Differences between liquidating and nonliquidating distribution

07 Jun

For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.

But do you really understand why you should never put real estate into a corporation?

However, in this case there would be a second tax at the shareholder level.

In that case the gain is income to the other shareholders as well, based on share ownership.

Of course, if the corporation should the asset and distributed the cash to the shareholder, the result would be the same.

Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.

However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.