[Peter]

Hello! My question is regarding when a C corporation liquidates and distributes assets to shareholders (rather than the corp selling assets upon liquidation). I understand that the corporation has to recognize taxable income/loss from FMV less the basis of the assets, but am not sure I fully understand the shareholder tax in this case. My Becker book says that they recognize a gain/loss based on the FMV of assets received over their stock basis. Am I understand correctly that this is prior to the shareholders selling the assets? i.e. they have to pay a tax whether they sell the assets upon receiving or not?

If this is true, then what does their basis become in those assets they are now holding? I would think it would be the FMV at the time they received the assets, since they realized gain or loss up to that amount. Can someone let me know if my thought process on this is correct? Thanks!

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[jenpen]

I believe you are right, Peter. Since it is a liquidating distribution, then they have to pay the tax on the gain/loss, and their basis in the asset is then the FMV.

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[Author]

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