Distributions, Redemptions & Liquidations

One-minute revision

• Shareholders want sale/exchange (basis recovery + capital gain), not dividend treatment
• §302 tests: complete termination, substantially disproportionate (<80% of prior % and <50% voting), not essentially equivalent to a dividend, partial liquidation
• §318 attribution (spouse, children, grandchildren, parents, entities) often defeats these tests in family corporations
• Complete liquidation: corporation recognizes gain and generally loss; shareholder has capital gain/loss
• §332: subsidiary liquidating into an 80% parent is tax-free, carryover basis
• Non-liquidating distribution of appreciated property → gain only, never loss