Liquidating dividend tax
For qualified small business stock acquired after September 27, 2010, and before January 1, 2014, the exclusion is 100%. 449, available at IRS.gov/irb/2009-06_IRB#NOT-2009-15. RICs can make an election to distribute any credits allowed to shareholders or beneficiaries.For purposes of the 75% and 100% exclusions, the acquisition date shall be the first day on which the stock was held by the taxpayer determined after the application of section 1223. Report tax credit bond credits distributed by a RIC or REIT on Form 1097-BTC. If a RIC or REIT distributes any credits with respect to its stock, the RIC or REIT must report the distributed credits that are treated as dividends on Form 1099-DIV.These include so-called "dividends" on deposit or on share accounts in cooperative banks, credit unions, domestic building and loan associations, domestic and federal savings and loan associations, and mutual savings banks. 231, available at IRS.gov/irb/2011-37_IRB#NOT-2011-64. If the foreign corporation does not meet either (1) or (2) above, then it may be treated as a qualified foreign corporation for any dividend paid by the corporation if the stock associated with the dividend paid is readily tradable on an established securities market in the United States. Report the dividends on Form 1099-DIV for the year preceding the January they are actually paid.For a list of income tax treaties of the United States that (a) are comprehensive, (b) include an information exchange program, and (c) have been determined by the Treasury Department to be satisfactory for this purpose, see Notice 2011-64, 2011-37 I. See sections 852(b)(7) and 857(b)(9) for RICs and REITs, respectively.If any part of the capital gain distribution reported in box 2a may qualify for this exclusion (taking into consideration the recipient's holding period), report the gain in box 2c, and furnish the recipient a statement that reports separately for each designated section 1202 gain the: If a RIC or REIT holds any qualified tax credit bonds, any interest that the RIC or REIT recognizes on the bonds is included in the RIC's or REIT's gross income. See Notice 2010-28, available at IRS.gov/irb/2010-15_IRB#NOT-2010-28. Trustees and middlemen must report the gross amount of dividend income attributable to a trust income holder (TIH) in the appropriate box on Form 1099-DIV, if that amount exceeds .If the trustee or middleman provides WHFIT information using the safe harbor rules in Treasury Regulations section 1.671-5(f)(1) or (g)(1), the trustee or middleman must determine the amounts reported on all Forms 1099 under section 1.671-5(f)(2) or (g)(2), as appropriate.Instead of being treated as dividends, redemptions are treated as a sale or exchange of the stock by the shareholder. The distinction can be important when the long-term capital gains rates (which apply to redemptions) are higher than the tax rates on dividends.Corporate shareholders may prefer that the distribution be treated as a dividend, allowing the corporation to take advantage of the special dividends-received deduction under Code § 243 (which allows the dividends to only be taxed once at the corporate level).
To the extent that a distribution is made from the corporation’s earnings and profits, it is taxed to the shareholder as a dividend. The portion of the distribution that is not considered a dividend is applied first to reduce the shareholder’s basis in the corporation’s stock. Any remaining portion is treated as gain from the sale or exchange of property (capital gain). Important Note: If a shareholder assumes a liability or takes property subject to a liability, the amount of the distribution is reduced by the amount of the liability. Special rules also apply at the corporate level. Special rules apply to distributions to a shareholder in exchange for the shareholder’s stock (redemptions).
Liquidation is a taxable event for both the shareholder and the corporation. Like the “Redemptions Not Equivalent to Dividends” test of I.
A corporation may liquidate by (a) paying off creditors and distributing the remaining assets in kind to the shareholders or (b) selling assets, paying off creditors, and distributing the remaining cash to the shareholders.
If the corporation distributes the assets to the shareholders in kind pursuant to a plan of liquidation, it is treated as having sold the assets to the shareholder for fair market value. If the corporation instead sells the assets and distributes the remaining cash to the shareholder, it is taxed on the sale. Likewise, the shareholder is treated as though the shareholders sold their stock to the corporation for the value of the assets or cash received. The shareholder’s basis in property received pursuant to a plan of liquidation is the fair market value of the property at the time of the distribution.  I.
To ease statement furnishing requirements, Copies 1, B, 2, and C have been made fillable on-line in a pdf format, available at IRS.gov/Form1099DIV.