It’s the final step in a corporate termination and the point at which IRS tax consequences start to apply.
Corporations in the process of a complete liquidation – either to terminate the business or change its structure to a non-corporate status -- are required by law to transfer all cash and property assets back to shareholders as payment in full for the exchange of stock.
You made no other transactions involving Baker stock for the rest of 2005 and the first 30 days of 2006.
Your short sale is treated as a constructive sale of an appreciated financial position because a sale of your Baker stock on the date of the short sale would have resulted in a gain.
At the corporate level, a nonliquidating corporate distribution can also have varying tax consequences.
The distribution may have no tax effect, or it may trigger corporate-level capital gain and/or ordinary income.
In that case, you must recognize gain as if the short sale were closed when the property became substantially worthless. Entering into a short sale may cause you to be treated as having made a constructive sale of property.
In that case, you will have to recognize gain on the date of the constructive sale.
The amount reported on a 1099-DIV represents the return of a shareholder’s investment.If the governing state allows dissolved corporations to retain assets, the corporation can continue to exist.Liquidation marks the point when a corporation has committed to closing its doors.The 1040 Edition Plus incorporates the Clients with Children and W-2/1099 Roadmap Fast Tax Facts with the 1040 Edition.Both Fast Tax Facts ( = Retail Value) are bound into the book and include information not found in the 1040 Edition.