Liquidating a company capital gains
When a firm or corporation distributes to its shareholders all of its assets, both tangible and intangible, and ceases doing business, the IRS says there is a taxable distribution of its intangible goodwill.
THE CRITICAL ISSUE FOR TAX PLANNING is whether the assets distributed are considered property under IRC code section 336 and whether the corporation owns them.
But for tax purposes, the defining line can make a big difference.In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.The company was “administratively dissolved” some time after, for example, effective January 25, 2008, due to its failure to timely pay state franchise taxes.THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles turns on whether there is an employment or noncompete agreement in effect at the time the intangibles are distributed.Without such an agreement, client goodwill attributable to the personal characteristics of a shareholder isn’t a property right belonging to, or transferable by, a firm.
Further, shareholders are permitted to recover their entire basis in a block before reporting gain. More to the point, notwithstanding the dissolution and reincorporation, no new corporation is deemed to come into existence so the corporate taxpayer is not required to apply for a new Employer Identification Number.