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collectively will be referred to as the loans to shareholder
accounts.
On audit respondent determined that petitioners had
unreported income from a capital gain of $50,227 they received as
a result of the liquidation of Mid-Nebraska. Respondent
calculated that net capital gain as follows:
Assets per balance sheet at dissolution:
Loans to shareholder $111,484
Net depreciable assets 816
Total assets $112,300
Less liabilities per balance sheet
at dissolution:
Accounts payable 28,898
Net liquidating dividend 83,402
Less basis in stock 33,175
Capital gain from liquidating
distribution 50,227
OPINION
Amounts distributed to a shareholder in complete liquidation
of a corporation are treated as full payment in exchange for the
stock of the corporation. See sec. 331(a)(1). The gain or loss
to a shareholder from a liquidating distribution is determined
under section 1001 by subtracting the cost or other basis of the
stock from the amount of the distribution. See sec. 331(c); sec.
1.331-1(b), Income Tax Regs. Where a corporation cancels a debt
owed to it by a shareholder in connection with a complete
liquidation, the amount of the debt is treated as a distribution
under section 331(a)(1). See Alexander v. Commissioner, 61 T.C.
278, 289 (1973) (citing Weisberger v. Commissioner, 29 B.T.A. 83
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