A nonliquidating distribution
If the shareholder has sufficient stock basis, then a simple liquidating distribution of all of corporation’s assets will not result in a tax liability. B(a)(2), if a note is distributed, gain or loss shall result to the extent of the difference between the basis of the obligation and the fair market value of the obligation at the time of distribution. If the fair market value of the note is less than the value of the shareholder’s stock, less gain will be recognized in a nonliquidating distribution of the note than compared to a liquidating distribution.
The shareholder’s basis in the LLC, Inc., stock will be the purchase price of the stock. that it transferred to LLC, Inc., in exchange for the stock, exceeds the purchase price in the sale to shareholder. — As previously described, the contribution of the note will not result in gain being recognized by either LLC2, Inc., or the corporation. LLC3, Inc., will then elect to be treated as an S corporation.This information is essential because the tax liability of corporation and shareholder is based on the gain recognized from the liquidating distributions.In a typical transaction, the gain recognized, if any, is the difference between the basis (the cost) and the fair market value of the asset being sold or distributed.an S corporation is a small business corporation created through an I. In our hypothetical, we have an S corporation that owns a warehouse, a promissory note, and cash. tax election and is governed by subchapter S, unless contradicted by subchapter C or otherwise indicated. S corporations are advantageous to small businesses because the business itself is not subject to federal taxation (although, some states subject S corporations to taxation); only the S corporation shareholders are subject to federal taxation.