How much gain or loss does Neil recognize on this distribution?
This article explains the rulings and discusses proper accounting procedures for the transactions they highlight.
In addition, it supplements the examples in the rulings and offers some useful planning tips for CPAs (see box below for a summary).
The term “earnings and profits (E&P)” is the federal tax accounting version of financial accounting’s retained earnings.
Though similar in purpose, they are not the same amount.
When multiple properties are distributed, the corporation computes gain on an asset-by-asset basis (Rev. Gain attributable to capital assets and certain property used in a trade or business (Sec. Corporations generally report nonliquidating distributions to shareholders on Form 1099-DIV, Dividends and Distributions (Sec. has held his stock for three years, and his stock basis is $59,000. The corporation cannot afford to redeem the stock entirely for cash because its cash balance of $75,000 must be used primarily to service real estate debt.
However, the shareholders agree that does not care which tract of land he receives in redemption of his stock because he plans to sell the land immediately. Unfortunately, a corporation cannot recognize a tax loss on a nonliquidating distribution of depreciated property (i.e., where the property’s FMV is less than the adjusted basis).
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.
As LLCs increase in popularity, CPAs are confronted with complex tax issues, particularly when ownership of the LLC changes.
The IRS issued revenue rulings 99-5 and 99-6 to address issues surrounding the conversion of a single-member LLC to a multiple-member LLC and the conversion of a multiple-member LLC to a single owner entity.
oday, limited liability companies can be found everywhere.