Which type of shareholder qualifies for capital gain treatment on distributions received during a partial liquidation?
Understand the Problem
The question asks which type of shareholder (corporate vs. non-corporate, and majority vs. minority) is eligible for capital gains treatment on distributions received during a partial liquidation of a company. It requires knowledge of corporate tax law regarding partial liquidations and shareholder treatment.
Answer
Shareholders who hold stock as a capital asset qualify for capital gain treatment on distributions received during a partial liquidation.
Shareholders who hold stock as a capital asset in their hands and receive distributions during a partial liquidation qualify for capital gain treatment. The holding period of the stock determines whether the gain is classified as long-term or short-term capital gain.
Answer for screen readers
Shareholders who hold stock as a capital asset in their hands and receive distributions during a partial liquidation qualify for capital gain treatment. The holding period of the stock determines whether the gain is classified as long-term or short-term capital gain.
More Information
A partial liquidation involves a corporation distributing assets to its shareholders, often resulting from a significant contraction of the business. The tax treatment of these distributions is determined at the shareholder level.
Tips
It is a common mistake to assume all liquidations are taxed the same. Partial liquidations have specific requirements that must be met to qualify for capital gains treatment.
Sources
- Understanding the Tax Consequences of Liquidation to an S ... - thetaxadviser.com
- Determining Tax Consequences of Corporate Liquidation to the ... - thetaxadviser.com
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