Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.

dividend entry liquidating-79

For complex returns, consult with a tax professional, such as a certified public accountant (CPA) or licensed attorney, as he can best address your individual needs.

Keep your tax records for at least seven years, to protect against the possibility of future audits.

As a result, the tax code allows for tax free mergers, or reorganizations.

While there are many different types, the common thread is that in exchange for acquiring a target company's assets or stock, the acquiring company provides its stock, and sometimes cash and other property, to the target company's shareholders.

Definition: A liquidating cash dividend is a distribution to that returns some of the original investment to the owners.

In other words, a liquidating cash distribution gives some of the investors’ investment back to them.

However, if the merger is for cash and stock, the target company's stockholders must recognize gain attributed to the transaction to the extent they received cash.

Their basis would be increased by the amount of gain they were taxed on.

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Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor.

In other words, this is a return on the investors’ investment in the company.