At issue is whether the company’s status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that “…where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved…” In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.If it is considered terminated, the company would have been viewed as having completely liquidated, and both it and its shareholders would have experienced the tax consequences attendant to the situation. In other words, in most cases, the liquidation of a corporation commonly engenders two levels of taxation: tax will be imposed at both the corporate and distributee shareholder levels.* The De Facto Company Closure A complete liquidation is not always accompanied by a formal or legal company shutdown. Thus, unless dissolution brings about an automatic transfer of the corporation’s assets to its shareholders, the corporation, even though dissolved, continues its existence.In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.
The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.
Many S shareholders have two investments in the corporation - the investment in corporate stock and loans made to the corporation.
With respect to additional liquidating distributions, Delaware law requires that we pay or make provision to pay all of our liabilities and obligations, including contingent and conditional liabilities, claims that are subject to pending litigation involving the Company and certain claims that have not arisen or are unknown but that are likely to arise or become known in the future.
Uncertainties as to the amount of liabilities make it impossible to predict precisely amounts that will ultimately be available for distribution.
Distribution source and shareholders' basis for their corporate investment determine the tax consequences of distributions from S corporations.
The regulations being proposed under IRC Secs 13 provide the particulars of adjustments to stock basis and distributions to S corporation stockholders.
On July 28, 2014, we filed a Certificate of Dissolution with the Secretary of State of the State of Delaware and became a dissolved corporation.
As provided by law, we will remain in existence as a non-operating company for purposes of settling our affairs and closing our business, monetizing, disposing of and conveying our property, discharging our liabilities and distributing remaining assets to stockholders.
Company management, however, was blissfully unaware of this development and continued to file the business’s federal corporate income tax return and pay all federal income taxes.
Eventually, company officers learned of their plight and reincorporated the business in the same state.
The proposals list an ordering rule for the adjustment, either increases or decreases, of stock basis.