Before liquidating assets it may be helpful to consult your lawyer and accountant or other tax professional for assistance in planning the liquidation.Also, remember that if you are liquidating assets to satisfy creditors you may need to obtain their consent to do so.However, the IRS has stated that a shareholder that assumes such a liability will receive capital loss treatment when the liability is ultimately paid by the shareholder (Rev. The corporation recognizes gain or loss for the receivable when it distributes the receivable to the shareholder.The shareholder does not recognize and report additional income as it collects the receivable because the shareholder has already included this amount in its gain or loss computation when it received the liquidating distribution. The full amount (100%) of all distributions made after basis has been recovered are recognized as gain.
For example, a plan of liquidation documented in the corporate minutes could state that multiple liquidating distributions will occur and explain the business reasons for this. It does not extend the time in which an assessment can be made beyond three years from the date the return was filed (Regs. If the IRS assesses an additional tax liability after the assets have been divided among the shareholders, disagreements could arise regarding who is responsible for the deficiency. The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph. 331 for the difference between the FMV and the shareholder’s basis in the stock).As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal. The corporation is treated as selling the distributed assets for FMV to its shareholders, with the resulting corporate-level tax consequences.Keeping good records of the sale of your property will protect you in case you file for bankruptcy or a creditor later questions your asset liquidation process.You may also need this information for your tax returns.