue price of the obligation on February 1, 1998, is ,368,450.

Comments Liquidating corporation