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Distributing Corporation has some assets that would produce…

Distributing Corporation has some assets...
Distributing Corporation has some assets that would produce a substantial gain if sold, and other assets that would produce a substantial loss if sold. Its goal is to transfer assets to its shareholders, but in a manner that would enable it to defer the gains, or at least deduct those losses againstthe gains. If Distributing Corporation asked your advice, what issues would you raise?
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6/23/2017
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,394
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Hi, my name is Mark. I would be happy to help you with your questions. Is this a C-Corporation?

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If assets that have increased in value are distributed to shareholders it would be treated as if the corporation sold the assets to the shareholders at their FMV. The corporation would recognize a gain on the transaction. The shareholder would receive a dividend up to the earnings and profits of the corporation. Any amount in excess of the earning and profits would be treated as a return of capital. If assets have decreased in value the corporation would not receive a deduction for the loss. The distribution would be at the FMV of the value of the asset. This would be treated as a dividend up to the earnings and profits of the corporation. Any amount in excess would be treated as a return of capital.

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Customer reply replied 8 months ago
it is a C Corp. When I get home. E I'll review your answer and give you a rating. Thank you for your quick response

It was my pleasure. If you have any additional questions or need clarification I would be happy to continue the conversation.

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Customer reply replied 8 months ago
Wondering what would be the issue or are the 3 things you mentioned are the issue for the distributing Corp.

You would need to consider the tax impact for both parties. The corporation would have an impact depending on what assets are distributed. If appreciated assets are distributed they would have a gain on the distribution. If assets that declined in value are distributed the corporation would lose out on the loss. One option would be for the corporation to sell these assets, take a loss, and distribute the cash to the shareholders. The cash distributed would be either a dividend or a return of capital depending on the earnings and profits of the corporations.

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Customer reply replied 8 months ago
Wow your good!!!

I have been dealing with taxes for too long.

Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
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Mark Taylor
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