Pre-Liquidation Dividends
What You Need to Know
- Pre-liquidation dividends, if paid before a company's formal liquidation, may result in different tax outcomes depending on whether the dividend is treated separately from the liquidation process.
- Determining when a corporation has officially begun the liquidation process can be complex, especially if the decision to liquidate is subjective or involves multiple steps over time.
- A check-the-box (CTB) election, which allows a corporation to choose how it is classified for tax purposes, can further complicate the separation of dividends from liquidation, particularly if both occur close together.
- Recent IRS rulings suggest that under certain circumstances, a pre-liquidation dividend can be treated as a separate transaction, but companies should consider all steps and formalities involved to ensure compliance with relevant tax laws.
Read the full article here. Originally published in Thomson Reuters' Journal of Taxation.