Liquidating and non liquidating distributions

This return can be made in more than one distribution if a shareholder purchased blocks of stock over time, as opposed to making a one-time purchase.

Until or unless a shareholder recovers her total investment, the amount reported on a 1099-DIV is not considered taxable income.

Last week, proposed legislation was introduced to end the tax benefits derived from these transactions.

Targeted Transactions The transactions addressed by the proposed legislation typically involved a non-REIT corporation setting up a private REIT or mutual fund (sometimes for state tax planning purposes) in which it owned 80% or more of the equity.

After some 'seasoning," the non-REIT corporation would plan to liquidate the REIT.

For the next three years, the recipient corporation would not pay tax on the REIT's distributions, which continued to be eligible for the dividends paid deduction.

The proposed legislation introduced by the senior members of the tax-writing committees, and supported by the Treasury Department, would require all owners of a liquidating REIT to recognize the liquidating REIT's dividends as income, effective for distributions made after May 21, 1998. 2122 would not otherwise change the treatment of REIT distributions.

(Note that a REIT that receives liquidating dividends from another REIT could reduce its corporate tax liability by distributing the dividends to its own shareholders.) H. For example, the liquidating REIT would continue to not recognize gain on any distribution.

For tax purposes, the holding period begins on the day after the trade date.

Corporations can fold either by dissolution or complete liquidation.

Dissolution is an “administrative” termination of the corporation and while it is a usual first step, it doesn’t necessarily mean the corporation is folding.

Internal Revenue Service Form 1099-DIV, Dividends and Distributions, is a recordkeeping document that shows stock distributions received during the year.

While corporations most often issue 1099-DIVs to report stock dividend distributions, it can also be used to report nondividend distributions, including money a corporation returns to an investor during the liquidation process.

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