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Unit 11: Tax Planning for Liquidation
Manpreet Kaur, Lovely Professional University
Unit 11: Tax Planning for Liquidation Notes
CONTENTS
Objectives
Introduction
11.1 Concept of Liquidation
11.1.1 Definition of Complete Liquidation
11.1.2 When is it Appropriate to Seek Liquidation of a Company?
11.1.3 Procedure for Liquidation
11.2 Tax Considerations in Liquidations
11.2.1 Affect of Appointment
11.2.2 Cessation of Trade
11.2.3 Income Tax Treatment upon Enterprise Liquidation
11.2.4 Tax Consequences of Liquidating a Subsidiary
11.3 Liquidating a corporation: How to Structure a Plan of Liquidation to Avoid
Unanticipated Tax Liabilities?
11.3.1 Distribution of Assets
11.3.2 Concerns of the Liquidating Corporation
11.3.3 Tax Treatment to the Shareholder
11.4 Tax Implications of Liquidating a Company
11.5 Summary
11.6 Keywords
11.7 Review Questions
11.8 Further Readings
Objectives
After studying this unit, you will be able to:
Discuss the concept of liquidation
Describe tax considerations in liquidations
Explain liquidating a corporation
Elucidate tax implications of liquidating a company
Introduction
When companies go into liquidation, they need to do with the corporate Income Tax problems
related to liquidation income, liquidation income tax and dividend distribution. Liquidation
typically involves an adoption of a plan of liquidation, necessary local law notifications to various
interested parties, winding down of business operations, distributions of assets, and the eventual
dissolution of the corporate law shell. Sections 332 and 337 generally govern liquidations of
solvent, 80 percent (vote and value) controlled subsidiaries into their corporate shareholder.
These rules are widely understood to allow a tax-free transaction in which neither the corporate
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