Liquidating distribution or dividend

Viewed from the other perspective, however, the framing of the various statutory provisions in our tax code relating to taxation of sale of assets may provoke controversy as to the proper theory upon which to proceed in taxing stockholders on the receipt of liquidating distribution.

For instance, in the recent Court of Tax Appeals (CTA) En Banc Case (1702), the Bureau of Internal Revenue (BIR) argued that the capital gains tax is a final tax on the presumed gain from the disposition of a property in exchange for shares of stock pursuant to Section 27 (D)(5) of our tax code.

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**** The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter.

Amounts above investors' cost basis are reported as capital gains, a taxable distribution.

Amounts below investors' cost basis are reported as capital losses.

Credit unions send this sort of distribution to their depositors when they are liquidated, as well.

Proceeds from a cash liquidation distribution can be either a non-taxable return of principal or a taxable distribution, depending upon whether or not the amount is more than the investors' cost basis in the stock.

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