If you run your business as a C corporation and are ready to shut it down, you probably face the federal income tax issues that arise from a complete corporate liquidation.

This article explains the basic tax results for the corporation and its shareholder(s), like you.

Here goes.

“Complete Liquidation” Defined

For federal income tax purposes, a complete liquidation occurs when the corporation

ceases to be a going concern,

winds up its affairs and pays its debts, and

distributes its remaining assets to the shareholder(s).

For federal income tax purposes, distributions to shareholders in complete liquidation of a corporation mean one or more distributions in redemption of all the corporation’s stock pursuant to a plan.1

While you don’t need a formal written plan for distributions in complete liquidation, we strongly recommend having one because it

fixes the date that the liquidation process begins,

creates a dividing line between regular dividend distributions (if any) and liquidating distributions, and

shows (for liquidations that take more than one tax year to complete) when a series of liquidating distributions begins and ends.

Complete Corporate Liquidation Basics

You can accomplish a complete liquidation of a C corporation in three ... Log in to view full article.