Liquidating distributions c corporation

However, some of these deductible expenses can be reclassified by the IRS as taxable "constructive dividends" under certain conditions. The corporation itself does not recognize gain on a distribution of cash to its shareholders.

Rather, the shareholders are the ones who must be concerned with taxation.

Then, any amount in excess of the stockholder's adjusted basis will be treated as a capital gain from the sale or exchange of property.

Dividends A distribution from a corporation is included in a taxpayer's gross income to the extent that it constitutes a dividend.

A taxable dividend is defined as a distribution from current or accumulated earnings and profits (E&P) of the distributing corporation (computed at the end of the year).

Although distributions of cash or property to the shareholders will reduce the corporation's earnings and profits (E&P), such distributions will not reduce the corporation's taxable income.

The corporation pays tax on the taxable income, and the shareholders pay tax on dividends received.

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