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Richard, Attorney
Category: Business Law
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Experience:  32 years of experience practicing law and a businessman.
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We are in the middle of dissolving our corporation and are

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We are in the middle of dissolving our corporation and are filing with the IRS Form 966. We are stuck on question 10 of the form which asks: "Section of the code under which the corporation is to be dissolved or liquidated".

We are totally liquidating the company with no assets or shares. I am wondering if we list Section 331 whether we will expose ourselves to any further tax liability. We filed our returns for the corporation which was closed in 2011 and are now formally dissolving the corporate entity.

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Hi there. You are correct in that you will need to list Section 331 as you are doing a complete liquidation of your company. The tax treatment of the shareholders is governed by the Section 331(a) of Code, which provides that amounts distributed in complete liquidation, "shall be treated as in full payment in exchange for the stock." In general, shareholders recognize: i) a gain if the net distributions of the surrendered stock is greater than the shareholder's adjusted basis in the stock; or ii) a loss if the net distribution is less than their adjusted basis in the stock surrendered in the transaction. Other than that, there is no additional tax liability resulting from the liquidation.

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