
The Tax Consequences of Liquidating C Corporations
By Anthony DiosdiThe closing events of corporate lifetime invoke liquidation of the corporate enterprise. The Internal Revenue Code and regulations fail to provide a precise definition of the term liquidation. However, some guidance is provided by regulations providing that “[a] statute of liquidation exists when the corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders.” See Treas. Reg. Section 1.332-2(c). Thus, it is useful to think of liquidations as a process through which the corporation winds up its affairs and distributes remaining assets to its shareholders rather than a single event.A corporation may liquidate in one of two ways. After paying off creditors, it may distribute the assets…