Liquidating distribution or dividend

When a company goes out of business and its assets are liquidated, the firm either issues non-cash liquidating distributions, cash liquidating distributions, or both.The distributions are returned to investors per the capital structure of the business.One of the reasons is that the conveyance of real property as a result of a valid dissolution is without any consideration.In sum, the CTA decision followed the justification of the 2008 SC decision.Viewed from the other perspective, however, the framing of the various statutory provisions in our tax code relating to taxation of sale of assets may provoke controversy as to the proper theory upon which to proceed in taxing stockholders on the receipt of liquidating distribution.For instance, in the recent Court of Tax Appeals (CTA) En Banc Case (1702), the Bureau of Internal Revenue (BIR) argued that the capital gains tax is a final tax on the presumed gain from the disposition of a property in exchange for shares of stock pursuant to Section 27 (D)(5) of our tax code.

Distributions to investors up to their cost basis—the amount invested, including commissions and fees—in the stock is considered a non-taxable return of principal.Amounts above investors' cost basis are reported as capital gains, a taxable distribution.Amounts below investors' cost basis are reported as capital losses.Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice.A cash liquidation distribution, also known as a liquidating dividend, is the amount of capital returned to the investor or business owner when a corporation is partially or fully liquidated.

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