Instead, the liability reduces the amount realized by the shareholder.

Observation: Distributions in partial liquidation of a corporation must be made in the year the plan is adopted or in the subsequent year. The liquidation should be completed as quickly as possible to ensure sale or exchange treatment (as opposed to possible dividend treatment if the corporation has E&P) for the liquidating distributions. Finally, it may be desirable to avoid a lengthy liquidation period to minimize exposure to double taxation and to avoid Sec. When a shareholder holds several blocks of the same class of stock (acquired at different times and at different prices) and several distributions are made in complete liquidation, each distribution is allocated among the different blocks in proportion to the number of shares in each block (Rev. Generally, a loss cannot be recognized until the tax year in which the final distribution is received. The normal period for assessment of tax is three years from the date the return is filed.

No such requirement exists for distributions made in a complete liquidation of a corporation. The IRS indicates it will normally not issue a ruling or determination letter on the tax effects of a corporate liquidation accomplished through a series of distributions made over a period in excess of three years from adoption of the plan of liquidation (Rev. 541 personal holding corporation (PHC) status for the corporation after the assets are sold. However, there have been some exceptions to this rule (e.g., in the year the last substantial distribution was made because the amount of the final distribution was then determinable with reasonable certainty) (Rev. A corporation can accelerate the period in which the IRS can assess tax by requesting a prompt assessment of tax (Sec. Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), is used to request a prompt assessment.

There is also a new tax that applies beginning in 2013, the so-called Medicare surtax, which is a 3.8% tax on “net investment income.” Net investment income generally includes (a) interest, dividends, annuities, royalties and rents, (b) gains attributable to the disposition of property and (c) income and gains from a trade or business, but only if such trade or business is a passive activity with respect to the taxpayer or involves trading in financial instruments or commodities.

For individuals, the surtax applies to the lesser of net investment income and the excess of modified adjusted gross income (AGI) over $200,000 (or $250,000 if married filing jointly).

Beneficiaries will not be very happy if they or their trusts are forced to pay additional income taxes that could have been avoided with a little planning on the fiduciary’s part.

The top tax rate on ordinary income has increased from 35% to 39.6%.

331 when they receive the liquidation proceeds in exchange for their stock.

If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.

For estates and trusts, the surtax applies to the lesser of undistributed net investment income and the excess of AGI over the threshold for the highest income tax bracket (,950 in 2013).