Tax treatment liquidating distribution foreign passive investment

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Consequently, when a CFC sells stock of a lower-tier corporation, the U. shareholders of the CFC will have to include their share of the gain from the sale as subpart F income, which will be taxed immediately at ordinary income rates.

Pursuant to the “check-the-box” entity classification rules, a business entity that is not treated as a per se corporation is an “eligible entity” that may elect its classification for federal income tax purposes.

Distributions to Minority Shareholders and to Tax-Exempt 80% Distributees VI.

Tax Basis and Holding Period to Parent of Property Received in Liquidation of a Subsidiary VII.

As a result, the corporation shareholders would recognize gain on the liquidating distributions to the extent the fair market value of the corporation’s assets exceeds the basis of the shareholders’ shares.

Liquidations of Corporations Other than 80% Owned Corporate Subsidiaries IX. The Internal Revenue Code uses four tests to make this distinction: To prevent gamesmanship among related parties, Congress has added another layer of rules that must be analyzed to determine if a distribution is a redemption.These attribution rules provide that shares owned by a shareholder’s parents, children, and grandchildren (but not siblings) are considered to be owned by the shareholder.[11] Similarly, shares held by corporations, trusts, and partnerships are deemed to be owned by their shareholders beneficiaries, and partners, and vice versa.[12] As a result, shares held by these family members and entities are considered to be owned by the shareholder for purposes of determining whether the distribution qualifies as a redemption.An eligible entity with two or more members may elect to be classified as either a corporation or a partnership.An eligible entity with only one member may elect to be classified as either a corporation or a disregarded entity. 2009-41 provides that if certain requirements are met, an eligible entity may file a late classification election within 3 years and 75 days of the requested effective date of the election.

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