Liquidating distributions c corporation
Separate elections cannot be made for separate blocks of stock. Now, let's refer to a corporation's use of the installment method itself.Suppose, for example, that a corporation sells its assets for cash and an installment note.For purposes of Subchapter S of the IRC, a “small business corporation” is a domestic corporation that meets certain statutory criteria.S Corporations are advantageous to small businesses because the business itself is not subject to federal taxation (although, some states subject S Corporations to taxation); only the S Corporation shareholders are subject to federal taxation.Wood Can accrual method taxpayers use the installment sale method?Some of the answer to that question depends on timing.Moreover, the repeal was retroactive, surely adding insult to injury. After some debate about the use of installment method and why it was important, Congress reinstated this Code provision in the Installment Tax Correction Act of 2000.
Still, the use of the installment notes distributed by the corporation to shareholders helps manage this second level of tax.
Section 453(h) allows a shareholder who receives certain installment notes in exchange for stock in a Section 331 liquidation to treat the receipt of the payments under the note (rather than the receipt of the note) as payment for the stock.
Of course, this doesn't ameliorate the sting of General Utilities repeal.
That subsection permits shareholders who receive qualified installment notes in otherwise taxable complete liquidations to use the installment method. Section 453(h) of the Code is an important provision, at least if one has to deal with gain recognition.
Since the General Utilities doctrine was repealed back in 1986, installment sales have helped shareholders to manage their personal level of gain recognition.