Report cash liquidating distributions dating site glossary
In the cases discussed in this article, the Tax Court did not distinguish between personal service corporations, such as CPA firms, and commercial organizations, such as an ice cream distribution company, in identifying the individual ownership of customer-based intangibles.
In planning for a liquidation of their professional practice or advising clients about the liquidation of a commercial organization, CPAs will find that the problems and the solutions are likely to be the same.
The intangible assets at issue included the corporation’s client base, client records and workpapers and goodwill (including going-concern value).
These intangibles, the IRS said, were corporate assets that had a specific value and when distributed to the shareholders in the liquidation, triggered taxable gains for both the corporation and the shareholders.
THE IRS SAYS DISTRIBUTIONS of customer-based intangibles to shareholders are taxable.
When a firm or corporation distributes to its shareholders all of its assets, both tangible and intangible, and ceases doing business, the IRS says there is a taxable distribution of its intangible goodwill.
Trade secrets, special processes, patents and proprietary information are among an employer’s protectable interests, but how noncompete provisions create an employer property right isn’t clear.
THE PRACTITIONER SHOULD ADVISE the client to terminate employment and noncompete agreements with shareholders before liquidation.
According to the IRS, when a corporation distributes “clients and customer-based intangibles” to its shareholders, IRC sections 331 and 336 apply; such intangibles include the corporation’s client base, client records, workpapers and goodwill (including going-concern value).There’s no doubt that a firm can distribute tangible property to its shareholders as a dividend, whether it liquidates or not.