Complete Liquidation

Occurs when a corporation acquires all of its

stock from all of its shareholders in exchange for
all of its net assets, after which time the
corporation ceases to do business

For tax purposes, Form 966 needs to be filed by

corporation in order to inform IRS of its intention
to liquidate its tax existence

Form should be filed within 30 days after the

owners resolve to liquidate the corporation
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Complete liquidation

For a non-corporate shareholder receiving

properties in a complete liquidation

The transaction is fully taxable

Recognize capital gain or loss

Capital gain is reduced by the amount of liability

assumed by shareholders

Tax basis = FMV of property

2
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Adapted Examples 19-25/26

In a complete liquidation of 360 Air Corporation,
Ginny received cash of $43,000 in exchange for
her 10% ownership. Her tax basis in the stock is
$60,000. What is her capital gain or loss?
Al received land with FMV of $200,000 and cash of
$15,000 in exchange for his 50% ownership? Als
tax basis in his stock is 100,000. What is his
amount of capital gain or loss and his basis? What
if he assumes 50,000 debt on the land?
3
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Taxable and Tax-deferred Corporate

Acquisitions
When negotiating an acquisition, management of the
acquiring corporation must decide whether to acquire
assets or stock and what to use as consideration (equity,
debt and/or cash)to decide taxable or tax-deferred status

WCR is the target and SCR is the acquirer. Pam is the owner of
WCR.

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Taxable Acquisitions
Buyer can purchase either stock or assets from the seller
in exchange for cash
For the seller (target):

The seller recognizes gain/loss based on the exchange

For the buyer (acquirer):

The tax basis of the purchased assets will carry over from the
seller

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Tax-Deferred Acquisitions
Taxpayers reorganize a corporation in a tax-deferred manner
under 351
Type A Asset Acquisition

For example, SCR could acquire the assets and liabilities of WCR by
transferring SCR shares to Pam in exchange for her WCR stock,
and WCR would no longer exist.
Buyers shares are transferred to the owner of the target
corporation
The acquirer or target corporation no longer exists
The target corporation shareholders defer recognition of gain or loss
realized on the receipt of stock of the acquiring corporation.

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Type A Asset Acquisition

7
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Tax-Deferred Acquisitions

Type B Stock-for-Stock Reorganizations

Acquiring corporation must exchange solely voting stock

for stock of the target corporation

Acquiring corporation must control the target corporation

after the transaction (80% or more ownership)

Acquiring corporation takes a carryover tax basis in the

target corporation stock received in the exchange

For tax-deferred purpose, the target shareholders must

receive solely voting stock of the acquiring corporation

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Homework

36, 37 (a, b, c), 38 (a, b, c, d), 39 (a, b, c)

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