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Tax attributes of liquidating corporations

This difference is even greater when taking into account state taxation.

New Tax Law, Revenue Rulings, Filing Requirements, Phase-Outs, Dependency Rules; it's a lot to remember! has achieved the highest published satisfaction rating in the industry.

This article examines some of the issues corporations commonly encounter in complying with the built-in gains tax.

If a C corporation converts its tax status to a partnership or a disregarded entity, the resulting actual or deemed liquidation, in most cases, would be a taxable transaction for both the corporation and its shareholders.

Shareholders of most corporations are not taxed directly on corporate income, but must pay tax on dividends paid by the corporation.

However, shareholders of S corporations and mutual funds are taxed currently on corporate income, and do not pay tax on dividends.

the current uncertain economic environment, depressed asset values (especially in certain real estate markets), and historically low income tax rates on distributions to individuals (qualified dividends) from C corporations (which are scheduled to expire at the end of 2012) may present an opportunity to exit C status and its attendant double taxation at an acceptable current tax cost.

Tax advisers should be talking to their C corporation clients about the opportunities that now exist to avoid substantial future taxes.

However, when a corporation has converted its status from C corporation to S corporation or acquires assets from a C corporation in a tax-free transaction, it may be subject to a corporate-level “built-in gains” tax in addition to the tax imposed on its shareholders.