Liquidating subsidiary ordinary or capital

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Witness the situation described in recent letter from the Internal Revenue Service (LTR 200806006, November 7, 2007), which addresses a seeming anomaly related to the tax code.

Eventually, company officers learned of their plight and reincorporated the business in the same state.A fine line exists between definitions of a corporate liquidation and dissolution.But for tax purposes, the defining line can make a big difference.The person appointed as liquidator, either by the company directors/shareholders or by the creditors, sells off the company's ASSETS for as much as they will realize.The proceeds of the sale are used to discharge any outstanding liabilities to the creditors of the company.

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