Liquidating and nonliquidating distribution
[ILLUSTRATION OMITTED] NONLIQUIDATING CORPORATE DISTRIBUTIONS are distributions of cash and/or property by a continuing corporation to its shareholders.
At the shareholder level, a nonliquidating corporate distribution can produce a variety of tax consequences, including taxable dividend treatment, capital gain or loss, or a reduction in stock basis.
This strategy would provide A with the $60,000 he wants in exchange for his stock ($5,000 cash $55,000 net equity in Tract 3).
Since all of A's shares would be redeemed, and because he is unrelated to the remaining shareholders, the redemption would qualify for stock sale (capital gain) treatment as a complete termination of a shareholder's interest under Sec. A's basis in the stock is $59,000, so he would recognize a $1,000 long-term capital gain from the redemption.
She would recognize a gain of $45,000 ($195,000 FMV of assets distributed to her less $150,000 basis in her redeemed shares) regardless of which corporate assets she receives.