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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.Eventually, company officers learned of their plight and reincorporated the business in the same state.Unfortunately, no clear-cut guidance exists regarding the period over which liquidating distributions can be made. Shareholders should maintain documentation that multiple distributions are liquidating distributions whenever multiple distributions are necessary (especially if they will span several tax years and, therefore, result in tax deferral). The request limits the time for assessing tax or beginning a court action to collect the tax to 18 months from the date the request is filed. One example of a situation when a request for prompt assessment might be appropriate is the liquidation of a corporation because of shareholder differences. Keller, and Robert Popovitch, published by Thomson Tax & Accounting, Fort Worth, Texas, 2012 (800-323-8724; ppc.thomson.com).For example, a plan of liquidation documented in the corporate minutes could state that multiple liquidating distributions will occur and explain the business reasons for this. It does not extend the time in which an assessment can be made beyond three years from the date the return was filed (Regs. If the IRS assesses an additional tax liability after the assets have been divided among the shareholders, disagreements could arise regarding who is responsible for the deficiency. A type of payment made by a corporation to its shareholders during its partial or full liquidation.For the most part, such a distribution is made from the company's capital base, and as a return of capital, is typically not taxable for shareholders.A fine line exists between definitions of a corporate liquidation and dissolution.
When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.This distinguishes a liquidating dividend from regular dividends, which are issued from the company's operating profits or retained earnings. A liquidating dividend may be made in one or more installments. S., a corporation paying out liquidating dividends will issue to its shareholders a Form 1099-DIV showing the amount of the distribution.