The Portfolio also discusses the tax treatment of liquidations before the repeal of that doctrine. To view this Portfolio, take a free trial to Bloomberg BNA Tax & Accounting This Portfolio is available with a subscription to Bloomberg BNA Tax & Accounting, a comprehensive research solution including over 500 Tax Management Portfolios, practice tools, primary sources and timely news. THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles turns on whether there is an employment or noncompete agreement in effect at the time the intangibles are distributed.Without such an agreement, client goodwill attributable to the personal characteristics of a shareholder isn’t a property right belonging to, or transferable by, a firm.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.THE CRITICAL ISSUE FOR TAX PLANNING is whether the assets distributed are considered property under IRC code section 336 and whether the corporation owns them.
The tax consequences of distributions by an S corporation to a shareholder depend on the shareholder’s basis in the S corporation stock.
FREE TRIAL Tax Management Portfolio, Corporate Liquidations, No.
784-3rd, analyses the tax considerations in connection with the liquidation of a corporation. Evolution of the Tax Treatment of Corporate Liquidations B.
Because the income of S corporations is taxed to the owners when the income is earned, a mechanism is needed to ensure that the shareholder is not taxed again when the earnings are distributed.
This is done through a system of rules that track and adjust the shareholder’s stock basis.