As of 2010, the federal tax rate for long-term capital gains was 15 percent, a rate favorable to those whose stock increased in value after purchase.
Corporations, however, do not receive such favorable terms when selling assets. Cash paid to shareholders upon liquidation is also taxable.
Forming a C corporation was once the only way the owner of a small business could shield himself from the debts and liabilities of the company.
Other forms of ownership, such as limited liability partnerships, have replaced the traditional C corporation structure for many small businesses.
The anomaly is corporate dissolution without liquidation.
In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.
The company was “administratively dissolved” some time after, for example, effective January 25, 2008, due to its failure to timely pay state franchise taxes.
Company management, however, was blissfully unaware of this development and continued to file the business’s federal corporate income tax return and pay all federal income taxes.
However, loss on depreciated property is also recognized.
An S corporation is not a form of business organization.
A C corporation meeting the IRS qualifications may apply for S corporation status.
If you want to liquidate a C corporation and form an LLC, you should be aware that in most cases, the tax consequences will be negative.
The corporation must recognize a gain on any appreciated property.